IS LOCALISATION THE FUTURE OF THE SUPPLY CHAIN?

In our everyday operations, we speak to hundreds of business leaders about the challenges facing them both during the Coronavirus pandemic & Brexit. A core theme we are hearing is that the COVID-19 outbreak will have a lasting outcome on their supply chains, with many analysing risk management processes, resilience, and agility of their businesses.

With Brexit, some manufacturers are learning to rethink how they do business due to the changes in the imports and exports procedures, increased tariffs, and of course custom delays causing threats to the EMS Supply Chain.

A recent estimate has indicated, while most businesses closely monitor their Tier 1 suppliers, up to 60% of executives have little to no grasp on the locations and relationships in their supply chain beyond the Tier 1 level.

One thing that is clear when the pandemic is finally over, we still cannot expect business as usual but what we may see is UK & Ireland Manufacturers looking much closer to home.

The question is; Is it time for UK & Ireland Electronic Manufacturers to start embracing the benefits of localisation?

Is a change in focus needed?

Over many years, supply chain professionals have had a primary focus on reducing cost and prioritising profitability which has driven the increase in globalisation of supply chains and in particular, for many manufacturers, a significantly increased reliance on China and other low-cost regions.

With so many businesses disrupted if not crippled by restrictions and delays on the international movement of raw materials and components, businesses are starting to ask questions about the cost benefits of their reliance on a global vs more local supply networks.

The UK & Ireland is proving that its tradition of innovation and adaptability is still going strong, perhaps giving more businesses confidence in considering a supply chain localisation strategy.

 

 Is a localisation strategy the way forward?

While localisation of supply chains has the potential to increase manufacturing costs and consumer prices, it does offer some wider-reaching benefits such as increasing employment opportunities and tax revenues, which will be much needed as we come out of the crisis. It could also offer manufacturers tighter control of supplier standards leading to better product quality and higher levels of customer satisfaction.

It’s also easy to forget in the turbulence of the pandemic that most companies have been seeking ways to reduce their carbon footprint and localisation could be the answer to this with goods and components having far shorter distances to travel.

It is not reasonable to expect that fully localised supply chains will be able to meet all of the needs of a business, but shifting the balance away from globalisation could well provide security, environmental benefits, improve job prospects, grow skills, and increase resilience in these times of global uncertainty even helping the UK & Ireland economy spread away from service industries and back towards manufacturing.

 

The benefits of a localisation strategy:

  • Shortened Supply Chains due to raw materials being sourced locally.
  • Tighter control over suppliers could improve product quality and in turn increase customer satisfaction.
  • Companies may see an increase in their innovation, extending their existing manufacturing capabilities beyond their current primary industries.

 

A step forward…

Further investment in and utilisation of automation, IoT and intelligent technologies will, to a certain extent, support a more even playing field for UK & Irish suppliers, helping to reduce the labour cost content when considering low- cost country sourcing v localisation.

The focus for most companies understandably is survival but a long-term plan and strategy is required to release the full capability of the UK & Ireland manufacturing supply chain.

The great news is that the skills required to remodel supply chains exist in the UK & Ireland today.  Many of the highly experienced professionals who were responsible for driving low-cost sourcing and globalisation can switch those skills to look at how more local businesses, including SMEs and start-ups, can supply directly to OEMs.

The first stage is getting a strategy together and with many business leaders so busy managing the current challenges, it could be the perfect time to consider taking on an interim specialist who understands the market and can add value. Investing in the right people will be essential.

Now is a good time to make use of your networks and to seek out opportunities for collaborations with more local suppliers.

One thing for certain is, business as we know it has changed, and now more than ever supply chains need to adapt to survive.