Manufacturers: Is your sourcing ‘near shoring strategy’ even nearly good enough?
25th February 2021
Our Service Offerings & Thought Leadership team are working closely with the University Of Bath and the students of the MSc in Operations, Logistics and Supply Chain management to investigate the trends driving changes and the common ways organisations are tackling them.
In a time of monumental shifts within the manufacturing sector, the UK automotive industry has seemingly been overlooked as one of the most vital sources of manufacturing employment in Britain, despite providing over 864,000 jobs across its supply chain network (SMMT, 2020). In addition to maintaining operations, minimising the impact of the pandemic on their workforce, procurement leaders within the UK’s automotive industry must navigate the minefield of new Brexit regulations which could compromise a manufacturer’s entire export operation if they fail to comply with new trade rules.
A Geopolitical Christmas Miracle
Following the UK and European Union successfully striking a trade deal in late December 2020, the industry can now begin to plan for a future without crippling geopolitical uncertainty. This new-found stability is exemplified by Nissan’s announcement of a long-term commitment to its Sunderland manufacturing plant, much to the relief of the 75,000 direct and indirect jobs associated with the plant’s supply chain.
However, for exports to qualify for zero tariffs, which are vital to the feasibility of global manufacturers like Nissan remaining in the UK, at least 55% of the export’s total value must be derived from within the UK or EU. Therefore, it is crucial that procurement leaders understand their component supply chains and pay close attention to the geographical location of where their key inputs are sourced. If too many components originate from outside of the UK and EU, the manufacturer will be burdened by hefty trade tariffs which will make the business’ exports much less competitive and thus make the UK an unattractive location to base manufacturing. This could lead to mass-reshoring for Japanese brands like Nissan and Toyota which would be devastating for small-medium sized suppliers based in the UK.
This is also a major source of concern for the electrified trajectory of the industry because, currently, many of the core value-adding components of electric vehicles (such as powertrain and batteries) are produced elsewhere (e.g. Nissan’s batteries for the Leaf model are produced in Japan). From a supply chain management perspective, therefore, a greater emphasis may be placed on the possibility of vertically integrating the manufacturing process within the UK so multi-national companies can source components more locally and thus satisfy the EU’s value-creation threshold of 55% to qualify for zero tariffs – crucially maintaining their commercial and operational competitiveness.
Green Light at the End of the Tunnel
The potential requirement for major supply chain restructuring to facilitate a greater concentration of electric vehicle component manufacturing within the UK corroborates perfectly with the inevitable global investment needed for more accessible electrification infrastructure. Considering the incoming ban of new fossil-fuelled vehicles in 2030 and demand for electric vehicles rising despite overall new-car sales slumping –29.2% in 2020 (SMMT, 2020), investors, industry leaders and the government must work cohesively to ensure the UK can capitalise on this new era of electrified motoring and become global leaders within a recovering manufacturing world. This presents a significant opportunity for procurement and supply chain professionals to play a key role and support this initiative.
If you would like to hear more procurement insight in the manufacturing sector, please contact Allison.Ford-Langstaff@4cassociates.com