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Demand And Supply

Re-shoring Impacts on Operations and Supply Chains

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Re-shoring Impacts on Operations and Supply Chains

The increased globalization evident in the contemporary world has been characterized not just by the advancement of technology to unprecedented levels, but also by different business strategies that have been reflective of the dynamic modern-day business environment (Hamilton & Webster, 2018). Offshoring was among the business strategies, which is a concept that has lurked in the business setting for over half a century. Many industry sectors regarded offshoring as among the business strategies that reflected the dynamism of the global business environment, which aimed at expanding business operations by reducing the production costs and easing the access to international markets. However, evidence indicates that in recent years, offshoring strategy has been unable to guarantee the same benefits for businesses operation activities. Organizations from the UK, for example, Clarks and McLaren are beginning to understand and establish the total risk/benefit-balance, and they are basing their supplier decisions on strategic operations and supply chain instead of just cost analysis (Moradlou et al., 2017). Moreover, there has been a continued erosion of low labor costs in some countries, and companies want to be nearer to their customers and control quality. Therefore, there is an evident tendency to reverse the offshoring strategy to re-shore operations back in the UK.

With globalization taking center stage in the business environment in the past, a period characterized by many businesses mulling over whether to transfer their operations to India, China, and other countries that offered suitable and low-cost locations (Fuller et al., 2017). However, the current business environment has not only almost reversed globalization, but also offshoring strategies have become evident for the UK companies and others across the international business realm. According to evidence from the international business literature, the benefits of reshoring businesses far much outweigh the costs, and hence companies have started reversing their previously adopted offshoring strategies (Fratocchi et al., 2016). This evidence is relevant to both firms considering a come back to their home country, and for policymakers who may want to stimulate reshoring moves even further given the benefits that it brings into their home countries. According to a study by EEF on almost 300 UK companies, these organizations started mulling reshoring some time back (Moradlou et al., 2017). The companies started considering the home environment to be suitable for their operations and business supply chain. In the UK, studies reported that one in six companies re-shored their production in the period between 2010 and 2014 (Moradlou et al., 2017). In recent years, reshoring is regarded as having been accelerated by the uncertainties that surrounded the weakening pound and the possible consequences of Brexit.

The Logistics

Reshoring businesses are having several factors to consider when determining their new supply chain in home countries. When selecting supply chains, the management of a company considers a variety of factors, among them being the potential for competitiveness, the potential to cause any impact on the business, and other cross-cutting issues (Moretto et al., 2019). Local markets are sustainably and significantly influenced by the supply chain selection that a company adopts. Therefore, reshoring companies require that they select suppliers with whom the local market, which is crucial for any company, can relate. The local markets relate to a particular supply chain in terms of reliability, consistency, uniqueness, quality of services, and other aspects (Luthra et al., 2017). Due to the changed geographical distance and other aspects, the selection of suppliers by reshoring companies is always expected.

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When selecting the best suppliers with whom the local markets can relate and consider as ‘Made in Britain’, the reshoring companies are faced with a relatively less complex supply chain. Offshoring companies deal with various aspects of their supply chain due to the differences in time, culture, and other aspects (Moretto et al., 2019). When dealing with the local supply chain, such complexities and problems are eased, and the flexibility of these suppliers is increased. However, companies need to choose the suppliers who are trusted and who can provide quality to the production (Moretto et al., 2019). There should be a guarantee for the ability to resolve any issues and react when any changes are required for improved relations with the customers. However, companies should not fall into the temptation of relaxing their close management of the suppliers due to the ill-construed easier supplier management.

Offshoring can reduce the flexibility of operations to address problems related to the rapid changes in market conditions. Through locating the production facilities closer to the end customer, it is possible to ensure faster reactions to the changes due to shorter supply chains and better market awareness (Engelseth, 2016). This also improves a firm’s ability to recover in the event of any supply chain interruption. Furthermore, the problems caused by time differences between countries can be avoided since the larger part of the supply chain is situated in one geographic location. The protection of sensitive information is another considerable concern relevant to taking business operations abroad. Despite instituting laws to protect intellectual property in countries such as China, sensitive information on new and innovative products is still open to exposure in a foreign market (Moradlou et al., 2017). Another obstacle to the unquantifiable costs is the cultural differences between the targeted region and the home. For Eastern Asian countries such as China, those differences tend to be greater. The examples of these include a diverse attitude regarding the quality of the product and also the perceived value. Additionally, different countries adopt different negotiation and communications strategies.

There are numerous and complex determinants of reshoring (Moradlou et al., 2017). Reshoring of companies results in the advantages realized in localizing a business supply chain. Reshoring a business has definite impacts on its supply chain, which could become longer or shorter depending on various factors such as the geographical distance. This means that there are high costs, too, that needs to be weighed when making the decision to re-shore or not. Reshoring enables companies to manage their operations capacity and inventory more flexibly and efficiently (Ocicka, 2016). When a company re-shores its operations, they can make production respond firmly to demand and hence react accordingly to avoid the potential adverse effects.

Moreover, by reducing transport and communication costs, the companies reshoring operations experience a shortened supply chain which could make production activities cheaper at home than when offshored (Moradlou et al., 2017). Moreover, reshoring can potentially lower the risks of the disruptions on the supply chain and the theft of intellectual property. Additionally, having companies re-shore their operations activities afford them the pride of producing products under the potentially beneficial ‘Made in the UK’ tag with which the local market could associate, thereby having a marketing benefit when manufacturing at home.

Moreover, for reshoring companies to benefit optimally from their move to relocate their operations into the home countries, supplier involvement is paramount (Luthra et al., 2017). Supplier involvement entails the coordination of how a product can be got to the site at the right time and without impacting negatively on the local community. When companies relocate, they experience a shift in the nature of their supply chain in terms of the length and other aspects. Supplier involvement during reshoring provides for simplified logistics for the moving companies. Having suppliers involved at an early stage of reshoring helps minimize traffic interruptions because proper measures are given the proper consideration (Luthra et al., 2017). Proper supplier involvement also means that the suppliers become aware of the time difference they could be bound to consider and other logistics complexities.

The reduced gap from the location of production to the target market allows the company to streamline the supply chain, which is a strategic element, giving the company a competitive advantage (Ellram et al., 2020). Organizations that have opted to re-shore their business operations to the UK have reported various reasons attributable to the closer proximity of the end customer (Van den Bossche et al., 2014). Properly prepared road infrastructure in the country with shorter distances between the companies and end consumers is deemed to help in minimizing delivery time and costs certainly. However, the possibility of supply chain disruption, which is highly probable in offshoring destinations such as East and South Asia, and other such destinations (Moradlou et al., 2017), should also be taken into account by businesses. Therefore, companies should examine carefully how open, competitive and sustainable the suppliers in the host countries are. The potential benefits of reshoring, such as reduced inventory levels, shortened time to market and reduced geopolitical risk, should also be carefully assessed by businesses (Moradlou et al., 2017). Supply chains are subject to more potential problems when dealing with a supply chain that is scattered across different countries, which could disrupt the entire chain. Therefore, it is an organization’s ability to manage its global logistics system that determines its performance (Ellram et al., 2020). In Kinkel and Maloca’s study (2009), companies in the manufacturing sector have recognized the flexibility and ability to deliver efficiently as the key reasons for taking production back to their home countries.

International business literature terms reshoring to be complex as globalization concept, which necessitates proper preparation of the relevant parties (Fuller et al., 2017). This preparation is important to suppliers because they can anticipate the costs of their future engagement with the business in terms of logistics requirements and other aspects such as legislations. This engagement also develops loyalty and value when the suppliers are involved because they can make financial commitment and time that could lead to long-term relationships in business. Businesses must adopt proper supplier involvement system for creative solutions to significant challenges when reshoring to avoid suffering from avoidable mistakes that reverse the possible gains realized by firms operating in their home country (Hamilton & Webster, 2018).

When these suppliers are selected and involvement in reshoring business strategy, businesses need to interact with them and manage the dynamics of these important parts of any business operation (Moretto eta l., 2019). Supplier relationship management entails communicating and managing the suppliers of the business. A business does this through choosing suppliers that are efficient in terms of cost and easy to work with for relationship value maximization. In the era of reshoring, supplier relationship management is becoming even more complex and unpredictable. The practice has undergone major changes due to its varied application in the business environment over the past years because of the advancement in technology and globalization of business practices (Fuller et al., 2017). Businesses are now having many choices of suppliers and it is becoming even much harder to choose the best fit for an organization. However, due to the ability of many organizations to streamline their supplier selection, involvement, and relationship development, they are able to strategize properly regarding their priorities and expectations for a supply chain. Different organizations define supplier relationship management differently, but the core of the concept is in streamlining the interaction between the buyer and the suppliers. For the reshoring organizations in the UK, the development of the relation between them and the suppliers help them in strategic sourcing. The companies do this by segmenting suppliers based on the importance of their contribution to the companies (Luthra et al., 2017), performance management and developing governance models that align business processes and apportion stakeholders based on business goals, and improve relationships with the suppliers through strategic information with key suppliers when operating at home to develop better products and services.

Conclusion

The manufacturing industry has undergone a major revolution in the way the industry operates over the last few years. Re-shoring technique is one of the most common production techniques being used in Western countries such as the UK. Reshoring is, at present, attracting significant attention from the international business realm. This is because of the urgent need to meet consumer requirements and succeed in a competitive business environment. As a consequence, a new generation of techniques and business models to replace the previously offshore manufacturing operations are being established. These include supplier selection, involvement, and relationship development for strategic sourcing and competitiveness.

References

 

 

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