Offshoring goes into reverse

Natural disasters in Asia lead UK industry to rethink supply chains. UK manufacturers are starting to reverse the trend towards off-shoring and looking for suppliers nearer to home in response to supply chain disruption caused by natural disasters in Asia, especially the Japanese tsunami and Thai floods. Many have brought production back in-house. These are two of the findings of a recent survey by the manufacturers’ association, EEF.

The survey highlights recent economic events and natural disasters have had tangible impacts on revenue, orders and meeting customer requirements. As a result, companies are reviewing their value chain and supplier strategies. This has led to 40% of companies bringing production back in-house, whilst a quarter have increased their use of local suppliers.

“In recent years manufacturers have been hit by a host of unforeseen events, which has seriously tested their supply chain monitoring and business continuity planning ... with companies bringing some production in-house and using local supply chains,” said EEF chief economist Lee Hopley.

Chris McGloin, Airmic deputy chair and risk manager at Invensys the global engineering technology group, agrees that this is an important issue for the Board. “Supply chain management has always been a focus of attention. However these recent events demonstrate the importance of understanding the impact such disruptions to the supply chain can have on our business operations and how this in turn affects our customers.” This increasing focus provides opportunities for insurers to develop improved solutions to help companies address the risks, he says.

“Many companies need help in identifying and mapping their changing supply chain exposures. Also the residual risk, once identified, is often not adequately mitigated by existing insurance products. There is a real opportunity for insurers and brokers to develop better mapping tools and improved insurance policies to address this.”

Additional findings from the survey show:

• The average manufacturer has 190 suppliers, with one in five saying half their suppliers are located outside the UK.
• Around a quarter of manufacturers have seen an increase in the use of suppliers outside the UK in the past two years.
• The most significant impacts on companies from disruptions have been loss of orders and loss of revenue.
• Actions to improve supply chain resilience have included better inventory management, increasing collaboration and forward planning with suppliers and investment in IT.
• Companies reported other benefits from these activities, including lower costs and improved flexibility.
• One third of companies see supply chain management as a businesscritical issue worthy of board level attention, whilst 60% of companies monitor their immediate suppliers.
• Only 11% of companies monitor their entire supply chains; 16% do not monitor their suppliers at all.

Key Findings of the Report

• 82% of companies experience supply chain disrupted caused by recession, 60% by local factors

• 40% of companies have recently had a major supplier fail

• 33% of companies see supply chain risk as board-critical

• 40% of companies have brought some production back in-house

• 25% of companies have increased use of local suppliers