Moving production or broadening supplier base
A survey by Make UK found that 42% of British manufacturing firms had increased their domestic supplier base in the last 24 months (up to the date of the study in early 2022). A similar proportion also said they planned to make further moves in this direction before 2024.
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Developing alternative routes or suppliers may be a solution. Some companies caught out by Covid-19 related lockdowns and supply issues have sought to increase their supplier base or develop the ability to flex production across sites. Some firms are adopting a dual-sourcing strategy. This is also being termed a “China-Plus-One”, or a “Plus One” strategy, whereby companies diversify their businesses to alternative destinations. Asian emerging economies like Vietnam, Indonesia and the Philippines are likely beneficiaries of firms diversifying their production from China.
A survey by Make UK found that 42% of British manufacturing firms had increased their domestic supplier base in the last 24 months (up to the date of the study in early 2022). A similar proportion also said they planned to make further moves in this direction before 2024.
There are alternative approaches or models for the relocation of supplier bases and they may be used along with a dual-sourcing strategy. There are nuances in the terminology but onshoring, reshoring, near-shoring, friend-shoring or ally-shoring are all different forms of relocation strategies, with firms choosing to partly or fully relocate business operations from previously offshored locations. Reshoring (also termed back-shoring) refers specifically to replacing previously offshored operations with domestic ones. Near-shoring, is the moving of operations closer to home, while friend-shoring or ally-shoring is the moving of operations for geopolitical reasons or a more favourable trading relationship.
As manufacturers move their facilities or add additional production bases, they also have the option to upgrade their facilities, automate more of their production and operations and invest in smart and green technology. Capital investment can help firms use space more efficiently and futureproof their business operations and supply chains. Firms looking to invest heavily in technology and automation will be less reliant on low-skilled, low-cost labour thus eroding any cost advantage from locating offshore. Protecting their intellectual property will also be important for firms investing in and developing technology, this may also factor into a relocation decision.
A relocating or diversifying of production bases will likely necessitate a change in the configuration of the supply chain.