The Benefits of Offshoring
Cost and productivity benefits entice many businesses to move some of their resources, services and supply chains offshore. However, is this a practice which should now be reconsidered in the light of the events of the past few years?
The benefits of offshoring include reduced operational costs due to differences in real estate, business taxes, etc. Companies can also take advantage of a larger talent pool, often at a lower cost and on more flexible terms. Multi-national companies find offshoring makes it possible for them to cover longer hours of support due to time zone differences.
Offshoring increases choice, output (whether services or product-based) and profitability through supply chain cost savings and companies often operate on a just-in-time basis to maximise these savings.
However, is it still worth it?
Recent Supply Chain Issues
The seismic events of the past few years, namely Brexit, the global pandemic and the war in Ukraine, have disrupted global supply chains on a sometimes ruinous scale and cast doubt over the future benefits of offshoring.
In a survey by Make UK, 93% of companies that responded had experienced some form of disruption due to Covid (47% reported as major or catastrophic) and 87% had been adversely affected by Brexit (32% reported as major or catastrophic).
In terms of the pandemic, Freight costs are four times higher than they were pre-covid and are likely to continue at similar levels. Companies have shut down production at short notice due to outbreaks of the virus. Extra border checks, alongside an increase in paperwork, have increased the time it takes for goods to enter the UK. All this has spelled disaster for many. It has been particularly devastating for companies operating a just-in-time supply chain, as it’s affected their ability to fulfil orders and continue production reliably.
Is it time to reshore?
In response to the disruptions, increased costs, and effects on productivity, it’s hardly surprising that companies are exploring the prospect of reshoring – moving some, or all, of their company supply chain and services closer to home.
A further consideration making it more attractive to move company operations home is the environmental impact. Bringing operations home helps companies achieve their sustainability goals and reduce their carbon footprint.
Is this the end of offshoring?
According to the FT, three-quarters of companies have increased the number of British suppliers in the past 2 years and nearly half intend to further boost their UK supply base in the upcoming years as companies move towards a ‘just-in-case’ model.
Global pandemics are becoming more commonplace and as humans encroach further into areas usually reserved for wildlife, it’s reasonable to presume that virulent viruses such as Covid 19 will increase, some of them deadly and disruptive to global operations.
Perhaps it is time to consider moving back home.
The benefits of reshoring
Obviously, bringing supply chains and services back home reduces the risks pertaining to global disasters such as the pandemic and the war.
Reshoring could also mean companies have greater control over their supply chains, fewer import fees and reduced lead times, increasing their competitiveness.
Many larger companies have sustainability commitments and reshoring manufacturing and supply chain operations cuts down on the carbon footprint of business.
An increase in domestic supply chains will also help boost the UK economy and support the government’s levelling up and skills agenda. With more reliance on localised supply chains, there is likely to be a boost in training and technologies as companies need a skilled workforce and resources to support them.
How we can help
Decisions need to be made around which elements of business to reshore, based on costs, infrastructure, resources and competitive considerations such as flexibility and responsiveness. Risks need to be assessed in terms of environment, disruption, legislation, global economics and social issues. Operational plans need to be put in place. Reversing offshoring is no mean feat. Companies will need to engage experts who are skilled in change management, large operational development and people management. These individuals are hard to come by.
Working with Valtus, you can have access to our global network of interim managers. These are tried and tested professionals, with exceptional skills and experience in transforming companies and delivering results. We operate a tri-party management methodology, which means you also get the support of a Valtus Partner who helps keeps the project on track, delivers regular reports and sits in on meetings and interviews if required.
Valtus UK is perfectly positioned to help you change direction. Contact us to discuss how we can help transform your business.