Manufacturers increasingly bringing production back in-house as 82% report recession-related disruption

The body said that its survey, of 150 manufacturers, showed that the increasingly globalised nature of supply chains had resulted in increasing potential for disruptions to business continuity. 82% of the companies surveyed had seen their supply chain disrupted by economic issues related to the recession, while 60% had experienced "local disruption", it said. In addition, two fifths of companies had experienced the failure of a major supplier.

However, it added that companies were becoming "very alive to future threats" with one third of companies raising supply chain issues at board level. A quarter of companies were increasing their use of local suppliers, EEF said, while 40% of surveyed companies were cutting out the use of external suppliers altogether and bringing production back in-house.

Lee Hopley, chief economist with EEF, said that the increased risks associated with 'offshoring' – sourcing from suppliers overseas where labour costs are usually cheaper – could present a "window of opportunity" to rebuild manufacturing capacity in the UK, with knock-on benefits for the economy.

"In recent years manufacturers have been hit by a host of unforeseen events, which has seriously tested their supply chain monitoring and business continuity planning," she said. "This can create opportunities to re-shore production and rebuild key manufacturing with companies bringing some production in-house and using local supply chains. We need to capitalise on this opportunity by removing obstacles for manufacturers looking to expand capacity or diversify into new areas, and by creating a business environment that pulls in every pound of vital investment into our economy."

Around a quarter of manufacturers have seen an increase in the use of suppliers outside the UK over the past two years, according to EEF, with one in five saying half their suppliers were now located outside of the UK. The average manufacturer sources parts from 190 suppliers, it said.

Lost revenue and orders as a result of disruptions to the supply chain have led the "vast majority" of companies to examine their supply chains for potential vulnerabilities, it said. In many cases action taken to improve supply chain resilience - such as better inventory management, increased collaboration and forward planning with suppliers and investment in better management systems – had led to reduced costs and improved flexibility, it added.

However, although 60% of companies monitored their immediate suppliers for risk EEF said that only 11% of companies monitored their entire supply chains, while 16% of companies did not monitor their suppliers at all.

A survey of legal representatives at over 1,500 manufacturers carried out in November last year by Pinsent Masons, the law firm behind Out-Law.com, indicated that 'near shoring', or the practice of choosing suppliers in a nearby country rather than a distant supplier for the provision of goods or services, was becoming an increasing trend. The statistics showed that natural disasters such as the tsunami in Japan and political upheaval, including the so-called 'Arab Spring' in developing countries had had "wide-ranging effects on global supply chains".

Jayne Hussey, a legal expert in supply chain management with the Pinsent Masons, said that near-shoring could deliver a number of benefits to manufacturers such as cultural similarities, appropriate skill levels, more convenient time zones and more cost-effective freight arrangements in locations with suitable infrastructure and regulatory frameworks. However, she warned that companies seeking to near- or 're-shore' production would have a number of issues to consider, including how expensive it would be to extricate the business from its current arrangements.

"In the short term, these costs can impact on the advantages that a change in location may bring," she said. "In most cases, where the move may well be to a different jurisdiction, employees – other than perhaps senior management – will not re-locate. In cases where the current arrangements involve moving the business away from a current third-party supplier, such as an outsourced service provider, the termination provisions in the current contract will need to be carefully assessed to determine whether this will involve termination payments being due to the service provider. In every case issues regarding risks to intellectual property and the ability to transfer assets, data and knowledge will also need to be analysed."