Over the past few years the growth of globalisation has challenged logisticians to deal with the massive changes of moving from local to international supply chains. Why make components using expensive labour in Birmingham when they can be made using cheap labour in Beijing?
It is easy to forget the scale of the problem for many organisations – a few years ago I came across one company that miscalculated the additional working capital it would need when it moved its manufacturing to China and nearly bankrupted itself.
But all that pain is now a thing of the past. Or is it? New research commissioned by the Society of Motor Manufacturers and Traders has revealed that the majority of volume car manufacturers with UK plants want to source more of their components locally.
The reasons given for this include: a tactical shift to benefit from a favourable exchange rate; minimising the vulnerabilities and logistical costs associated with an extended supply chain; the attraction of the UK’s labour flexibility and positive industrial relations; and sourcing new technology for ultra-low carbon vehicles.
The report estimates that vehicle manufacturers’ UK pre-recession spend at the tier 1 level is around £7.34bn. Looking down the supply chain, the tier 1 component suppliers only spend around £2.6bn (pre-recession) in UK sourcing with the rest spent outside the UK. UK sourcing accounts for about one third to one fifth of total spend for UK vehicle and engine assembly.
The report highlights opportunities arising from the transition to a low-carbon economy, but it also lists some conventional technologies that manufacturers would like to source more of in the UK from basics such as sheet steel to hi-tech areas like electronic control units.
This all sounds like good news for UK manufacturers – though it is worth pointing out that there is a world of difference between a wish list and a firm order. And it goes without saying that any such move would throw up a whole new set of challenges for logisticians in creating supply chains that are resilient and flexible enough to cope with change on the scale and at the speed that the SMMT report implies will be required in the future.