Front End I Electronic Components Supply Network
Can UK plc benefit from “next shoring”?
Popular among the topics under discussion at a recent ecsn member event were global trends in manufacturing. A cross section sought to improve their understanding of the likely trends and how their various organisations could be positioned to benefit from them. Adam Fletcher looks at current thinking and suggests that there is already evidence of structural changes in manufacturing technology and its location
I
n the early-90's many western based organisations started to move manufacturing away from traditional locations towards the developing economies in the East, primarily in an effort to leverage lower labour costs. Taiwan, Singapore and most importantly mainland China emerged as primary off-shore locations for electronic products. It took time but many observers came to realise that an over empathise on significant cost reduction per manufactured unit rather than total acquisition cost was more of a problem than a solution.
Whilst it was possible to achieve a significantly lower unit cost in China many organisations failed to factor in the cost of quality-control, shipping, inventory profile, training, technology transfer and the 'leakage' of invaluable Intellectual Property. However the larger organisations that started the off-shoring trend were rapidly followed lemming-like by many mid-sized and smaller organisations. Some plans succeed but many companies found the impact on their total acquisition cost to be marginal and for some, off-shoring became recognised as a vanity project or even a costly mistake However, once an organisation had committed to reducing its infrastructure in the US / Europe in favour of Asia the decision was found to be very hard to reverse.
A trend for on-shoring Since the 1960's US based electronics organisations have adopted a practice referred to as “On-Shoring”, where essentially manufacturing remains within the greater American continent but is moved to lower labour cost economies, primarily in Mexico and Brazil. These countries were seen as being geographically close especially for Californian based organisations with directly owned manufacturing operations in Mexico. For north American manufacturers the significant difference in culture and language of these on-shore locations was offset by a number of comforting common factors, not least the enduring use of the imperial rather than metric measurement system.
8 October 2014
However, by the late 90’s - some ten years later than in Europe - US based manufacturers of electronic products began to transfer manufacturing to Asia. Their ' Off-Shoring' route to China was
slight will continue to be made off-shore, and is particularly true for products with high labour content. Projects where complexity is high, volumes are low and the end product is bulky to ship - personal or office printers, for example - are today much more likely to be produced locally rather than off-shore. Whilst there is welcome evidence of “Re-Shoring” between China and Mexico / Brazil and between China and Eastern Europe sadly there is little evidence so far of significant projects returning from China, for example to the UK or California. The good news however is that today projects are no longer automatically assigned to China for manufacture: A much more detailed review of total acquisition cost is made and in the short
new product (or service) is commoditised by competition. The move toward integrated advanced
robotics manufacturing in identical factory cells (as defined by “Manufacturing 4.0” processes) will change the ecosystem in which organisations compete. It will be necessary not only to have access to great technical skills but enhanced collaboration with innovative partners within the supply network.
An opportunity Today the key economic factors are improving: Higher rates of growth are driving demand for new products which are also likely to be manufactured locally as factor costs (land, labour, machinery) flatten.
however slightly different because many had already sold or transferred their manufacturing capacity to domestic third- party Electronic Manufacturing Services (EMS) providers who had themselves also invested heavily in manufacturing capacity in Asia.
A real trend? The recent banking crisis caused a steep decline in electronics manufacturing output and over the last 6 years of low growth managerial attention in many organisations has been focussed on activities aimed at aligning their total acquisition costs with customer demand. This, coupled with rising labour costs in Asia, static or declining labour costs in US / Europe, increases in shipping / transport due to higher oil prices, and IP theft has caused many organisations to re-think their strategy. Projects where volumes are very high, complexity is moderate and the size and weight of the end product is
Components in Electronics
term this is likely to provide some, albeit fairly marginal, rebalancing of manufacturing capacity globally, although insignificant when compared to the inward investment in UK / US manufacturing made in the 1980’s by our Japanese competitors, primarily to avoid penalties imposed in response to their success in penetrating US and EU markets. They simply exported mirror images of their manufacturing facilities and trained local employees and suppliers in their methods.
“Next-shoring”
“Next-Shoring” emphasises the need for organisations to be close to both demand and innovation. The primary driver here being 'local innovation', where new products are initially developed locally to closely meet local demand before extending in to the global market. Winning the innovation race is key to ensure profitable sales are won before the
“Next Shoring” is potentially a huge opportunity for the UK electronics community. We are great at academic research, new product innovation and collaboration, made all the easier by our natural fluency in the English language. We are also very adept at finding low cost, quick solutions to manufacturing problems while our inherent pragmatism will be a key enabling factor as we transfer to Industry 4.0. UK Government departments are now
providing a wide range of support for “makers” which includes education, training, academia, advanced manufacturing etc. Rather than keeping our fingers crossed for an increase in “Re- Shoring”, both UK organisations and UK PLC need to focus their activities and resources on the “Next-Shoring” trend.
ECSN |
www.ecsn-uk.org Adam Fletcher is Chairman of Afdec/ECSN
www.cieonline.co.uk
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70