Man­u­fac­tur­ing may be com­ing home but it’s not au­to­matic

Lizzy Bur­den looks at how firms are look­ing to up­date sup­ply routes in the fifth of our se­ries on how Covid-19 has up­ended the world

The Daily Telegraph - Business - - Business -

The phone in the Coven­try of­fice of the Ja­panese ro­bot­ics com­pany Fanuc has rung twice as of­ten as usual since the start of the pan­demic. Tom Bouch­ier, the firm’s UK man­ag­ing di­rec­tor, says he’s been in­un­dated with in­quiries about re­plac­ing cheap Chi­nese labour with au­toma­tion at home af­ter the stand­still in world trade in March. The soar­ing price of air freight as gov­ern­ments re­stricted pas­sen­ger travel has ex­posed the vul­ner­a­bil­ity of global sup­ply chains.

More com­pa­nies, es­pe­cially in the food and aero­space sec­tors, want to in­vest in “cobots” – col­lab­o­ra­tive ro­bots – to ramp up pro­duc­tiv­ity while main­tain­ing space be­tween work­ers in do­mes­tic fac­to­ries, he claims.

In­deed, a PwC sur­vey of 3,500 chief ex­ec­u­tives world­wide last month found that 77pc be­lieve Covid-19 has ac­cel­er­ated an en­dur­ing shift from hu­man labour to au­toma­tion. Even be­fore the cri­sis, in Fe­bru­ary, Bank of Amer­ica pro­jected a dou­bling of the global num­ber of ro­bots to 5m by 2025.

Whether the in­ter­est is trans­lat­ing into or­ders, with cash-strapped firms un­easy about in­vest­ing in such un­cer­tain con­di­tions and the Chi­nese eco­nomic re­cov­ery un­der way, is an­other story. Will Bouch­ier’s vi­sion of a more self-re­liant post-glob­al­i­sa­tion Bri­tain be­come the “new nor­mal”?

Reshoring is eas­ier said than done, ac­cord­ing to Steve Har­ris, head of man­u­fac­tur­ing at Lloyds Bank. “The is­sue is that many sup­ply chains are al­ready deeply em­bed­ded, and in some cases the UK doesn’t have the right in­fra­struc­ture to make a reshoring process easy,” he says. “This means sig­nif­i­cant in­vest­ment will be needed and that’s hard for many busi­nesses to com­mit to in the cur­rent cli­mate.”

Bouch­ier ad­mits that it’s eas­ier for Ger­man man­u­fac­tur­ers to ac­cess gov­ern­ment-backed fi­nance to au­to­mate. “We need to get that route to fi­nance more avail­able,” he says. “The gov­ern­ment strat­egy here is about tax in­cen­tives but that doesn’t give you money to buy stuff this year – it just gives you money off your tax bill in a cou­ple of years’ time.”

Bank of Amer­ica notes that “Euro­pean com­pa­nies ex­pect lim­ited sup­port from the gov­ern­ment” and “do not ap­pear geared up ad­e­quately to use au­toma­tion as a mit­i­gant against mar­gin com­pres­sion – only a third has some form of au­toma­tion or ef­fi­ciency plan in place”.

Fash­ion is a prime ex­am­ple of a high-vol­ume, low-mar­gin in­dus­try that could ben­e­fit from au­toma­tion but Adam Mansell, chief of the UK Fash­ion and Tex­tile As­so­ci­a­tion, says: “There isn’t go­ing to be a panacea of reshoring, un­for­tu­nately.

“If you re­move the cost of labour and drop the cost of ship­ping, which from China went up seven-fold dur­ing Covid-19, it’s ab­so­lutely fi­nan­cially vi­able to have a much more au­to­mated man­u­fac­tur­ing process in the UK. It hasn’t hap­pened yet be­cause gar­ment­mak­ing com­pa­nies tend to be quite small and peo­ple are wait­ing to see how the tech­nol­ogy de­vel­ops be­fore they in­vest.”

Un­til there is more cer­tainty in terms of global trad­ing re­la­tion­ships, it will be “busi­ness as usual”, he adds. While large re­tail­ers may be keen to find al­ter­na­tive sup­pli­ers closer to the UK, es­pe­cially in Turkey, the fu­ture of duty-free ex­ports de­pends on trade talks, while it has been con­firmed that

‘Peo­ple are look­ing at di­ver­si­fy­ing their sup­ply chains but it’s cer­tainly not as easy as leav­ing China and go­ing elsewhere’

clothes from Bangladesh will con­tinue to face no tar­iffs. Bri­tish lux­ury brands will face ad­di­tional 25pc levies on ex­ports to the US from Oc­to­ber as col­lat­eral dam­age from the US-EU trade dis­pute over sub­si­dies to Air­bus and Boe­ing. “That’s hard to swal­low in any cir­cum­stances but par­tic­u­larly now,” Mansell says.

The re­al­ity is that reshoring sup­ply chains is “not as easy as ‘bring­ing things home’ ”, Bhav­ina Bharkhada, of Make UK, says. “Man­u­fac­tur­ing sup­ply chains are global, com­plex, long and em­bed­ded and when you’re talk­ing to mul­ti­ple sup­pli­ers in mul­ti­ple places in mul­ti­ple coun­tries, that’s a sim­ple so­lu­tion to a com­plex prob­lem.”

Bank of Amer­ica an­a­lysts es­ti­mated this month that the cost of shift­ing all ex­port-re­lated man­u­fac­tur­ing by for­eign firms out of China would cost $1 tril­lion (£760bn) over five years, in part be­cause China’s in­dus­trial heart­land, known as the “Goldilocks zone”, has of­fered an op­ti­mal mix of low costs, ef­fi­ciency, hu­man re­sources and in­fra­struc­ture for 30 years, hence it ac­counts for a quar­ter of the world’s man­u­fac­tur­ing value added. The jour­ney of a prod­uct from fac­tory to US shelf from Thai­land takes al­most twice as long – 40 days – as from China, and it is es­ti­mated that one Chi­nese worker can man­u­fac­ture about the same value of goods as four work­ers from four south­east Asian coun­tries com­bined, the an­a­lysts said.

It is also dif­fi­cult to ex­tri­cate a com­pany from con­tracts with Chi­nese sup­pli­ers fast. “Pretty much every­body’s seen some ac­tiv­ity around what they can do with con­tracts with Chi­nese sup­pli­ers,” Ross Den­ton, head of in­ter­na­tional trade at the City law firm Ashurst, says.

“It may be a long-term sup­ply con­tract where you have to meet tar­gets. You may have been in re­ceipt of Chi­nese gov­ern­ment sub­si­dies that you have to re­pay if fac­to­ries close down. Peo­ple are look­ing at di­ver­si­fy­ing their sup­ply chains but it’s cer­tainly not as easy as sim­ply leav­ing China and go­ing some­where else.”

More­over, sup­ply chains are of­ten de­pen­dent on spe­cific coun­tries’ raw ma­te­ri­als. The ex­trac­tion of cobalt, for ex­am­ple, a key ma­te­rial in mak­ing elec­tric bat­ter­ies, is largely con­cen­trated in the Demo­cratic Repub­lic of Congo, al­though Aus­tralia could scale up pro­duc­tion in the longer term.

How­ever, the So­ci­ety of Mo­tor Man­u­fac­tur­ers and Traders (SMMT) ob­serves that long sup­ply chains are not nec­es­sar­ily frag­ile by de­fault.

Its an­nual trade re­port noted that the UK au­to­mo­tive in­dus­try was able to con­tinue man­u­fac­tur­ing for sev­eral weeks af­ter the out­break in China be­cause the dis­tance meant key parts pro­duced in Hubei prov­ince were still in tran­sit to the UK when it started en­forc­ing lock­down mea­sures. “If the epi­demic started closer to the UK, the im­pacts would have prob­a­bly been more im­me­di­ate,” the SMMT said.

For Milo Bo­gaerts, chief ex­ec­u­tive of Eu­ler Her­mes UK and Ire­land, which in­sures pay­ments to ex­porters, there’s more talk about reshoring than ac­tion. “In times of un­cer­tainty you talk a lot about change and see­ing op­por­tu­ni­ties in­stead of threats. I don’t see many moves yet.”

China has in­vested heav­ily in au­toma­tion and if Western com­pa­nies at­tempt to reshore their man­u­fac­tur­ing in the wake of the pan­demic they will have to in­vest heav­ily them­selves

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