Kearney: How Nearshoring is Reshaping Manufacturing

The UK manufacturing landscape is in the midst of a profound transformation, with procurement strategies experiencing a shift due to rising costs, supply chain disruptions and changing global trade dynamics. These factors are pushing businesses to reassess their operational and sourcing strategies for improved resilience and control.

According to research by Capgemini, companies are projected to inject US$650bn into reshoring initiatives over the next three years, highlighting a move towards bringing manufacturing activities closer to home.

This shift is not merely a fleeting response to current challenges but marks a permanent restructuring of UK manufacturers' approach to global supply chains.

Complex challenges for procurement teams

UK manufacturers are feeling the pressure of compounded challenges that have reshaped the cost-benefit analysis of global sourcing.

An increase in employer National Insurance contributions adds to ongoing strains from high energy costs and significant labour shortages.

These domestic pressures, in tandem with continuing supply chain uncertainties and what Nigel Pekenc, Partner at Kearney, calls "the overturning of decades of global trade norms," are prompting enterprises to delve into nearshoring strategies.

"These challenges are driving more businesses to explore nearshoring in its many varieties to improve control, reduce risk and respond faster to changing demand," Nigel notes.

This strategic shift reflects a broader understanding that traditional global supply chain models, though cost-efficient, often expose manufacturers to considerable operational risks.

Refining global procurement

Contrary to some suggestions that nearshoring could signal an end to globalisation, the reality is more nuanced.

Nigel stresses that nearshoring is "reshaping, rather than reversing, globalisation.". Manufacturers are not dismantling international networks, but refining their approach to enhance global linkages while increasing supply chain efficiency.

This transformation entails maintaining economies of scale in essential upstream processes while positioning more value-adding manufacturing stages closer to end markets. Such developments are further accelerated by inflation in traditionally lower-cost production locales as companies adapt from centralised large factories to smaller, more efficient units across diverse networks.

As Nigel elaborates, this model "is a practical way to stay flexible in the face of things like shifting demand and global uncertainty".

Nearshoring: Core to procurement strategies

For UK manufacturers, nearshoring is evolving from a mere contingency plan to becoming an integral component of operational strategies.

Nigel notes: "Nearshoring is moving from just a contingency plan to becoming a core part of how UK manufacturers structure their operations."

By shifting production stages like assembly or final manufacture closer to home, companies are significantly shortening lead times and weaving in the flexibility to swiftly respond to market disruptions.

The advantages go beyond simple proximity.

"Bringing operations closer to home also gives manufacturers greater oversight," continues Nigel. "It's easier to make large-scale product adjustments, coordinate with suppliers and maintain quality control."

He further highlights that, alongside the demand volatility and supply disruptions, re-engineering supply chains "offers a chance to build resilience through adaptability and closeness to market needs over the blunt instruments of stockpiling and supplier queue-jumping".

Moreover, there is a growing sustainability incentive influencing this transition. Reduced supply chains directly correlate with lower transport emissions, while UK regulations ensure alignment with ESG expectations.

Nigel reinforces that nearshoring doesn't replace offshoring, but complements it: "The complex global supply networks of geographic specialism and scale that have been built over past decades cannot be replaced or even simplified without pulling the rug from under the entire global economy."

Digital tools boosting efficiency

As demographic changes lead to a declining working-age population in developed countries, UK manufacturers face acute labour shortages, particularly in skilled trades and engineering roles.

This demographic reality necessitates the integration of automation, AI and advanced digital infrastructure into strategic procurement planning.

Nigel observes that businesses stuck with legacy systems are being "leapfrogged by newer supply chains that are built in integration with advanced digital visibility and control tools". The solution lies in significant capital investments in technologies designed to enhance productivity and efficiency.

Nigel further adds: "Many companies will need to invest heavily in capital intensive technologies to boost productivity – from vast data clean-up and plumbing exercises through to end-to-end supply chain visibility enhancements."

Looking forward, Nigel foresees that the "hype of AI" will eventually lead to supply chains that are data-enabled, AI-controlled and human-guided. This evolution is set to help bridge the gap left by workforce shortages while addressing the complexity of contemporary supply chain operations.