'Manufacturers must trade off cost for security of their supply chains' – IOE and IT chair Terry Scuoler

Wed 21 Apr 2021
Posted by: Noelle McElhatton
IOE News

Solutions to the unprecedented challenges facing global supply chains in the past year – namely rising freight costs, physical logjams, capacity and over-reliance on single supply sources – will be discussed at a keynote debate tomorrow in front of key manufacturers.

Tomorrow at 9.20am on the final day (Thursday 22 April) of the virtual Santander Manufacturing Industry event (20-22 April), IOE&IT chairman Terry Scuoler CBE will host a debate featuring supply chain experts from China and India.

The event is free to attend for qualifying manufacturers and their suppliers by registering here.

Entitled ‘Futureproofing and building a more resilient supply chain in Asia’, the discussion will feature panellists Neeraj Bansal, chief operating officer, India Global at KPMG India and Zvi Shalgo, chief executive of transport logistics firm PTL Group.

A core theme will be the shifting priorities of manufacturers from cost and quality of supply to guarantees of security against the risk of interruption.

Ahead of the panel discussion, Terry Scuoler CBE gave a preview of his thoughts and experiences on the topic to the Daily Update:

Q: What pressures do you think the manufacturing sector is under right now? Is it at a crossroads in terms of supply chain management?

Terry Scuoler:‘Crossroads’ is absolutely the correct description. We are all unsure what the post-covid pandemic environment will look like. Whatever transpires we, as a nation, will have to be bold.

One of the key priorities for British businesses will be, not just to recoup output lost during the pandemic, but to take full advantage of the upsurge in demand and increase global market share.

Notwithstanding the huge challenges of the past year there are now big opportunities and we, as a manufacturing nation, have to grasp them.

Q: Is it correct to still view the UK as a manufacturing nation?

Yes, very much so. We are still the world’s ninth largest manufacturing nation. We have a number of world-leading manufacturing sectors such as aerospace, pharmaceuticals and automotive. These, and many others, are backed by world-leading R&D and technology.

We have many of the best universities in the world and a great history of invention and innovation. Our recent performance as a nation in developing, manufacturing and rolling out the covid vaccine in record time is testament to what we can do.

Q: Your message to UK firms as we emerge from lockdown?

This is not the time to stand back. Have confidence and the courage to invest in technology, skills and performance-enhancing processes, while also looking to grow export markets to increase output and turnover.  It is only through accessing the huge and growing global marketplace that we will maintain our position as a leading manufacturing nation.

The pandemic has also taught us that being well-invested while having a strong balance sheet and cash reserves are key to a company’s sustainability – and sometimes even survival.

Q: Is your ‘invest during the downturn’ message also aimed at lenders that target manufacturing exporters?

Very much so. We are dependent in the UK on banks and other sources for the smooth access to affordable finance.

My challenge to our banks is not just to lend on the back of secured assets or personal guarantees but to also provide growth and seed capital support, particularly for SMEs to help facilitate up scaling.

While there are 200 banks operating in the UK, some 80% of small business lending is still in the hands of four of our largest banks. It is clear we still have some way to go to achieve the right competitive balance, although it has to be said that huge progress has been made since the financial crisis.

Q: When manufacturers consider supply chains, post-pandemic, surely ‘lowest cost’ is the most significant factor?

This has traditionally been about cost and quality. The pandemic has made manufacturers now look at cost and quality – but also at the long term security of supply and the danger of interruption.

UK manufacturers may now be prepared to trade off an element of cost in order to guarantee (as best they can) long term partnerships across the world to bring them sustainability and security of supply.

That cost-versus-security of supply balance will be different for varying sectors across the world.

In the past 12 months, security of supply has had a hugely negative impact on businesses and I have no doubt it will be a feature of future decisions.

Q: Would you advocate less reliance on China as the world’s factory shop?

China has moved away from being fundamentally a marketplace to a low-cost source of labour to being a supply chain supplier, to being a manufacturer in its own right.

It then moved to being - in its view - a global economic hegemon with world-leading technological brands.

Cognisance has to be given by UK manufacturers to the geopolitics of the region and to those countries that do not consistently adhere to reasonable norms of behaviour.

Q: Is rehoming really viable for UK manufacturers?

As a British industrialist nothing would give me greater pleasure than seeing the reshoring of manufacturing from overseas and measurable import substitution.

Is this going to happen? We’re going to see an element of reshoring – we’ve seen it over the past decade but I sense this may be only for those components we source overseas that are absolutely critical to the manufacturing process.

I regret to say I do not see UK manufacturers undertaking wholesale reshoring.

Q: What about near-shoring – with the maxim ‘twice the distance, half the trade’ in mind?

Near-shoring could on a much greater impetus in the decision-making process of UK companies. What we have seen in 12 months is, on average, a 250% increase in freight costs and that will surely make UK manufacturers think twice about extended supply chain routes from the Pacific Rim.

An SME told me recently that while freight costs have risen by a factor of 2-to-3 for those firms bringing full containers from the other side of the world, for SMEs using part shipments they have seen a 4-5 times increase in freight costs.

There’s no sign of these freight costs coming down and that could well result in businesses looking to near-shore.

Q: In which countries do you place most hope as an alternative to China?

As a trading and a manufacturing nation we must not close our eyes or shut our doors to anyone. We have to open our arms to all other trading partners around the world. Yes, some of these bring challenges as we’ve discussed.

We need to recognise the fact that scale is important and that countries like China and India must be big trading partners of ours.

We also need to look to the developing nations of Asia and the Pacific Rim – for instance, Vietnam, Cambodia, Malaysia and Indonesia with their growing markets and purchasing power as ever greater trading partners of the future.

Q: Can the UK shape the geo-political forces in Asia and the Pacific Rim?

I am a proud British industrialist and believe we can lead the world in so many ways – be that in climate change, our system of government, our rule of law, having the English language and the fact that we are a market leader in a number of key sectors.

But we do have to recognise we are not a global power and have to be cognisant of what’s happening in other parts of the world.

Q: What relevance do services have to export strategy and the supply chain diversity debate?

Services are a huge opportunity for the UK. The sector accounts for 80% of GDP and is a key element of the government’s export and wider business strategy. Our service exports continue to grow strongly and are increasingly becoming an element in free trade agreements.

It is therefore encouraging to see provisions for the future trade in services being addressed in our free trade agreements (FTA) with Japan, Switzerland and the EU.

The trend for manufactured products to also be part of a wider digitally-managed, long term support package such as through life product monitoring and support, will further increase the demand for many services in which the UK has a strong competitive position.


About Terry Scuoler

Terry Scuoler CBE is chairman of the Institute of Export & International Trade.

An industrialist and business advisor, Terry has been chairman of the IOE&IT since 2017 and before this, was chief executive of the Engineering Employers Federation (EEF) representing 20,000 UK manufacturing and engineering companies engaging with government and the EU.

From 2014-17 he chaired European employer body CEEMET representing 230,000 manufacturing, engineering and technology companies by engaging with and influencing EU policy in Brussels and EU capitals.

He has sat on numerous government committees, including those on international trade, industrial strategy, regulation and energy pricing.

Terry is a passionate supporter of how industry and international trade, if fairly managed and regulated, can be an enormous wealth-creating force for good.

In 2017 he was awarded the CBE for services for the Manufacturing & Engineering Sectors.