It’s not just small- to medium-sized manufacturing companies in the U.S. that are seeing work coming back onto domestic soil from China. The UK is also experiencing a drift of contract work back to British suppliers for even quite basic semi-finished products, like metal castings, metal formed parts and plastic injection moldings. The reasons cited by an FT report are cost, quality, and timely deliveries.
Costs have risen as the RMB has appreciated against the pound and the U.S. dollar. In addition, the real total landed cost of buying from Asian suppliers only becomes clear at some firms after they start taking delivery of product. The piece part price looks hugely attractive, but by the time, shipping, transaction costs, inventory carrying costs, import duties and so on are factored in, it becomes apparent the saving is not sufficient to justify the second and third factors. Quality is invariably not as good as incumbent suppliers have traditionally provided; sometimes this is down to poor manufacturing controls and sometimes it is because the buyer’s pre order due diligence was not as thorough as it should have been. But the result is the same: contracts are returning as buyers become disillusioned by the problems. Finally, there are the delays. Low cost country sourcing by its very nature involves an extended shipping time, in addition to a lack of visibility into the suppliers production time frames and priorities. The resulting delays place risk on the UK buyer in terms of losing market share to competitors in an already weakening market place — not a sensible position for any manufacturer to allow to happen, however cheap the piece part price.
There appears to be a broad divide between those small- to medium-sized firms that lack the management skills and time to effectively manage low cost country sourcing and the larger corporations who can afford to have managers on the ground looking after their quality and production schedule/shipping priorities. As labor costs rise, the currency continues to appreciate and credit becomes tighter we can expect to see more small to medium sized contracts return if not to our own shores then at least much closer to home.