Wednesday, 14 December 2011

Why manufacturing is winning (and what the rest can learn from it)!

Another week, another extraordinary series of meetings with companies either supplying to the manufacturing sector or actually making stuff themselves. I’ve travelled to Cannock to meet a machine tool workholding manufacturer to be told that they physically can’t take on any more orders until the end of January. One of their big clients told me a day later that they have just had their best November ever (yes ever). In fact, demand is so strong they are putting their prices up!

All the time the media drips negativity. As one of my clients put it to me, “it’s like living in a parallel universe.” So instead of regaling you ever more with these little anecdotes from the world of manufacturing which seemingly turn reality on its head, I thought I would try and assess why the sector is doing so well.

Firstly, manufacturing is lean, my god is it lean! Years of living at times hand to mouth has made the sector focus like no other. Automation and robotics have driven cost out of the production process and it doesn’t stop there. I’ve seen Pan-European marketing departments staffed by two (count them) two people. Structures so flat, they are positively pancake-like. The result is margins strong enough to absorb inflationary pressures and economic downturns without slash and burn cost-cutting.

Secondly, manufacturing is flexible. What was clear from the downturn of Q4 2008 and Q1 2009 was that workers and management now have a compact which is akin to one of our Prime Minister’s favourite phrases, namely, “we’re all in this together.” Employees and management across the board were willing to take pay cuts in order to keep their company going. The result has been that skilled workers have been retained to take advantage of any upturn.

Three, manufacturing is hungry. Years of scrapping to put food on the table has made the sector ultra-competitive. If there is a contract out there to be won, heaven and earth will be moved to get it. If necessary, business theory will be turned on its head. Years of build to order and theories of reducing finished stock in order to improve working capital are being thrown out of the window. If customers are demanding product now, then we’ll just have to reduce lead times by holding more product.

Four, manufacturers can see the upside in the current economic uncertainty, namely historically low interest rates. Money is cheap (if you can find a source) and it is being used to invest to improve and become more efficient which, in turn, improves margins and makes the sector more competitive.

Finally, manufacturing is used to being ignored by Government. There are no special favours or opt-outs here. This is a sector used to standing on its own two feet, with precious few grants and incentives available. Yes they would like reductions in VAT for capital investment but they’re not holding their breath.

In short, my view is that manufacturing can offer a roadmap for other sectors, let’s just hope it can keep it going well into 2012.


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