Reshoring. A term not much used till this century, really, until the rush to China gathered pace in the first decade of the 2000s. In 2004, Airbus said it planned to further increase its procurement from China, raising it to $120 million a year by 2010, double the target the company already has for 2007 (Machinery: www.is.gd/osoqub). The benefits of overseas procurement were also highlighted. IMI said in 2004 that its 50% increase in product development over the last three years was supported by funds released by offshore manufacturing. But there wasn’t any choice but to join the exodus. Globalisation was no longer an option, but an imperative, said Boston Consulting Group the same year. The migration of sourcing, manufacturing, R&D, and service operations from high-cost countries (HCCs) to low-cost countries (LCCs) is well under way and is accelerating, it said. And A new report on the future of the UK aerospace supply chain of that same year said we’re increasingly losing out to low-cost countries in the race to supply machined components.
And it wasn’t just the large OEMs hot-footing it to the Middle Kingdom and elsewhere. Suppliers were at it, too (Machinery: www.is.gd/yufiye). Stockport-based Mini Gears was an early mover, having set up an operation in Shanghai with the aim of sourcing volume gears around 2003. Ely-based Shearline Precision Engineering and Techno Group were others that went looking for partners in China/Asia around the same time.
The momentum was clearly all one way at this time. In Machinery’s centenary issue of 2012, we quoted Chancellor Gordon Brown, who said in 2005: “The global economy is undergoing the most rapid and extensive transformation the world has ever seen – in pace of change, in scale of change, in impact of change.” China now produces a quarter of the world’s washing machines; 30% of its TVs; 50% of its cameras; 70% of all photocopiers; 90% of its toys, he pointed out.
In 2006, we noted that Chinese manufacturing had grown a staggering 12% every year between 1998 and 2002, and the country’s exports from outsourcing were expected to grow 45% over the next five years.
Warnings were being made about this rush, though. The Institute for Manufacturing said in its ‘Making the right things in the right places’ report of 2007 (Machinery: www.is.gd/ehacef) that “many firms are relying too heavily on short-term outsourcing and offshoring to countries such as India and China”.
So, today UK manufacturing is some 10% of GDP, but at the turn of the century was 20%, with it also driving a further 15% of GDP, according to professor Lord Kumar Battacharyya. His sentiment was echoed in a report of 2018 published by the Manufacturing Technologies Association (www.is.gd/wuvofe), which said: “The sector is responsible for 23% of UK GDP, well over double the figure that is routinely quoted and is responsible for 5 million more jobs than often thought.” But it is smaller, clearly.
To reshoring, though. We tackled the topic in 2013 (Machinery: www.is.gd/juside). Talk of reshoring had emerged in 2009, with Make UK (then EEF) releasing a survey that showed that about one in seven companies with production in a low labour cost economy had returned some of that activity to the UK in the previous two years. But the proportion of manufacturing companies with some production outside the UK grew from 32 to 42% between 2009 and 2012 – with about a quarter expecting that to increase moderately in the next two years. A mixed message, then.
In the same 2013 article, the trend towards product innovation and agile supply, and not merely low cost, was noted by Associate Parliamentary Manufacturing Group (APMG) manager Thomas Kohut. APMG was set up to encourage the exchange of knowledge and understanding between Parliament and the manufacturing industries. It had published a report on reshoring (www.is.gd/ejebay) in February 2013. The report’s summing up included this: “There is concern, however, that the decline in UK manufacturing over the past two decades has resulted in a perceived drought of adequate supply chains.” We will hear that echoed again later.
A government initiative of the day that was helping supply chain companies gear up, drawn along by partnering OEMs, was the Advanced Manufacturing Supply Chain Initiative (AMSCI), which had been launched in 2011. The scheme provided subsidies for capital investment, research and development and training for industrial projects involving collaborations across supply chains. The Society of Motor Manufacturers & Traders (SMMT) was making use of this scheme to build up the automotive supply chain on the back of car OEM investment of the time. (A similar one today operates for aerospace firms, SC21/Sharing in Growth).
As it happens, the automotive industry had been undertaking a proxy reshoring analysis via its local content studies. First started in 2009, reports in 2011 and 2015 followed. And that local content report appeared to indicate good news. The 2015 publication noted that the amount of value sourced by UK car manufacturers from UK suppliers had increased by five percentage points, from 36% in 2011 to 41% in 2015. It followed a November 2014 Automotive Council report (www.is.gd/sejufo) that highlighted ￡2bn-worth of opportunities for UK suppliers, with this adding to a ￡3bn figure identified the previous year. And in 2016, the SMMT launched its Automechanika exhibition, saying there was a ￡4bn opportunity on offer for UK suppliers, helpfully listing the components (www.is.gd/afohun). The opportunity has not been realised in any great part.
Government had climbed on board the reshoring train more explicitly in the meantime. In 2014, the Liberal Democrat/Conservatives coalition government launched the Reshore UK initiative (www.is.gd/ohalip) – “a new one-stop-shop service to help companies bring production back to the UK”. It was heralded by then Prime Minister David Cameron, but it didn’t survive too long.
Returning to that Machinery 2013 article again, we see the beginnings of what will become Reshoring UK. We will get to that in due course, but at this time the originating trade association, GTMA, is operating its Manufacturing Resource Centre (as it still does), talking to OEMs about the possibility of placing work with UK toolmakers and precision machinists, with this further supported by its Tooling Alliance - which sees Tier 1 companies approached to let them know they have identified a group of UK companies that will work closely together to take on some of the larger jobs that have previously been offshored.
But perhaps the volume level around reshoring has been turned up at this time because it is now possible to conceive it feasible. Says one precision machinist in the 2013 article: “An overseas price advantage of some 80% a decade ago has been progressively eroded to nearer 30%, but it is the realisation once again that the flexibility of local supply, quality issues, lead times, volume demands and much easier face-to-face personal contact is driving the change to return to UK suppliers.” The spokesperson didn’t know Covid-19 would put that to the test, of course, but industry has rather proved the point.
In 2016, Prime Minister Theresa May announced plans for a new Industrial Strategy. In December 2016, Machinery published an analysis of Industrial Strategies across the years and we said of the latest: “The image is clearly one of a more interventionist approach, often taken as code for government direction, cash support or even nationalisation.” (Machinery: www.is.gd/opofis.)
Now, since then the government has been preoccupied with Brexit and leadership – the latter settled, the former not - so official talk of reshoring diminished. But along the way, Brexit, especially a no-deal one, might be a spur to reshoring, some have suggested. The passing of the deadline to extend the transition period sees no-deal looming and the government is now making related announcements; one of those does have a reshoring flavour – the establishment of 10 freeports. “These zones reduce costs and bureaucracy, encouraging manufacturing businesses to set up or reshore,” said an official announcement on freeports last year (www.is.gd/ekupep). To say this is a new possibility once we are outside the EU is sadly not true, however. There are free ports in the EU and there were free ports in the UK until 2012, when UK legislation establishing them expired, says Full Fact (www.is.gd/iyasuk). But it is true that having them will avoid such situations as tariff inversion, where a finished product attracts lower EU tariffs than the raw material to make that finished product, so disincentivising manufacture of the finished article (see Rishi Sunak’s 2016 paper on free ports - www.is.gd/iniwuj - and also later).
The Covid-19 pandemic has clearly demonstrated the weaknesses of distributed supply chains, so the government has initiated ‘Project Defend’. The Financial Times reported on this in early June (www.is.gd/cozazo), saying the paper is “an internal exercise to ensure Britain retains access to critical goods while diversifying the country’s trading relationships”. And with the Ventilator Challenge UK initiative having drawn so heavily on UK suppliers (see Machinery, May/June 2020, p7 www.is.gd/juyome), those involved in that effort have been voicing their hope that this shows the strength of the UK supply base, one that will be positively exploited by OEMs through reshoring.
A strong geo-political element is also in play today, with China no longer being courted but rather now challenged by many countries, most importantly the USA. So, the reshoring volume knob has once again been twiddled clockwise.
Capitalising on this mood, through the lockdown there have been some online events put on by existing organisations, such as Reshoring UK and IARMA, to discuss and promote reshoring. Before we get to these, however, a reshoring group of companies has been formed by industry itself, following the collective Ventilator Challenge UK effort - UK Manufacturing Unite (Machinery: www.is.gd/oyikek) is the new grouping’s name.
This initiative broke cover at the beginning June (www.is.gd/elugum). Launched in response to the national effort to produce more critical medical components and essential equipment at home, it is created and run by manufacturers for manufacturers. The movement is urging more firms to come together to collaborate, share practice and find practical solutions for developing domestic supply chains.
Driven by PP Automation & Controls, its sales director, Garry Myatt, is also the new initiative’s collaboration director. In an interview with him on the Hone All blog (www.is.gd/evezuw), he said: “We’ve created a free platform that doesn’t cost you anything to register and gives you the ability to post your company profile, skills, good news stories and case studies. By sharing and collaborating through social media together, we can reach a much wider audience.
“You can add notices that you can provide help or post requests for when and how you need help. Every two weeks, all requests and offers of support get sent out via e-shot to all registered users.”
At launch in June, orders worth more than ￡600,000 were being celebrated “just by enabling people to talk to each other through the platform”. And Myatt added: “We’ve successfully retained within the UK massive orders that would have traditionally gone overseas, which helps increase both UK GDP and business growth in Britain.” There were 160+ members as of the end of July.
As it happens, PP Automation & Controls is already a member of the nine-member Manufacturing Assembly Network – MAN Group, a collective that traces its roots back to 2005 and who’s creation was supported by Accelerate funding (Machinery: www.is.gd/uhuwet), an automotive initiative of the time. MAN was brought together initially with the aim of producing a large assembly for the automotive sector but has long since broadened its scope. Members offer complementary, rather than competitive, services and the group boasts 2,000 employees across all the companies.
Common to all networks is that they must engage with the large OEMs and, probably more importantly, the large OEMs must engage with them. That latter point is underlined by GTMA CEO Julia Moore – GTMA drove the development of Reshoring UK (Machinery: www.is.gd/yuziwu) and Moore heads up its efforts. What Ventilator Challenge UK revealed was a whole world of subcontractors in the UK that OEMs have no direct knowledge of or contact with, she advises.
GTMA CEO Julia Moore - Ventilator Challenge UK revealed the strength of the UK's engineering SMEs
“The key thing is to get the primes, OEMs and Tier 1s involved in this [Reshoring UK]. The Covid-19 situation has shown them that they didn't know where the bottom of their supply chain in the UK is. That really has displayed the frailty of the supply chain. We don't expect that everything is going to come back [to the UK], we're not that naive, but we are saying to those manufacturers do consider dual sourcing. Something like this [Covid-19] is likely going to happen again. They need to, at least start to, put dual sourcing in place. And we've heard that companies are talking about that, that they see this as a situation that they can't be exposed for the future.” And outside of the immediate issue, she adds that we are continually experiencing global shocks, so dual sourcing has a wider need (interesting to note that the world has seen a growing number of epidemic events, amounting to approximately 200 events annually).
Reshoring UK is an initiative of some five years’ standing that has been developing an online supplier database over that time. Now, the key point about Reshoring UK is that it leverages existing trade associations, sector organisations and other groupings, some 26 at the moment. So, it is not recreating another network or group but building upon existing foundations that have existed, in some cases, for many 10s of years.
Reshoring UK is growing its membership, with new members prompted by recent events and the increased level of reshoring talk
These existing organisations know their membership base intimately, as Moore points out: “They've got the sustainability because they know whether they've still got that company in membership. They are responsible for maintaining that data, so the data up to date.”
Reshoring UK is a neutral platform. Any enquiries linked to suppliers are distributed to the supplier’s trade association – the link is always between the association and its member. A strength of a trade associations such as the GTMA is that it is able to create a supply chain or cluster group for an industry need from within its membership. No more so than recently. Says Moore: “Through our Medical Cluster of 100 companies, the GTMA was involved in early March, working with UCL on the CPAP ventilator in which our members were involved, proving SMEs are agile and can transfer their skills from automotive to medical manufacture. We received a letter of thanks from UCL, who we are still working with for the future.”
GTMA’s current Cluster Groups of Medical and Rail are likely to be expanded, with Nuclear and MOD. With small supply chain companies clearly of huge importance to large OEMs, GTMA’s CEO suggests that government consider ‘bottom-up supply chain rather than the top-down OEM’ support.
On Reshoring UK matters, she advises that recent joiners are Invest Northern Ireland, there’s a Wales connection too, with Scotland next up for a discussion. Away from the devolved governments, the Rail Industry Association and the Rail Forum Midlands, plus Farnborough Aerospace have or are expected to join, with other similar associations on the list of those to be contacted. Importantly, some of these have the primes and Tier 1s in their membership, which is what Reshoring UK needs, admits Moore, to bring the top and bottom of the supply chain together. “It’s no good if we can't get them [OEMs, primes] to actually use the Reshoring UK website and consider improving their supply chains.” But once there, the depth of the UK SME supply chain universe is clearly revealed.
She highlights, incidentally, that some of the recent joiners have been prompted by current events and talk of reshoring; there is greater power and resonance behind the organisation’s message that is seeing momentum build and Moore is able to engage with more organisations, now that the GTMA/Manufacturing Resource Centre has an additional resource in the form of recently joined Alan Arthur, chief technical officer.
The platform’s head hints at UK government contact that may lead to support for Reshoring UK’s efforts, while engagement has also been made with the Royal Academy of Engineering - which has just published a report (www.is.gd/ovomus) on the industrial supply chain response to the Covid-19 pandemic - to further push Reshoring UK’s message of its existence and capability. That report makes recommendations at large for the engineering profession to prepare supply chains to weather future disruptions - Reshoring UK is clearly one tool in the box that is ready to play its part.
Julia Moore was also a panellist in the IORMA ‘Reshoring – Manufacturing Locally’ online event held in July. IORMA is a Foresight Research Organisation concerned with future trends in Global Consumer Commerce and the impacts of evolving disruptive technologies.
Additional panellists included Roger Willison-Gray, corporate relations director, IORMA, who highlighted a rather more banal supply chain problem caused by Covid-19. Apparently, spare parts for domestic heating systems were in short supply - valves and small mechanical components for heating systems were just not available. He is a big Industry 4.0 advocate and suggests the use of technology to compete with the low-cost overseas suppliers that we have relied on. Do more with less; automate. Education and skills training to support that move were highlighted as crucial, however, by Beverly Nielsen, associate professor/director at IDEA Institute, the Institute for Design & Economic Acceleration, Birmingham City University.
Bringing a more high-profile product to the reshoring discussion was James Stephens, director global government & external affairs, Aston Martin Lagonda (AML), who also chairs an Automotive Council group concerned with regional activity. A small manufacturer of some 5,800 vehicles/annum, AML makes use of both licensed components from other larger auto firms and bespoke ones that have brand value made by smaller suppliers, often in the UK. Noting that a number of parts are no longer made in the UK and will not come back, instead he focused on what’s possible and the future. The majority of AML’s wheels are manufactured in Europe and Asia, for example, and “it's just too expensive to bring back”, he offers, adding: “So we should, in some respects, accept that we've lost that but look to the future, where we have our strengths.”
James Stephens, director global government & external affairs, Aston Martin Lagonda - we should focus on the UK's strengths
Mike Hawes, CEO of the Society of Motor Manufacturers and Traders (SMMT), speaking in another recent webinar, backed Stephens, saying that, particularly with respect to the Automotive Council report mentioned above on the reshoring opportunity: “Those opportunities are still there. We don't make probably 20-30% of the products that go into vehicles - we just don't have that industry.
“Famously, we make very few alloy wheels, yet we make 1.5 million vehicles. There's at least four of them on every vehicle, that's an opportunity. But to attract people here, you know, what we have seen is a consistent erosion of investment in automotive over the last three years. There's a bit of a spike because of one particular Land Rover investment, but that investment has gone down, because people are still sitting on their hands waiting to see whether the OEMs or the major manufacturers are going to be here for the long term [re Brexit and the final deal].” So, for the automotive sector there is still a bigger issue at play.
However, Reshoring UK’s Julia Moore, pointed out the flexibility of the country’s small SMEs in switching to making new-to-them engineered parts for the medical sector recently. “It is a very difficult message for us as associations to get through, that there is this layer of SMEs with the skills that still exist. And that's what reshoring is showing or is demonstrating, that there are companies that can undertake different processes within varying engineering requirements.”
AML’s Stephens said the scaling up required for small companies is a barrier. Yet he doesn’t rule out the sort of reshored manufacturing that mimics its V12 engine manufacture, which “is made in AML’s engine plant in Cologne” and so “there is no reasonable, rational reason why we couldn't look to do that type of manufacturing in the UK in the future. And we continue to look to the various opportunities”.
The future for the industry is electric, he is clear, though, adding that electric cars will need to be lighter, which is an area where we do have strength. “We have great strength in materials. We have great small businesses up and down the country that are supplying both aerospace and automotive, and they could supply both. What we need to do is invest in that and see these companies scale up and make these components in large volume. At the moment, it's only companies like Aston Martin Lagonda, McLaren and other luxurious or performance businesses that can afford to put those components [made in low volume] into their vehicles.”
More generally in the push towards electric, Stephens said: “We need to see support mechanisms for the supply chain, as well as the OEMs. If suppliers aren’t there, we can't buy from them. Get them here; either incentivise inward investment, whether it’s a big multinational battery manufacturer or a composite manufacturer, or we need a support mechanism in place to see an SME get a step on the ladder that allows them to supply a company like us, and we will be their route to market in small scale. If they can supply us, they can possibly go to JLR or Nissan. As an SME, you can’t knock on the door of such an OEM and say ‘can I supply you?’ The requirements to supply them in scale and quality are pretty aggressive, so we like to see ourselves, plus other small volume manufacturers like McLaren and Lotus, as that doorway into the automotive sector.”
But helping small companies is difficult for government, suggests Willison-Gray, who cites East Anglia LEP’s recovery plan that failed to touch small companies, focusing on the 3% of businesses that account for about 30% of economic activity. He did point up Derbyshire and Nottinghamshire LEP’s D2N2 initiative (www.d2n2lep.org) as a good example of SME engagement, however.
AML’s Stephens highlighted a weakness of the variation in regional incentives and strategies, however. “If we want a particular supplier to come into the UK, we'll work with our local LEP, of course, but if that supplier is someone we want to scale up but is in another geography in the UK, that geography may not necessarily see us or that company as a strategic part of its economic future and they won’t provide the funding. That’s why we need some sort of centralised strategic fund like AMSCI.” And currently, while there is automotive support from government for transition to electric, this is R&D funding, not supply chain development funding, he added.
Willison-Gray also highlighted another factor at work in the reshoring mix. A recent business project he was involved with concerned an electric bike – “the sexiest electric bike I've ever seen, it wouldn't be out of place with an Aston Martin badge on it”. Looking through the business plan, he saw that manufacturing would be in Nigeria. “I thought, that's odd, but when I looked into it, it's because of the trade tariffs on batteries from China. They can actually manufacture these things 30% cheaper in Lagos, but their market’s in the UK.” Perhaps the proposed free ports might make a difference in such cases.
So, what do we have? Is talk of reshoring different this time? Yes. The SME component supply sector has demonstrated its capability; OEMs, government and the public have clearly seen that – there can’t be many that don’t have awareness of the impact of distributed supply chains. There is a belief within SME manufacturing that reshoring might actually be possible and from that self-belief has sprung a new industry-initiated group that is already scoring success, while we already have an established initiative that has built connections, relationships and credibility, and continues to strive for greater success, building on existing industry groupings. That we have missing parts of the supply chain might not be such a massive issue, because we can bring existing engineering capability to bear on different products, as Ventilator Challenge UK showed. The issue of scaling up small suppliers is clearly identified as an issue, but we have national models in AMSCI and SC21 that have proved their worth. On the other hand, regional support, while helpful, could mean too many varying and competing priorities when a national view is required. Finally, geopolitics have changed. Obviously, we have Brexit, which is still under construction, and will affect the country and manufacturing, but that is a whole other article. We arrive, then, at a need for a national strategy containing some explicit aims, because the current reshoring momentum, however good it looks right now, requires collective focus and support.
Final word goes to AML’s Stephens on some of what is needed: “We need to factor in the Strengths, Weakness, Opportunities and Threats, a proper SWOT analysis, of what we can do as an industry and country. And in that we'll look at supply chains, technology, the business environment. We need low taxes, we need investment support funding, we need to make sure that we've identified those key supply chain opportunities and the key areas that we can develop in the next generation technologies.”
And specifically on UK-made parts, he concludes: “If the automotive industry is strategic, we need to make sure we can take those suppliers on that journey at the same time, otherwise, if we have a car industry here, they’ll be buying componentry from elsewhere, which is a missed opportunity for the UK.”