In a recent article the head of Hornby, the model railway company, explained how paint production for its trains had been moved back to the UK from China. The main reason for this was that if there were any quality issues, they may take weeks to overcome with an overseas operation, something that could be disastrous for the business. Hornby is not alone in this — the furniture maker DFS has also moved a lot of its production of sofas back to the UK from Eastern Europe and even that old staple of student life, the Pot Noodle, is now going to be made in Leeds instead of in Asia.
It was interesting to read about why such diverse businesses felt the need to bring their production back to these shores. In the past decade, a lot of companies have thought unquestioningly that moving manufacturing to lower-cost territories was the only way to remain competitive globally. This mantra has gone unchallenged for a long time but it is now becoming clear that there are big downsides to relocating key areas of business to places thousands of miles away and with large differences in time zones and language. Obviously some businesses still thrive in relocating to new regions but for many, especially those with a high ‘added value’ proposition, the disadvantages can far outweigh those initial, tempting cost-savings.
Even in our high-tech world of micro manufacturing, the issue of overseas production has had an impact and I have had many discussions with potential and existing clients about the (perceived) higher cost of manufacturing in the UK. However, when one looks at the total cost of operations - including shipping costs, which can be significant – the benefits of off-shoring may not be all that clear-cut. Even if there is a top-level attraction to lower production costs, the underlying disadvantages could pose major headaches if there were any hiccups.
In making simple things like nuts and bolts there is probably not a big risk to having a factory overseas but when making complex, high added-value parts, especially for technically-demanding markets, there is significant merit in keeping suppliers close to home. Problems can often be avoided altogether because of the ease of communication but even if there are any issues, the resolution can be far simpler and quicker (and less costly) than chasing third party counterparts abroad. These are valuable benefits which should not be under-valued, particularly as production costs rise overseas and the cost differences with the UK market get smaller. Purely price-driven decisions can often misfire and one can end up paying far more than expected; the total value of the service being provided and the quality of the product should be valued, not just the price of production. Maybe Pot Noodles and micro components are not so different after all!