Could switching from 'just in time' to 'just in case' help cut costs and ease supply chain pressure? Bart Coppelmans, director industry solutions, global head of supply chain and logistics, HERE Technologies explains the benefits
Major geopolitical issues and Covid-19 have had huge detrimental impacts on strained global supply chains. Uncertainty still hangs over the sector, driven by rising fuel prices, soaring shipping costs and rolling lockdowns globally.
In response, more and more companies are embracing ‘nearshoring’, which involves producing items closer to home, and is a reversal of the decades-long trend of ‘offshoring’ manufacturing, often halfway across the world. This also links to ‘reshoring,’ where companies relocate production to their own nation.
Grabbing hold of these initiatives will allow the UK to both grow and adapt its supply chain capabilities.
The growth of ‘nearshoring’ and ‘reshoring’
The timing of these trends coincides with new pressures that businesses face. This has been accompanied by a shift away from ‘just in time’ supply chains, which were stretched and broken during the chaos of the pandemic. The business model relies on keeping inventories of stock extremely small and ordering when demand is high, via short-term contracts, to cut costs. For many years, it was the status quo of supply-side work.
Yet in 2022, amid continuing disruptions prompted by the pandemic, companies are shifting towards a ‘just in case’ approach with production located nearer to home, and companies holding more stock in case of further disruption. It marks a reversal of a long-standing trend where companies focused on cutting costs and reducing friction at the expense of flexibility. In this way, businesses are focusing on building resilience and responsiveness in the supply chain.
Faced with these pressures, British companies are becoming increasingly selective about suppliers, and opting for ones closer to home rather than nearshoring everything in one go. The move permeated across the UK economy; three-quarters of British manufacturers increased the number of British suppliers they use between 2020 and 2022.
Reducing the cost of shipping
For manufacturers beset by delays in components and materials caused by the pandemic, and the economic shocks which have followed it, this trend is not going away. Nearshoring also offers companies a chance to rely less on shipping goods by sea. The cost of shipping a 40-ft container to Europe from China has swung widely, leaping from around $1,500 in 2021 to up to $15,000 in January, according to Xeneta. Estimates show that by 2025, 16-26% of global production will move geographies thanks to reshoring or nearshoring.
How the UK manufacturing industry is reacting
Let’s take one example: Warings Furniture, a family-run British firm which imports, manufactures and supplies furniture to the hospitality industry in Britain, has begun nearshoring suppliers in response to soaring shipping costs. Founder Rachael Waring said that prices of shipping containers have been hiked by up to 10 times. The company has chosen suppliers closer to home, in the Mediterranean, as lockdowns in Shanghai have closed ports. With this move Warings Furniture realised reduced shipping costs and faster delivery.
Bharat Ahir, chief executive of supply chain management firm TwoEightOne, has seen the supply chain disruption leading to ‘exponential growth’ in products being produced in Turkey for the pan-European market. The benefits of ‘nearshoring’ are also being realised in the reduction of fuel consumption and carbon emissions – with far less shipping involved – when goods can reach markets faster and often by railway.
Creating shock-proof supply chains
Going forward, companies are likely to increase their use of both nearshoring and reshoring. The trend for just-in-time supply chains and a constant focus on costs is altering in favour of a more holistic view which values resilience. If shipping and diesel prices rise further, reshoring may become even more attractive to British companies. The increased uncertainty that we face globally will only grow the UK’s manufacturing base as the country leans towards stronger and more shock-proof supply chains.