Manufacturers’ business confidence has taken a board beating across following the vote for Brexit, according to a new report from EEF and accountancy and business advisory firm, BDO LLP.
The report reveals that every region in England and Wales has suffered a decline in optimism, with the biggest falls seen by manufacturers in the South East & London and Wales, and the smallest by firms in the North East.
The annual report – Regional Manufacturing Outlook – draws upon survey data and the latest ONS figures to provide a longer-term picture of the health of UK manufacturing.
As well as capturing confidence levels, the report also shows the positive contribution made by manufacturing around the UK in terms of employment, export success, output and productivity.
According to the EEF’s chief economist, Lee Hopley, the Brexit vote has “put the manufacturing sector’s recovery in jeopardy.”
Hopley continued: “The growth path is now uncertain in all regions and, while firms in the South East & London and Wales look better placed to ride the storm, companies in the Eastern counties, North East and the South West, appear more downbeat about their ability to cope.
“The referendum outcome has provided a jolt and it’s clear that there are fresh challenges ahead. Exchange rate volatility, political uncertainty and the danger of increased costs are already causing concern across the regions and business confidence is in short supply. But our sector is nothing if not dynamic, determined and resilient. UK manufacturing remains a force to be reckoned with.
“With a solid business environment, supportive policies and the right outcome from Brexit negotiations allowing for trade and ongoing access to skilled workers, manufacturers should be able to overcome the risks, reap future growth rewards and get their business confidence back on track.”
3 opportunities Brexit creates for UK manufacturers
A Brexit presents major questions for UK manufacturers in many areas – from health & safety to employment law to sector vulnerabilities. However, smart companies are viewing this time of uncertainty as a time to invest in continuous improvement and business transformation activities, which will ensure their competitiveness no matter what the political or economic future holds.
Here are three ways manufacturers can improve their processes and productivity now:
Go local, go global
With the pound at its lowest point in recent history, manufacturers with strong export markets and that trade in local currency are actually seeing a rush in interest for their products. If there wasn’t already an incentive to look at upping your export game, there is now. Industry bodies and experts offer competitive research analysis on how to evaluate new markets, products and competition before moving forward with an ambitious export scheme.
On the other side, the low pound and uncertainty over Brexit’s impact on international trade should encourage UK manufacturers to evaluate their supply chain for opportunities to buy local. For example, if a part is sourced from China, it will add approximately 12 weeks lead time to the manufacturing value stream, instead of receiving replacements in a few hours from a local supplier. This increases the amount of inventory required as well as increasing the risk of poor quality.
Alan Purvis, MD at Mettler Toledo said:
“The majority of our sales are in foreign currencies (and this) converts into an increase in sales revenue. On the other hand, our manufacturing cost is significant and we probably face approximately a 5% increase in material costs.”
Here, Lean can help analyse the value stream for all parts of the supply chain to identify if it is worth finding a local alternative to a particular part or if the savings found in an offshore supplier are more beneficial. Companies should always look at the total cost and risk not just the single part cost.
The cost line is something most companies miss off their value stream maps, this is for a number of reasons, but mainly:
- The information is difficult to obtain
- Companies do not have a sufficient grasp of their finances to enable them to apportion costs in this manner
- Activity Based Cost modelling is not fully understood
The main advantage of including the cost line is it clearly shows the build-up of cost across the value stream, and when linking that with opportunity for improvement, it can demonstrate the reasoning for selection of an improvement area and focus a company on the improvements that are going to give the biggest ‘bang for the buck’. This in turn will then guide the development of the future state and what this could look like.
This is a major oversight when selecting overseas suppliers, as the inventory and lead time can seriously be impacted in a negative manner, as can be the quality and response to quality issues.
One of the biggest changes in the manufacturing business in recent years has been the surge of requests for bespoke products. From consumers as well as industry clients in the supply chain, companies are expected to deliver customisations in short order. It’s about the whole customer experience: journey, personalisation and adaptability, rather than volume.
In every process we have customer touch points. How well we manage these “moments of truth” with our customers influences their levels of loyalty towards the company.
Loyal customers spend more and are more likely to recommend the company. Therefore, making customers more loyal should be a major focus – and to do this we need to look at process from a customer experience perspective.
For example, I remember my father purchasing our first colour television set. There were limited suppliers and very limited choice. We went to the shop, looked at the few sets to choose from, and on selection ordered from the sales assistant, who then checked the stock via a telephone call and informed us delivery of said model would be 6-8 weeks. We placed the order and paid our deposit, with the final amount being payable upon confirmation of an actual delivery date.
Think of this customer experience today, and how the world has changed! Now, we go online to do the research, find a suitable website or store, go and purchase, take away said item or receive it via delivery within 48 hours.
When we look at processes, we must take an outside-in view. The process does not start and end at the front door of the company. Take, for example, the experience of going on holiday. The information, customer service, booking, and flight are all small parts of the customer experience and a company that understands how this fits into the overall customer experience will be well ahead of the game. EasyJet is one example of a company that truly understood what a customer really wanted and challenged the paradigms of an industry. It’s up to the company to influence and manage as much of the customer journey process as they can outside of their own traditional view.
Managing moments of truth is critical. Each interaction with a customer has a different level of impact on customer dissatisfaction and consequently loyalty.
I recently helped a company redesign their entire Special Products Inquiry system to go from over a week to 24 hours when it came to responding to custom orders. This required no new investment – just a new approach to looking at questions like:
- What activities does the customer value, not value, want or need? See example table below;
- How does the process flow throughout the company? This can be done by using customer journey mapping. Identify the moments of truth then via various methods e.g. customer satisfaction surveys, direct feedback etc.; plot the way a customer feels at each point. This then highlights areas for improvement in the whole customer journey experience.
- Is there a way to combine people and steps in a more optimum manner? Using techniques like value stream mapping can help you understand the current process lead time and investigate tools and techniques that can help reduce time spent.
- Is there a way to reduce or totally remove activities from the process? Using process mapping and operator surveys can help you understand waste in the current process and ways it can be reduced.
Whether it’s being able to reshore, export to new markets or deliver a custom order, the watchword of modern manufacturing is agility. By using continuous improvement strategies, such as Lean, to remove waste, remain competitive and deliver quality, companies will be able to keep their UK operations strong in the face of potential political and economic challenges.
A company’s improvement strategy often has many false starts and subsequently fails for a number of reasons, the first and main reason is the improvement journey. It may be ‘common sense’, but it’s surprising how so many lack this! Is difficult to navigate and a hard path to follow with many people choosing to go back to ‘the way we do things round here’ at the first opportunity, and convince themselves their company is special and that improvement won’t work. This is not an uncommon response to change, and the below model shows that most humans follow this path when faced with change. The main difference is the speed that people move through this cycle. It’s our role as change leaders to recognise this response is natural, when it’s happening, what stage people are at, and support them through it. Change often and frequently helps as people then become used to change and move through the cycle quicker.
The below model shows that most companies give up and fail due to the cultural effort required to get over the denial and resistance in the above model, before the big results kick in. Lean is not an overnight wonder, magic pill, or a one size fits all solution.
Due to the cultural effort required leaders tend to start ‘doing it themselves’, then we come across the common phrases: ‘they don’t do as they are told’, ‘they don’t tell us anything’, etc. This bypasses a company’s management structure and forces managers to deal at a much lower decision making level than their position merits. The impact of this is eventually no one is looking at the top level within the company and the strategic journey suffers with very little or no focus on direction. The below model demonstrates this very well.
After: Maseo Nemoto
We end up with no direction, guidance or vision that is clearly understood lower down the company thus resulting in confusion about roles and responsibility. Once this happens, most decision or problem solving is escalated upwards and senior people end up dealing with minor trivia that should have been dealt with two or three levels beneath them. Thus, companies do not use the structure they have put in place, therefore begging the question, why have it?
To enable a company to stay or become agile it needs to understand its value stream, remove all the waste, but also (and in my opinion the hardest and most critical part) is use the management structure, enable and empower the people, and focus on problem solving at the point of issue as quickly as possible. A good example of this is KPI reporting. Within most companies, this tends to be monthly. But things happen day by day, hour by hour, second by second, therefore what’s the point in talking about them once a month? By then, it’s too late!
A secondary benefit of companies becoming agile is this will improve productivity and increase the gross value add per employee, an issue that has been much publicised and debated over recent years.
Extract from the EEF Productivity Report
The UK’s productivity performance is currently the subject of a major policy debate. The trigger for this has been official statistics indicating that the productivity of the UK economy is relatively weak. The UK’s productivity performance matters because it is a key driver of long-term economic growth.
The debate has focused on the weakness of productivity as an economy-wide problem. But such a high-level approach could be missing a trick. Digging deeper and looking at the perspective of businesses about their productivity, and how the performance of different sectors in the economy varies significantly, could help explain why the UK’s productivity has lagged. The productivity growth of manufacturing outperformed that of services and the whole economy in the two decades to 2014, suggesting that manufacturing may not be the source of the UK’s weak performance.
Therefore the benefit of companies focusing on agility becomes two fold, helping companies respond to changing customer requirements quickly, but also helping the UK to become a comparable force in the global economy.
There are a variety of business benefits we’ve seen first-hand from the EEF approach to continuous improvement:
Paul Crutcher, Operations Director, Bisley:
“Bisley is at the beginning of its Lean journey. EEF has tailored its unrivalled expertise to our unique set of challenges and the fit is perfect. I look forward to EEF’s continued support long into the future.”
Whether we agree or disagree with Brexit is almost an irrelevant question today. The best we can do is make a success of the situation that faces us, and if we think everything is going to fail and fall apart the chances are it will! But if we believe we can shape the future and make a successful UK then we will work towards it and bring others with us. I hope that these three areas have at least stimulated your thought processes and got you thinking about your company and how it could be better.
Ian King, Service Line Lead – Productivity & Performance at EEF, helps industry sustain profitable business growth through improving productivity. He focuses on developing employee skills so members gain maximum benefit from their design, engineering and project management capabilities.
From the shop floor to the boardroom, EEF, the manufacturers’ organisation, works with businesses in all industries and of all sizes to kick-off or re-invigorate their productivity business transformation initiatives.