Since the onslaught of Covid19 and the global pandemic there has been a major rethink by many companies, both large and small, about their supply chains, the risks associated with them and in particular there has been a focus on China V moving production closer to company head office or closer to where customers are located.
China has many great advantages that all are aware of, however, there is one major disadvantage and that is transit or delivery time. With global logistics firms creaking at the seams due to under capacity and local/national delivery companies feeling the pinch when it comes to their own capacity issues, getting goods delivered on time to an end customer is now a much bigger challenge than before.
This is where onshoring/nearshoring comes in to play. Moving previously outsourced services from one location, far away, to a more geographically favourable position is a process that many organisations are currently engaged in.
Below we outline the advantages of moving production etc closer to home
Lead Time – An obvious one. Both sea and air shipping time can be drastically reduced by moving production from China to Europe for examples (if Europe is where your company is based). 30 – 40 days shipping time becomes 3- 5 days transit time in many cases. No need to hold as much inventory or stock now thus reducing the need to tie up capital and therefore free it up to perform in other aspects of your business.
Duty – With duty rates being applied for the vast majority of goods coming from China basing production in Europe can save you a significant portion of the overall cost. An example of this is textiles where a general duty rate of 12% applies to goods coming from China in to Europe. Counter this with a 0% rate for goods produced inside the eurozone and you can see the advantages clearly in terms of duty rates.
Quality – Producing in Europe V China has long had a perceived superior quality balance in favour of Europe. China has long since caught up with high quality goods being made there on a daily basis.
Innovation – Again Europe is seen has having an advantage of being in the lead over China when it comes to product and industry innovation. The traditional route been for Europe to innovate and China to make. This of course is changing with time and the new, wealthy middle classes of China now put more emphasis on innovation and quality and close the gap in this area on a yearly basis.
Trade Mark Protection – A long held bugbear of many organisations. Trade mark infringement and design theft/replication. Sending precious designs out to a manufacturer in China is a leap of faith for many. NDA’s or other agreements can seem like little protection in the face your design being stolen or replicated. What are you going to do …..go through the Chinese legal system? A tall ask for many companies, especially SME’s that would not have the resources or time to face this daunting process. Producing in Europe with a 3rd party manufacturing unit has the huge advantage of trade mark protection and robust legal recourse to any infringements.
Forced/Slave Labour – The recent news about the absolute abhorrent treatment of the Uighur people sent shockwaves through the entire fashion and textile system. Cotton coming from the Xinjiang region of China is used extensively in textiles produced in far east countries. Conducting audits, verifying supply chain sin that region etc has become a box ticking exercise when news appears of the terrible treatment of Uighur muslims. Any organisation should seriously question their values and commitment to a better world should they knowingly engage with companies that use force labour (or elements of their production supplies derived from forced labour). Although there are undoubtedly examples of force labour in Europe the propensity for them to exist in an European supply chain is drastically reduced when compared to a far eastern one.
Conclusion – take great care when choosing the appropriate supply chain for your company. Balance price v speed, quality v sharp practice and above all take a look at your conscience and make sure that wherever you buy from has strict procedures in place to ensure fair and respectful treatment of workers.