Britain sees reshoring boost
from Covid and Brexit
If global logistics teaches anything it teaches us to expect the unexpected but can the unexpected consequences be pre-empted? Those logisticians who must deal with global risks should be familiar with the fact that lean operations are structured to create vulnerability owing to JIT practices that affect most of world trade. The numerous vulnerability risks were, nevertheless, deemed acceptable because of the wide production costs gap between those in developed countries and those in the Far East, in particular. In 2000, for example, costs in China were estimated at 31% cheaper than in the West. By 2012 that gap had closed to about 16%. Add in between 5% and 10% to account for distribution costs and the gap becomes much narrower to convince western importers that the outsourced lower production costs no longer justify the vulnerability and inflexibility of global supply chains, especially in view of the paradigm shift in consumer expectations detonated by online shopping. Seemingly, it took Covid 19 and pending Brexit to ram home that lesson.
The reshoring of production away from the Far East back to the West began falteringly about 10 years ago, fired by concerns over staggering intellectual property theft, poor quality, demands for large orders which imposed higher costs on importers and long delivery times, thus negating JIT principles. It is hardly surprising, therefore, that British importers, with retailers in the van, are moving to save up to £4.5 billion a year initially as the Corona virus and Brexit prompt businesses to bring home production. This figure has been mooted by Alvarez and Marsal and research group, Retail Economics, in a report which they believe will see UK-sourced rising orders largely in food and fashion clothes, but potentially including DIY products and homewares. Signs of the trend have already emerged with online fashion site Asos which will be making its new, lower-priced brand at approved factories in Leicester, and Ted Baker announcing its Made-in-Britain range this month.
Why EU suppliers face "interesting times"
The reasons have a familiar ring. Retail businesses are making changes after the Corona pandemic highlighted structural weaknesses in global supply chains, which can be slow to adapt to sudden increases or drops in demand caused by shock events or rapidly-changing consumer tastes. But there is a new worrying development for them ---the possibility of a no-deal Brexit which would see tariffs as high as 80% on some UK meat and dairy imports, 12% on clothing and 16% on footwear. Retailers, unsurprisingly, are now considering alternative options, something that ought to concentrate EU negotiators' minds because in the 2-way trade between the EU and the UK they have far more to lose in specific industries.
A good example of unilateral retailer action is the multi-billion pound pub group, J D Wetherspoon, which has banned French champagne from all its taverns and hotels. It also became clear that as the biggest consumer of Swedish-made cider, the producer felt it prudent to build a production factory in Britain. What all this means is that UK retailers call the most powerful shots, for they will not risk overpriced EU imports hitting their profits.
There is, however, more to the reshoring trend than overseas production costs. Seven in 10 of the retailers surveyed for the report said they had already started changing the way they sourced goods to meet green and ethical targets. Shipping goods half way around the world is a huge pollution concern, though the carbon neutral ships, particularly sail-powered, will diminish future pollution levels. The appalling human rights abuses in foreign countries have also heaped odium and embarrassment on UK fashion retailers, in particular.
At the grass roots level there are many encouraging reshoring moves. Jennifer Holloway, chief executive of Fashion Enter, said business was up over one third this year, citing retailers were looking for more responsible suppliers close to home after the pandemic uncertainties highlighted the inflexibility of shipping clothes from Asia. "It's commercial suicide to back long lead times stock at the moment. Retailers are cutting closer and closer to the season. There is no way I would have opened a factory in Wales unless I was certain there was a long-term trend in coming back to the UK. It's exciting.
Pollution is unacceptable
Meanwhile, Over Fifties fashion brand, David Nieper, is hiring 30 new dress makers and investing £4.5 million in a textile factory. The company's chief executive, Christopher Nieper, said: "Manufacturing in Britain makes business accountable and allows control over each step of the production process. Offshoring manufacturing is essentially offshoring responsibility and, indeed, pollution. Currently two thirds of emissions from UK clothing occur overseas. It's not acceptable to shift the problem overseas where it is out of sight and out of mind."
In Wales 71 former Laura Ashley sewers have returned to the clothing industry at a new factory in Powys where ethical supplier, Fashion Enter, is making clothes for Asos and has just landed a contract for online clothing specialist, N Brown, the owner of Simply Be.
The shift by retailers is only part of wider supply chain changes prompted by Covid and Brexit. Tony Haig, chief executive of PP Control and Automation, is part of the UK Manufacturing Unite Group* which offers a "dating service" for manufacturers to work together to bring production home. Started in response to the Covid ventilator challenge, the group now has 300 members. "It's not a short-term thing," he said. "It takes a lot of time and effort to move a supply chain back to the UK. You don't just do it for a few months."
*ukmfgunite.co.uk
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