Offshoring complexities
10 February 2010
Often crises act as a catalyst in bringing about change and this recession may be causing some to re-think their supply chain strategies. It is against this context that the role offshoring plays in business practice is rising to the fore.
According to a recent survey by the EEF:
“…nearly two-thirds of companies are planning to re-evaluate their supply chain strategies as a direct consequence of the global recession.”
This is important as where products are manufactured can end up making a drastic difference in the overall price.
Anecdotally, everyone can give examples of situations they are aware of where offshoring manufacture has not delivered the cost savings it promised on the face of things. While the higher labour costs in the UK compared with those in developing countries may seem to entice production overseas, the reality can be much more complex.
The vital question is, where is the most appropriate place for a product to be manufactured? This requires an in-depth and thoughtful consideration of the product. Is the design stable? Is it IP sensitive? Is the demand likely to be constant? And where is its final destination? Furthermore, there needs to be an accurate understanding of the various options for manufacture, including local taxes, exchange rates and freight costs and times.
To make a decision requires the total landed cost of the product manufacture in various locations to be considered. Working out how to factor in complexities such as varying local work practices, and the impact of currency fluctuations is no easy task. Even the potential brand issues around failing to consider sustainability must be considered – what will be the impact on a local community of relocating jobs to another area and what will the environmental consequences be?
In an increasingly globalised environment, the question of what sets manufacturing in Britain apart is an ever important one. Looking at the nature of the sector there seems to be various key elements to it. For example, electronics manufacturing in the UK is largely high value, low volume production. This makes Britain an obvious choice for manufacture within certain sectors such as defence. It also means R&D is fundamental to growth.
Against the backdrop of fierce global competition, a central question that politicians should be asking as they formulate their policies for the election is, ‘What can set Britain apart as a location for manufacture?’ Alongside this, companies need to focus on effective supply chain management. Making the right decisions about where to manufacture is fundamental, but it is also increasingly complex. Ensuring staff are adequately equipped with supply chain management skills is imperative.
Later this year, Intellect and the Electronics Knowledge Transfer Network will be launching a guide designed to help companies make sure they have considered all the major factors, including those that are sometimes overlooked.
Offshoring literally offers a world of opportunity, but it also adds a layer of complexity. Developing the best business environment in this context requires high level supply chain management skills within companies, as well as sound public policy around tax and regulation to ensure that the UK is competitively placed to take advantage of what is on offer.
Ruth Porter, Programme Manager, Technology Markets, Intellect
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