For years, American and Western European companies have been offshoring manufacturing facilities to locations in Asia with lower wages and to be in close proximity to raw materials, minimising costs and maximising efficiency.
While offshoring seems to be the most cost-effective way for brands to mass-produce consumer goods, companies have very limited control over their outsourced suppliers due to geographical distance and time differences. In the midst of the coronavirus outbreak, suppliers have failed to fulfil their orders due to reduced air freight capacity caused by aviation restrictions. In the meantime, travel to the factories for production monitoring has also been affected due to travel bans, leaving the entire supply chain in limbo.
The pandemic has revealed the vulnerability of offshore manufacturing, nudging companies to relocate manufacturing to domestic suppliers (onshoring) or adjacent countries (nearshoring) to mitigate risks brought by future uncertainties. The UK has in fact been promoting reshoring since before Covid-19 due to increased taxes and tariffs caused by Brexit. Lloyds Bank reported that 37% of British companies have considered bringing manufacturing back to the UK. Initiatives like Reshoring UK and Make UK have facilitated the process by connecting companies to local suppliers.
The US is also experiencing a similar situation due to the China-US trade war. Coupling the impact of Covid-19, it has caused 1.4 million people to become unemployed, and its GDP has plummeted by 32.9% in June 2020, the worst in American history. As a result, US president Joe Biden has signed a 1.9 trillion USD relief bill to stimulate the beleaguered economy in March 2021. He has also instructed federal governments to spend 600 million USD on domestic products and incentivize companies to move their manufacturing base back to the US by offering a 10% tax credit. The market research company Thomas reported that 69% of surveyed manufacturers are planning to do just that.
Back in 2016, the European Union Regional Development Fund initiated the 'Textile Growth Programme'. Based in the UK and with the goal of reviving the local textile industry and creating more job opportunities, the programme encourages British-based fashion brands and retailers to move their manufacturing back to the UK. Marks & Spencer (M&S) is one of the leading industry players that supports the initiative. After five years, M&S is still actively reshoring its supply chain: as of Feb 2021, it has increased its UK-based suppliers to 449, making up 32.5% of its entire supply chain.
The pandemic is another reason why M&S did not slow down the pace of reshoring. Vogue Business reported that the ready-to-wear sector's sales recorded a 50% month-on-month drop in April 2020. Steve Rowe, the CEO of M&S, says in the interview that the brand will reduce more overseas suppliers as he believes consumer sentiment will remain low after the pandemic. Moreover, reshoring will give the brand room for flexibility in times of uncertainty and build up supply chain resilience.
The North Face has also partially reshored its supply chain back to the US. It has even incorporated the idea of sustainability into other made-in-USA projects, and rightly so. While raw materials make up 80% of the brand’s carbon footprint, the brand partners with Fibershed, an NGO that promotes the ‘farm-to-closet’ movement, to co-create The Cali Wool collection. Instead of importing from large exporters like Australia and India, the wool used to produce this collection is shorn and processed in California. They then send the yarn across the country to a knitting mill in New Jersey to manufacture the end products.
The brand also collaborates with National Geographic on the project ‘Bottle Source’. They collect wasted bottles from national parks in the US and recycle them into materials for producing hoodies and sweatpants. Thus far, the project has rescued over 300,000 pounds of plastic from nature. While reshoring is not an overnight task, these projects allow the industry to learn from experimentation.
According to the United Nations World Food Program, it's imperative to reshape the food supply chain as over 250 million people are experiencing food shortage due to Covid-19. So far, 19 countries have stopped exporting agricultural products to secure enough supply for the domestic market, intensifying worldwide food insecurity. However, not all stockpiled food has been distributed to people in need. The BBC reported that the US dairy sector was forced to discard 14 million litres of milk every day due to insufficient domestic demand.
The dilemma of the American dairy sector reveals the pain point of the agri-food industry — most food products are perishable, fast-moving and time-sensitive. Reshoring and localised production does not only help the retail industry to build up supply chain resilience, but also enables the food system to secure demand and shorten the distance between farmers and their markets.
The London-based startup Farmdrop is an online grocer that connects end-customers to over 450 organic food producers across the country, empowering smallholding farmers to reach a larger customer group. The startup's next-day delivery policy also ensures that customers can enjoy the freshest produce from local farms.
Urban farming is another solution to secure the domestic food supply. Featured in the previous issue of Fabrica.Weave, Berlin-based startup Infarm helps grocery stores and restaurants set up indoor farms using controlled environments, allowing customers to buy vegetables freshly harvested instore. Likewise, Plenty, a food tech startup that serves the neighbourhoods of San Francisco, uses vertical farms to produce leafy greens, which consumes 99% less land and grows 350 times faster than the traditional farming method.
Like any innovations and new business models, the industry needs to form an ecosystem to expand the customer base. For instance, Gorilla (page 19) has collaborated with Infarm to provide customers with fresh vegetables. The online grocer also works with the German bakery chain Zeit Für Brot to sell baked goods made with locally grown grains, creating a resilient food system that does not solely rely on imported products.