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Industry looks to re-shore production in response to supply risks

14 August 2012

Manufacturers are bringing production back in-house and increasing their hunt for local supply capability in response to increased disruptions to international supply chains.

Ms Lee Hopley
Ms Lee Hopley

A survey from the Engineering Employers' Federation (EEF) highlights the globalised nature of manufacturing and its supply chains, a trend that has been on the increase in recent years. This brings the potential for disruptions to cause business continuity risks and the survey shows companies are now very alive to future threats to supply chain management with one third of companies viewing it as an issue of Board level attention.

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

According to the EEF, this could give a real window of opportunity to build manufacturing capacity in the UK and reverse some of the hollowing out of supply chains seen in past few decades. This would provide an important win – win for companies looking to increase control and visibility over key elements of the production process; and the economy, which needs this high value activity to generate sustainable growth.

Commenting, EEF chief economist, Ms Lee Hopley (pictured), said: “Supply chains have become increasingly globalised for manufacturers. This brings a range of benefits but there are risks attached when things go wrong. 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.

“This can also create opportunities to re-shore production and rebuild key manufacturing with companies bringing some production in-house and using local supply chains. We need to capitalise on this opportunity by removing obstacles for manufacturers looking to expand capacity or diversify into new areas and, by creating a business environment that pulls in every pound of vital investment to our economy."

Companies have reported damage to productivity, revenue and orders from a range of local, international and economic disruptions to their supply chains over the past two years. This has led a vast majority of manufacturers to assess where potential vulnerabilities might lie and take steps to shore up the resilience of their whole supply chain. Additional findings from the survey show:

- The average manufacturer has 190 suppliers, with one in five saying half their suppliers were 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 were 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 to improve supplier management.
- Companies also reported seeing benefits from these activities, including reduced costs and improved flexibility.
- As a result of recent disruptions, one third of companies sees supply chain management as a business critical issue worthy of board level attention whilst 60 percent of companies monitor their immediate suppliers.
- However, despite the potential risks to disruption the survey also showed that only 11 percent of companies monitor their entire supply chains and 16percent of companies do not monitor their suppliers at all.

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