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For many businesses the Far East has become the default location for manufacturing operations – but according to a 2014 survey by the UK Government the “offshoring” tide has slowed, and may even be in full reverse.

The survey1 showed that whilst 5% of UK SMEs engaged in offshoring activities, more than twice as many (11%) were engaged in on-shoring – bringing manufacturing from emerging economies such as China, back to the UK.

Testament to this, several of our current product developments are being designed for efficient manufacture on home soil in order to gain from some of the benefits outlined in the government survey. The top 4 reasons are:

  • Improving quality
  • Shortening lead-times
  • Supply chain strength and delivery performance
  • Reduced labour costs

That companies would cite reduced labour costs as a reason for moving from the Far East to Western Europe is surprising.  The underlying factors are a combination of rising labour rates in China, along with opportunities for smarter manufacture in the UK enabling a lower labour content in products built here.

Re-Shoring to alternative Low Cost economies

The last decade has seen rapid minimum wage rises in China: since 2011 the minimum wage in Shenzhen has risen 54%2.  It still has a way to go until it reaches Western levels, but at the current rate of increase Shenzhen would reach current UK levels by 2028. This phenomenon is driving companies in two directions: re-shoring and on-shoring.

Where the labour content of products is relatively fixed, companies have been re-shoring to alternative low-cost geographies like India, Vietnam and Cambodia.

On-Shoring with Smart Design & Process Investment

However, where smart design and process improvement can reduce the labour content of a product sufficiently to overcome the labour rate disparity, it becomes economical to on-shore production, bringing it closer to customers and end-users.

Whilst UK companies may have a reputation for failing to adequately invest in automation and process improvement (leading to historically low productivity3), a new breed of forward-thinking UK manufacturing firms is rising and will serve to further drive the on-shore manufacturing trend.

The new breed of forward-thinking UK firms

KMF, a precision sheet metal fabrication company based in Staffordshire, is a prime example of a company investing heavily in automated equipment to match the costs and capabilities of off-shore manufacturers.  This means they can offer their customers the quality and supply chain benefits cited in the 2014 survey – without those customers needing to invest in process improvement themselves.

Travers Wallet, Business Development Manager at KMF says:

“For our EU-based customers, the key decision driver other than cost is usually shipping time: local manufacture means clients don’t have to wait for parts to arrive by sea, only to find production needs are different to what was forecast 3 months ago.  However another big benefit is the ability to get in a car or plane and be with us in just a few hours, for example to set up a manufacture process, preview forecast volumes or discuss a new project together.  The cherry on the cake is our ability to support product development by providing production-quality prototypes: for our flexible manufacturing infrastructure, a prototype is simply a small production batch.”

Recent high-profile on-shoring examples illustrating the value of manufacturing close to either final assembly location, or end users (or both) include:

  • Raspberry Pi – whilst exclusively Far East manufacture was originally anticipated, the foundation found that by making minor modifications to the PCB to enhance automation compatibility, the credit-card sized computer could be manufactured cost-effectively at Sony’s UKTEC in South Wales4

  • CMG Technologies – the quality and cost effectiveness of CMG’s Metal Injection Moulding process in the UK has enabled Sears Seating, the world’s leading agricultural seating manufacturer, return production to the EU5

The Need for Smart Design

These examples demonstrate that bringing manufacturing nearer to end users is not only possible, but can make for good business.  They also show that this depends on smart design choices relating to the target manufacturing processes being taken early enough to enable the necessary efficiencies to be realised.

We’ve always advocated the importance of starting the design for manufacture activity early in the development process, and this can be done most effectively when the target manufacturing sites,  and their specific capabilities, are in view early on in the development process wherever they may be located.  The on-shoring trend demonstrates that smart design can enable wider choices in terms of production location, including bringing manufacture closer to end users.

As developing economies too invest in process improvement, smart design will become even more important as cost-effective manufacture in any geography will then depend upon it.  Likewise, we can expect manufacturing to increasingly take place locally to final assembly and end-users.  Ultimately, this should benefit both local economies and the environment.

References:

  1. https://www.gov.uk/government/publications/businesses-are-coming-back/businesses-are-coming-back
  2. http://www.china-briefing.com/news/2015/05/26/complete-guide-2015-minimum-wage-levels-across-china.html, compared with: http://www.china-briefing.com/news/2012/01/12/shenzhen-beijing-raise-minimum-wage-standards.html
  3. http://www.cranfield.ac.uk/about/events/listings/event-details/21266-uk-man-prod-white-paper.pdf
  4. http://www.wired.co.uk/news/archive/2012-12/05/uk-manufacturing
  5. http://www.industrytoday.co.uk/manufacturing/cmg-technologies-metal-injection-moulding-facilitates-reshoring-for-sears-seating-/35689


Images sourced from: KMF Precision Sheet Metal Manufacturing
www.kmf.co.uk/
 

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