Opinion: Technology is fuelling a manufacturing revival

By Alastair Sorbie
15 Oct 2012 View Comments
Alastair Sorbie IFS

The announcement last month that the Raspberry Pi will be manufactured in the Sony plant in Wales is the latest example of the trend towards (re)locating in the UK. A recent study by the Engineering Employers’ Federation (EEF) reveals the scale of this change: close to 40 per cent of British companies surveyed have moved production back here.

The UK is now seen by many businesses as economically and physically a more sensible place for their manufacturing base than previously popular locations such as China. Recent economic changes and advances in business technology have been two important factors in the sea change that is invigorating the industry here.

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The business case for locating a manufacturing base in China in particular is not as compelling as it once was. Oil and freight, for example, continue to become more expensive, making a globe-spanning supply chain more costly in turn.

There is dramatic wage inflation in the East. In Shanghai, for instance, it’s no longer as cheap to manufacture and, in fact, China-based companies are outsourcing to the west of the country to save money. The UK’s large pool of available labour and very low wage inflation are becoming increasingly attractive.

The EEF report showed that the UK is seen as a safer place to manufacture, without the threat of natural disasters, like Japan’s 8.9-magnitude earthquake last year, which can have a devastating effect on supply chains. Firms are also wary of setting up in countries that have weaker worker rights or a greater risk of corporate espionage and patent infringement than the UK.

Historically, business technology, such as enterprise applications, played a key role in the initial move to the East. Among other things, these applications helped enable the successful, efficient operation of a complex and geographically extended supply chain by integrating IT systems and improving data visibility and accuracy.

In the new industrial revolution we’re now experiencing, business technology is just as fundamental. In the case of enterprise applications, those that have been developed to support business agility enable the rapid and seamless movement of operations back to the UK.

For example, applications that are quick to deploy, are offered “as-a-service”, and/or are built for mobile working all help support such large-scale relocation by giving speedy access to IT systems and related business functions from anywhere, anytime, on any device. They are just as useful for UK companies relocating here as they are for multinationals from abroad looking to set up a manufacturing base in this region.

Once in the UK, secure, easy access to business systems over the web, using mobile devices, is also a key enabler of the operation of a shorter, localised supply chain. For example, where it was once uneconomic (and arguably unwise in reputational terms) for very large organisations to partner with much smaller outfits on front-line activities, the latter can now integrate directly with the former’s corporate IT systems via mobile apps. We’re seeing this mainly in two areas at the moment, service provision and maintenance contracts, but expect the trend to encompass other areas over time.

Among other benefits, the increasingly collaborative networks described above reduce the complexity, costs and related administrative load that usually come when businesses of starkly different sizes work together. In allowing larger organisations to deploy their corporate processes and policies to their subcontractors, supply chain integration of this kind also ensures big businesses can retain their standards and identity even when using much smaller, local partners.

Of course, as economic and other conditions change, the decision to locate production in the UK will no doubt be hotly challenged in the coming years. Until that time, though, organisations choosing to manufacture here can reap all the rewards of a shorter, more flexible and more collaborative supply chain - benefits that may make the UK industry more resistant to the next turning of the tide.

Alastair Sorbie is CEO of Swedish enterprise software company IFS

 

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