What's the point of origin?

There are anecdotes aplenty to support the idea that sub-standard quality, high logistics costs, overlong supply chains, the need to order and stock overlarge quantities, cultural difficulties, loss of control and disputes with partners are causing British manufacturers to rethink their procurement policies. Adam Herson, managing director at China Works, a company that helps UK manufacturers and designers to lower costs by moving production to China, says that although outsourcing production to low-cost countries is often criticised, the issue is far from black and white. While he clearly has a vested interest, Herson says: "In specific circumstances, outsourcing can offer real benefits –"improving the international competitiveness of UK manufacturers and enabling new product development projects to get off the ground." About half of China Works' 35-strong customer base is"made up"of"UK manufacturers looking to improve end pricing by outsourcing secondary parts and components while retaining control of technical higher value added processes. The other half comprises mostly smaller inventors looking to bring new ideas to market."Many"new product development projects"simply wouldn't get off the ground without the option of cheaper tooling (as low as 20%"of the cost"of UK tooling) from the Far East, insists Herson. Despite its partial perspective, China Works advises customers to maintain a global sourcing strategy – keeping the option to manufacture in the UK if economic conditions are more favourable for a given product at a given time, as they may be when the exchange rate permits."Herson adds: "Retaining the option to manufacture in the UK also provides a fallback if outsourcing projects don't provide the desired outcome." Neither is every product suitable for outsourcing to a low-cost country. Products that are highly automated, attract high duty, are"bulky, or are"high tolerance, typically generate the lowest cost saving. However, projects with a high level of labour input, such as machined or fabricated parts, can pull in savings of up to 40%, he reckons." One manufacturer with its roots firmly in the past hasn't let tradition get in the way of looking for cost efficiencies a long way from home.Lister Shearing's story began in Gloucestershire in 1860, when founder R A Lister first started manufacturing quintessentially English ploughs and other agricultural implements. Fifty years later, with the help of the Australian James Davidson, the company produced its first sheep-shearing machine; the rest, as they say, is history. The company now claims to be the world's largest animal clipper and shear manufacturer. And about a half of its inward supply chain is in China. As a royal warrant holder providing leading grooms and shearers all over the world with its prestigious kit – it counts Zara Phillips, Nick Skelton, Paul Schokemohle and the Golden Shears world sheep-shearing championships among its customers – Lister Shearing cannot afford to have an indifferent attitude to quality. Its sourcing manager Howard Barnsley is neither dewy eyed about home sourcing nor seduced by the apparent attraction of low-cost sources for their own sake. He's happy to weigh the pros and cons of outsourcing. "We have plastic investment [lost wax] castings done over there [in China], bearings, springs, plastic 'briefcase' containers for the clippers; all kinds of bits and pieces." The company also has some of its tooling made in China; as do a number of its UK-based suppliers. "Tooling is much cheaper over there," says Barnsley. He adds that when plastic mouldings are put out to UK tender, he invariably finds that any firms with apparently cheap tooling quotes are, in fact, sourcing that tooling from China. He is careful to preface his sourcing policy with "provided the quality meets the threshold". In critical cases, Barnsley will make sure of this himself. Before contracting out the manufacture of items like motors or rough castings, he will pay the Chinese plant a personal visit. "A lot of their websites flatter to deceive. I try to set a relationship up with an email then, if I'm going to use that company, I usually go out there and have a look at them. There's no other way of doing it." While Lister Shearing has no supply chain or quality issues that require the repatriation of work outsourced to China, Barnsley is not blind to potential pitfalls. "In some cases – and this used to be prevalent in the UK, too – the sample you ask for is fine but when you get into main production and you have a couple of thousand of them on a boat, they're perhaps not as good as the sample." In others, he hastens to add, the sample quality can be surpassed by the actual production pieces. "I have one company at the moment that does investment casting for us and you would be hard pressed in the UK to beat their quality and their quality systems. Walk in there and they've got files and files of everything they've made, including samples, metal plugs and so on that they keep from each batch." He admits that extra inventory has to be held to counter the length of the supply chain. This can be an issue, particularly when "it's very difficult to know what's going to be going on in 18 months time". However, this can be overcome by asking the Chinese company to forward a small batch on by air. "The rest can be sent on the slow boat from China."One issue that arises for Lister Shearing is the low-volume/high variant nature of its products. "We run something like 1,000 product lines and we don't make millions of each. Some companies in China won't look at us because the volumes are too small even though they're high value." He says it's also "slightly annoying" that payment is required up front, though he adds with a pragmatic shrug "but, if you're getting it for 30% less than in the UK...." Being a part of the US-owned Wahl Corporation – which sells human hair clippers and has a factory in China – is also helpful in both the penetration of Asia as a market and as an ally when it comes to running a ruler over a potential supplier. What's to stop Wahl closing Lister Shearing's UK factory and moving production to China? "Expertise," says Barnsley. "Wahl has a large factory exporting to America and Europe. They want us to concentrate on the equine and sheep market – once you get into cutters and combs that are used on sheep and horses, it's a totally different ball game." Expertise's twin 'experience' is the word on the lips of Tony Butcher, managing director of automotive technology for the aspiring Formula One team Prodrive. "There's not much that people can't do across the world, but experience is the thing we have lots of," he says, setting out Prodrive's case for being a provider of services to the large potential markets represented by Asia which, he believes, are capable of using short cuts to move forward very quickly – buying experience. When it comes to sourcing from far away low-cost countries though, Prodrive points out that much of its business depends on being able to move swiftly in a world where planning is, by necessity, done on the hoof. Prodrive is one of the world's largest and most successful motorsport and vehicle technology businesses, with annual sales of more than £100m and employing nearly 1,000 staff in the UK, Asia-Pacific and Australia. While its roots are in motorsport, more than half the business is concerned with developing niche cars and new technology for road vehicles. Butcher concedes that the company has not explored sourcing from Asia "as much as we could and should do". For its motorsport business, Prodrive's procurement is from the home market, looking overseas only for "things that are difficult to get or cost prohibitive. We source locally in the UK or Europe for items we need on short lead times." The decision to build the Aston Martin car that finished 4th at Le Mans last month was only taken "when we broke up for the Christmas holidays. So from standing still to finishing 4th at Le Mans, it was just six months," says Butcher. "Developing the plan as you go along to meet those deadlines needs very responsive suppliers that can supply parts very quickly – you either have to source it locally or make it yourself." Much of Prodrive's business is about producing high-performance road cars. It needs to buy in items it can't make, like wheels, exhaust systems, damper assemblies and crankshafts. Here, Butcher believes, there is scope for overseas sourced products. "For instance, last year we produced 600 Breras for Alfa Romeo where you've got a longer lead time. You still need to be reasonably fast moving and responsive, but with that type of programme you've time to do some sourcing studies. Even third world countries are now producing high quality vehicles and their suppliers are obviously going to be at that level, too." With the potential of the Asian market already recognised by those supporting the F1 racing circuit, Prodrive may have every right to feel disappointed that it lost its bid for a place on what looks like being a newly constituted 2010 grid (although Butcher warns that in true F1 fashion "there could still be some twists and turns"). Turning to Asia in the role of buyer rather than seller, Prodrive already has a number of Indian customers for which it is building 'technology prototypes' – from the motorcycle it's working on at the moment, to a bus. China, likewise is a huge growth market. Last year, Prodrive sold 16 Aston Martin GT4 race cars for the Asia Cup – a supporting event to F1 in that region. It doesn't stop at automotive engineering. There's a real appetite for diversification. "It's not appreciated just how far ahead of other industries the automotive industry is in delivering very high specifications at very low cost. Wind turbines that are using transmission technologies and even electrical control systems that have been developed for electric and hybrid vehicles; carbon composites; new techniques that are solving problems in the offshore industry... these are huge opportunities, not threats."