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The cost-benefit of manufacturing in the UK
Reading time 10 mins
- The UK is one of the largest manufacturing nations in the world, with a highly skilled workforce that delivers products to exacting standards
- By manufacturing locally, companies have greater control over quality and can deliver products efficiently with shorter lead times
- Domestic manufacturing reduces a company’s carbon footprint, boosts the local economy, and makes markets more resilient by removing supply chain complexity
- On the other hand: increasing energy costs, high costs of labour, scarcity and/or high cost of raw materials make manufacturing abroad a favourable option
- At the same time, the manufacturing sector is in decline, and the UK government is being called to put robust reforms in place to revive it
- For many businesses, the cost-benefit will depend on the product and using a combination of local and international suppliers for different stages of their product development
B, Mazur. “The Cost-benefit of Manufacturing in the UK.” Ignitec – Product Design Consultancy, Creative Technology and R&D Lab – Ignitec Product Design, Bristol, 21 Feb. 2023, www.ignitec.com/insights/the-cost-benefit-of-manufacturing-in-the-uk.
If you’re a UK business owner looking to manufacture your product locally, there are advantages and disadvantages. As we saw in our article on managing risks that disrupt the supply chain, complexity is a leading factor. Therefore, the simpler the supply chain, the more reliable manufacturing outcomes can be. However, the benefit of manufacturing in the UK isn’t that straightforward – especially as overseas locations are known for their agility and more competitive pricing.
When deciding what the cost-benefit of manufacturing in the UK is, you will have to weigh the advantages in one area against the drawbacks in another:
- Highly skilled workforce
- Better quality control
- Lower carbon footprint
- Improved efficiency and shorter lead times
- Promotes UK economic growth
- Better market resilience
- Increased costs of labour, energy, and raw materials
Complicating the matter further, the decision one makes to manufacture in the UK differs from one product to the next. We’ll use a case study of recent work we did to design a waterproof wearable prototype to highlight our position: win-win manufacturing outcomes will often require solutions that take the best of both worlds into consideration.
Manufacturing abroad puts pressure on domestic quality control
The most significant benefit of manufacturing in the UK is your access to a highly skilled workforce. The UK has long been known for its expertise in engineering, design, and high-precision manufacturing processes. When you manufacture your products here, you can rest assured that they will be produced according to exacting standards, making quality control streamlined and more manageable.
In addition, because many UK workers have years of experience under their belts, they can often offer valuable insights into how best to produce a particular product or make a process more efficient. This can help speed up production time and reduce costs associated with mistakes or delays due to inexperience.
On the other hand, this isn’t always the case. As we discovered when developing the XIMU3 Waterproof Unit, we found that developing the prototype in the UK was faster, cheaper, and more efficient. However, because we have established relationships with excellent manufacturers in China, it was more beneficial to work with them for the tooling (i.e. designing, cutting, shaping, and forming the materials used to create parts and components) and testing phases of the product development. Once satisfactory, the tool was shipped to the UK so the manufacturing could be done here.
This gave us the best of both worlds: initial design and prototyping in-house, cheaper tooling and re-working to get things right in China, finished by skilled manual manufacturing, assembly, and quality control in the UK.
The environmental cost of shipping is enormous
Over 80% of the world’s trade is done by shipping. The impact this has on the environment, marine ecosystems, and global pollution are equally substantial. While the United Nations Conference on Trade and Development has launched the Sustainable Manufacturing and Environmental Pollution (SMEP) program to address critical issues and assist governments and key industry players in implementing sustainable solutions, the private sector must also play an active role in supporting them.
Granted, shipping is considerably less harmful to the environment than air or land freight, but by producing locally, businesses reduce their carbon footprint regardless. Then again, for companies that aren’t concerned about the climate crisis, the environmental impact of manufacturing abroad isn’t a deciding factor. If, like us, you’re interested in becoming carbon-neutral but worried about the effect that manufacturing locally could have on your profit margins, these costs could be recouped: eco-conscious consumers are generally willing to pay more for goods produced locally.
Local supply chains create shorter lead times
Another benefit of manufacturing in the UK is shorter lead times. The geographic proximity between suppliers and customers can result in reduced shipping costs and faster delivery times than when sourcing materials from overseas locations or manufacturing your products abroad. This has obvious cost savings implications, but it also improves customer satisfaction by ensuring products arrive on time without any unexpected delays or issues.
Domestic manufacturing boosts the local economy
The UK Parliament’s findings on the Key Economic Indicators in the Manufacturing Industry noted that the manufacturing sector shrank by 4% in 2022 and is forecast to decline by a further 3.2% in 2023. The John Mills Institute for Prosperity lists the increasing costs for raw materials and staff shortages as contributing factors. Furthermore, they predict that the UK will face a decade of decline if it fails to increase manufacturing’s value to 15% of GDP by 2025 – a considerable increase from 9.8% in 2021.
The Institute – a cross-party research initiative and think tank – published a manufacturing blueprint consisting of 10 crucial policy reforms to revive the industry. The government is being called to reverse budget cuts on technical training, provide more spaces for industrial activity, prioritise projects with the highest social payback, and introduce a Green Investment Allowance to reduce energy costs.
Again, the private sector also has a role in this revival: to support domestic manufacturing.
Manufacturing in the UK makes local markets more resilient
Over the past two years, the combination of Brexit and the pandemic have caused disruptions at unprecedented levels. At the same time, transport, energy, and raw material costs have drastically increased. As noted by Make UK ( the voice of manufacturing and engineering in the UK), one of the consequences is that these disruptions have forced businesses to review their supply chain arrangement and bring it closer to home. Their report on Building Global Resilient Supply Chains also noted that:
- The average supplier has over half of their supply chain based in the UK
- Many companies have increased the number of suppliers they use (between 51-100) to mitigate risk and ensure less reliance on a smaller supply pool
- Global markets are increasingly being viewed as riskier as there is a lack of visibility throughout the entire supply chain (e.g. challenging to monitor availability, transport costs, and price changes)
- Over two-fifths of manufacturers said the proportion of their suppliers based in the UK has increased in the past two years
The availability of materials is another advantage to manufacturing in the UK; since there are so many suppliers based here, it’s easy to source a range of raw – albeit pricey – materials within relatively short order times. Plus, with an established base of suppliers already set up, you don’t have to worry about establishing new relationships with foreign companies, which can often be difficult and costly (in terms of both money and time).
UK costs for labour and raw materials are higher than overseas
Besides the high energy costs, additional disadvantages to manufacturing in the UK are the increased labour, energy, and raw materials costs. These three factors, combined, may not make it financially viable for many companies to manufacture in the UK. Finally, depending on where exactly you plan on setting up shop within the country, taxes may increase certain expenses – so do plenty of research beforehand.
Is the benefit of manufacturing in the UK clear-cut?
When deciding whether or not to manufacture your products in the UK, there are costs and benefits that need considering: the main ones being access to a highly skilled workforce vs higher labour costs, respectively. If you’re at this stage of your product or business development, you probably reviewed most of these factors when developing your financial plan or business model and have an idea of what will work best for you. If you’re still sitting on the fence and would like more advice, get in touch with us – we’d be happy to share more case studies from our work and years of experience in the industry.
Whether you pursue the numerous benefits of manufacturing in the UK or are swayed in favour of the advantages of doing so overseas, ongoing research and staying flexible are crucial. The government is under pressure to revive the manufacturing industry, so you may have tax breaks or incentives to capitalise on – making domestic manufacturing more appealing. At the same time, a rising trend in digital supply chain technologies could remove some of the glitches in overseas manufacturing (e.g. monitoring) that currently make overseas manufacturing challenging.
There is no clear-cut winner in the manufacturing destination debate – even though we’re generally all asking the same questions: where can we reduce costs and the time to market without compromising on quality and create a better customer experience at the same time? As we saw with our case study, the answers often rely on finding both local and international solutions – and reevaluating those options for each new product we design.
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