Manufacturing – A sustained recovery

A new report by the EEF, the manufacturers organisation reveals a continued strong performance for the sector but also warns that there are significant challenges to watch out for in the year ahead. Ian Morrison, a consultant specialising in manufacturing at Expense Reduction Analysts, a leading cost, purchase and supplier management consultancy, looks at some of the critical issues that manufacturers will need to address if they are to sustain a healthy bottom line and business performance during the next 12 months.

Economic Prospects 2011, published by EEF, shows that the manufacturing sector is still very much on the up driven largely by the growth in exports. But it also highlights four risks to watch over the next 12 months – including Government spending cuts, the Eurozone crisis; access to finance and commodity price rises.

So what should be the financial focus in 2011 for manufacturers to rise to these challenges and maintain growth in profitability?

Key ongoing concerns that we have come across when speaking to manufacturers is  maximisation of productivity and efficiencies in operation; and of course.keeping overheads under control such as the rising costs of raw materials and in and outbound transport, including shipping.

Maximising productivity and efficiencies in operation

During our work with manufacturers we see lots of attempts at lean manufacturing. But we also see a lot of examples where there is very little payback, so you have to question why some organisations invest in such a process? Our experience has informed us that techniques such as cell-based manufacturing and optimum utilisation of facilities, including equipment, are key components of a successful lean processing system and a high ROI.

As UK manufacturers continue to compete with the low cost economies of China and India, so the need to find clever ways of driving costs down becomes paramount. This is where cell-based manufacturing is having a dramatic impact and heightening the competitiveness of UK firms. Electronic components is the heartland of China and Japan, but one UK manufacturer I am aware of in this area, has created a highly effective and lean ‘cell’ based assembly line using homeworkers as third party contractors. Another pump manufacturer has successfully deployed a cell based factory production line whereby workers are involved in the manufacture of the items from start to finish. This has also benefited productivity and quality of product as workers are involved in the complete manufacture rather than being part of a conveyor belt where they work on just one element of the manufacture. In addition, line-side parts storage for the pumps has been deployed, which means less downtime as workers do not have to keep walking across the shop floor to get components that are required for the production of the pump.

With regards to efficiencies in operation we are seeing a trend towards space optimisation planning amongst producers. We have recently been involved in this capacity with a market gardener, which makes its business from growing small seedlings for the garden retail market. Space was a major consideration as its greenhouses took up 42 acres and yet are only used four months a year. Through looking at the most efficient way to lay plants and profiling customers annual requirements in order to extend the lifecycle of production, the market gardener has avoided an investment in a 30,000 sq ft warehouse.

Managing overheads

Increasing costs, particularly of raw materials and transport will threaten the competitiveness of UK manufacturers in 2011 if not effectively addressed.

We are seeing increased enquiries around managing rising raw material input costs. It is critical that manufacturers forensically examine the supplier marketplace. The world was a large place but isn’t anymore. Increasingly manufacturers are going offshore for their raw materials despite the associated transport costs.

However, a full risk assessment is critical if your organisation decides to go offshore. Thorough research of global suppliers, getting under the skin of their businesses and capabilities and understanding lead time implications is a must.  And once selected it is essential to ensure the supplier is integrated into your own business.

Road transport costs will continue to be a major consideration as prices continue to go up at the pump. Manufacturers will also need be aware of new levies on shipping companies, which will be introduced over the coming years and encourage a more environmentally responsible shipping industry. Whilst arguably this plays into the hands of the UK manufacturing sector, for those that depend on imports and exports,  it will be a key consideration and challenge going forward. Furthermore shipping companies are looking to run down their engines to two thirds of their normal speeds as they look to clean up their environmental act. This move will help them scrub out their exhaust systems which have been adversely affected by the dirty petroleum that ships run on. Whilst it will have a positive impact on the environment by reducing carbon emissions, ships will take longer to make their deliveries, which will in turn impact on lead times.

There is no doubt that UK manufacturing is enjoying an upturn, but to continue to compete on a world stage the sector will need to think smart when it comes to driving up efficiencies and driving down costs – by doing so UK manufacturers can outsmart its global counterparts and prosper in the future.

Ian Morrison started is career as a production planner at Sharp Electronics before moving to Thorn EMI where he was both a design and product engineer. Before joining Expense Reduction Analysts, he owned a highly successful lighting and fire alarm manufacturing business.