East-West trade

Industrial reshoringI have been reading increasingly about reshoring production over the past couple of years. It seems that costs and limitations of offshore production have been increasing, and so the cost benefit has much reduced, companies are valuing shorter lead times, smoother cash flows and easier quality control that come from local manufacturing – if not UK then Europe-based.

The large order value demanded of Far East producers, coupled with long shipping times (or high air freight costs), communication difficulties (not just from language) and difficulties of ensuring speedy resolution of quality issues, have all become well known and irksome problems of supply from a long way away. Now it seems that the equation has become re-balanced such that the cost saving often no longer justifies taking on the problems.

Could this be the opportunity that UK industry has been looking for? It may take some time for UK and European manufacturers to gear up – although it seems many are already well placed to do so with lean systems in place, costs of automation coming down and more relaxed working practices the result of many years when only the fittest producers survived.

It looks likely that production within a one day round trip may yet prove the optimum. Where engineers, buyers, marketing and sales can all get together for a meeting and be back at their own office the next day and where goods can travel to their UK distribution centre within 24 or even 12 hours. Short geographic development and supply chains again reflect the need for people to work face to face and recognise that a meeting on site can get much more done in a few hours than weeks or months of e-mails or even online meeting. We are learning the hard way the limitations of e-mail and video conferencing.

Actually, the optimum mix of employment/production efficiency/cost/social benefit (recognised in the prosperity of a country/society as a whole) is once again moving in favour of small to medium local industries.

Clearly the big global corporates are also prospering but it is interesting to consider that a very significant re-balancing is taking place that could last some time – unless additive manufacturing overtakes us all!

More of that another time …

For some time there has been a question about east-west balance – which is to say “what will happen to the eastern economies when the west cannot afford to buy so much?”

Personally I think it will be a bit bumpy but these things have a way of finding their own equilibrium and that the Chinese and Indian consumers will pick up the slack where the USA and Europe drop off. So when we cannot afford to buy from China we will find that we can once again afford to make things ourselves – we are already strong in specialist niche and local/regional markets and the re-balancing of the forces of east-west trade will also provide an opportunity for UK manufacturing to sell to the eastern countries  if we are prepared to take it. Indeed China in particular is likely to positively encourage it as they find a need to reduce their own export/import inbalance.

I found this recently which makes interesting reading.