Manufacturing companies will shift their supply chain eastwards at pace to cut costs, according to a survey of senior executives.
KPMG’s new Global Manufacturing Outlook report says Economic uncertainty has left UK businesses extremely price sensitive, with 86 per cent of domestic manufacturers naming cost as their number one supply chain priority, compared to the global average of 66 percent.
A total of 55 per cent of UK manufacturers currently have their primary sourcing relationship with a domestic supplier, but 41 per cent expect to have a more globally-dispersed supply chain within the next two years, as they seek lower cost locations.
The biggest beneficiary of new sourcing arrangements by UK firms is expected to be India, as half of the businesses questioned for KPMG plan to increase their sourcing from the subcontinent in the next two years, while 41 per cent expect to turn to China.
Domestic suppliers are likely to lose out, as 36 per cent of UK businesses intend to reduce their sourcing from local suppliers during the same period, with 63 per cent citing cost as the explanation.
Globally, China is the most common sourcing location, where 35 per cent of businesses already have primary supplier relationships, while 39 per cent intend to increase their sourcing from the country.
India is not far behind, having supplier relationships with 26 per cent of global businesses currently, and the same proportion planning to call on India for more of their supply chain requirements in the next two years, again cost being the predominant deciding factor.
Mike Steventon, partner at KPMG in Birmingham, said: “Difficult financial times of course magnify the importance of value for money.
“But by focusing too narrowly on immediate financial concerns businesses risk losing sight of the bigger picture so I’m relatively relieved that more than three quarters of UK companies feel their supplier relations have emerged from difficult times unscathed.
“Low cost sourcing remains the direction of travel most influencing geographic shifts within supply chains but there are a significant proportion of businesses bucking the trend based on other factors.
“It used to be that sourcing decisions rested on routine considerations like who could make the best bolt for the best price.
“This approach worked when there was little variability in the cost inputs. Now, leading supply chain strategies must involve detailed scenario modelling to determine the appropriate response to a host of volatile elements.
“The most successful companies will be those who build adaptability and flexibility into their supply chains.”