Can you source in the UK profitably?
When it comes to sourcing products, many small businesses face this question. Is it more profitable to manufacture domestically or to go overseas?
The answer depends mainly on what you’re selling, and understanding your business.
It can be a yes and no, so here’s the things you need to consider.
If you’re a re-seller then there’s less to consider as you can’t affect the cost price or selling price. However, you do have an option as what brands you buy into. Are there brands from specific origin countries that offer you a better margin? What are the related costs to bringing product into the UK for each brand?
The main considerations are for ‘own brand’ and manufacture so that’s what I’ll run you through here.
Let’s look at an example…
Example - T-shirts
Made locally in the UK
MOQ and Cost: Imagine a UK supplier offers a minimum order of just 100 T-shirts at a production cost of £10 each. Your total investment in stock is £1000.
Revenue and Profit: If you sell each T-shirt at £30 (a 66% margin), total revenue would be £3,000, yielding a profit of £2,000.
The benefits:
Lower MOQ: You don’t have to commit to a large order, so your cash isn’t tied up in unsold stock for too long.
Flexibility: You can quickly test the market with minimal risk. Want to try a new product or style out? You can get in and out of it pretty fast.
Downsides:
Lower Margins: Your margin might be constrained by what you can feasibly charge.
Manufactured overseas
MOQ and Cost: In contrast, an overseas supplier might require an MOQ of 500 T-shirts at a cost of £5 each, meaning you’d invest £2,500 in stock.
Revenue challenge: Even if you set a retail price of £25 per T-shirt, after selling the first 100 you’ve only just recouped your initial investment, your remaining stock is simply sitting there, tying up your money.
Benefits:
Bigger margins: Costs are usually less than the UK
Greater choice: A bigger and more flexible choice
Downsides:
High quantity commitment: You risk overstocking and tying up cash that could be used elsewhere.
Additional costs: Any attempt to boost sales with increased marketing or advertising could erode profit margins further.
Things to consider
When weighing up whether to manufacture in the UK or source from abroad, there are a few key factors to keep in mind:
1. Lead times and speed to market
UK manufacturing usually offers faster turnaround times, meaning you can restock quickly if a product sells well.
Overseas manufacturing, particularly from Asia, can come with long production and shipping times. If you’re launching a trend led product, delays could mean you miss the moment.
2. Quality and control
With UK suppliers, you can often visit factories more easily to check quality and maintain high production standards.
Overseas factories can vary in quality, and while many produce excellent goods, there’s a higher risk of inconsistencies. You might need third party inspections to ensure quality control and that can sometimes be costly.
3. Costs beyond manufacturing
UK production might have higher upfront costs per unit, but logistics, import duties, and storage are generally simpler and cheaper.
When manufacturing abroad, you need to factor in shipping fees, import taxes, and possible storage costs if you’re bringing in bulk shipments.
4. Ethical and sustainability considerations
Many UK manufacturers follow strict ethical guidelines regarding wages, working conditions, and sustainability.
Some overseas manufacturers may not adhere to the same ethical standards, so you’ll need to research and ensure compliance with fair trade and environmental practices if this is important to your brand.
5. Cash flow and stock holding
A lower MOQ from a UK supplier means you won’t have as much capital tied up in stock. This keeps your cash flow healthier and allows for more frequent product refreshes.
Overseas production often means larger MOQs, which can tie up cash in stock that takes longer to sell.
6. Branding and marketing perception
‘Made in the UK’ can be a strong selling point, especially for consumers looking for locally made, sustainable, or high quality products.
Overseas production might allow you to price more competitively, but it could make branding around quality and sustainability more challenging if customers are conscious of where products are made.
Some watch for’s
If made in the UK is important to you, don’t get swept along with what big brands are doing. Lots of larger brands and luxury brands specifically lead with a made in the UK message - however, their cash flow is often much healthier and the volumes they can drive are huge.
I see lots of UK businesses try to manufacturer in the UK and simply get caught up in a low margin model with stock not turning fast enough.
That’s not to say it isn’t possible of course but it really depends on your product and business set up.
Luxury brands - They can command high selling prices and therefore healthy margins regardless. If you’re manufacturing in the UK and your selling price is market capped then you’re going to potentially struggle
Handmade in your business - If you’re constructing the product yourself, such as handmade clothing then the UK might work perfectly fine for you as the main emphasis is on your labour costs rather than raw material cost no doubt.
So, which option is right for you?
It all really depends on your business priorities.
If you value flexibility, lower MOQs, and faster lead times, UK manufacturing could be the better route, even if your margins are slightly lower. If your focus is higher margins and access to a broader range of production options, overseas sourcing may be worth the extra logistics and financial commitments.
Ultimately, it's about balancing profitability, risk, and brand positioning to find the best solution for your business.
Why source in the UK?
1. Lower Minimum Order Quantities (MOQs)
Smaller Orders: UK suppliers often allow for lower MOQs, which means you’re not forced to commit to hundreds of units.
Cash Flow Friendly: You avoid having a large amount of capital locked into unsold inventory, allowing you to invest more strategically in your business.
2. Reduced Inventory Risk
Less Overstock: Smaller orders mean there’s less chance of overproduction and the subsequent risk of unsold stock.
Market Testing: It’s easier to test new products and adjust orders as you better understand your customers’ preferences.
3. Greater Agility
Quick Adjustments: With fewer units on order, you can swiftly respond to market changes without the burden of excess inventory.
Operational Flexibility: This agility is vital for small businesses that need to pivot or scale production based on actual demand.
4. Enhanced Quality Control & Communication
Local Oversight: Working with suppliers nearby allows for more frequent quality checks and easier communication.
Consistent Standards: You’re more likely to receive consistent, high-quality products when manufacturing is done locally.
5. Shorter Lead Times
Faster Delivery: Domestic sourcing often means reduced shipping times and fewer logistical hurdles, ensuring you can replenish stock quickly.
Improved Customer Satisfaction: Faster lead times help maintain a reliable supply chain and enhance customer satisfaction.
6. Local Support & Sustainability
Ethical & Sustainable: Consumers today increasingly value products that are ethically and sustainably sourced.
Boosting Local Economy: Sourcing within the UK not only supports local businesses but can also justify a premium price point due to the enhanced quality and sustainability credentials.
Challenges to consider
While the advantages of UK sourcing are compelling, it’s important to acknowledge some challenges:
Higher Unit Costs: UK-manufactured goods can be more expensive than their overseas counterparts, so you must position your product to justify the higher cost, often through superior quality or sustainability.
Scalability Limitations: If your business grows rapidly, you might face challenges in scaling production quickly compared to overseas manufacturers who operate on a much larger scale.
Profit Margins: Balancing the higher per-unit cost with efficient operations, robust branding, and potential premium pricing is key to maintaining healthy profit margins.
Overseas manufacturing: A different proposition
Large global companies like Apple, IBM, Cisco, and Nike have long leveraged overseas manufacturing to benefit from economies of scale and lower production costs. However, these giants operate with extensive resources, vast customer bases, and advanced global supply chains. For many small or emerging businesses, the risks associated with high MOQs, excess inventory, quality inconsistency, and logistical complexities make UK sourcing a more viable,and profitable, option.
Well-known brands sourcing in the UK
Here are a few well-known brands that emphasize sourcing products or materials from within the UK:
Marks & Spencer: Renowned for its food range, M&S often highlights locally sourced British produce and ingredients.
Burberry: While a global luxury brand, Burberry champions British craftsmanship and sources certain materials domestically to ensure quality.
Mulberry: This heritage brand is known for its leather goods, often using locally sourced leathers and traditional manufacturing techniques.
Barbour: Famous for its outerwear, Barbour maintains a strong British identity by relying on UK-based production.
John Lewis: As a leading department store, John Lewis works closely with UK suppliers across various product categories, from home goods to clothing.
Fortnum & Mason / Harrods: These iconic retailers promote exclusive, locally produced items that celebrate British quality and tradition.
In summary
Sourcing in the UK can indeed be profitable. It allows you to commit to smaller, more manageable orders, reducing the risk of unsold stock and freeing up cash flow. While the unit costs might be higher compared to overseas options, the benefits of shorter lead times, improved quality control, greater flexibility, and enhanced sustainability often outweigh these costs, especially for small businesses that cannot afford to lock up significant capital in large production runs.
By carefully weighing these factors and aligning your sourcing strategy with your business needs, you can leverage UK-based manufacturing to build a strong, agile, and profitable product offering.