In manufacturing terms, the UK is very much open for business. With the sector’s fortunes reversing throughout 2013, there is a visible step change in attitudes and strategies.
Most encouragingly, the risk-averse attitudes of the last few years appear to be subsiding. The willingness to spend money and invest in research, production and logistics is perhaps the most notable reversal in recent domestic trends.
While manufacturers had previously been content to stick with a safety-first, approach, the viewpoint is now centred towards being proactive instead of reactive. A recent poll by manufacturers' association EEF and accountants BDO LLP stated the UK manufacturing’s investment plans were the strongest in six years, following regular monthly GDP increases this year.
Three key manufacturing drivers of the next few years include:
1. Added services to complement existing products
2. Big data growing bigger and more essential as an information source
3. Large scale R&D investment to support innovation
With the economy kick starting, the attention has turned to the readiness of manufacturers to become part of any upward momentum. At present, manufacturing accounts for around 10.5% of the national GDP. With the government attempting to encourage export while conversely making the UK attractive to high profile foreign investors ranging from India’s TATA to the US’ Kraft, now is the time for UK manufacturing to capitalise.
Here are a few ways finance directors can exploit a return to economic growth by making the right investments to both sustain and further grow their business.
Enter the services goldmine
Servitization, a term born out of manufacturers incorporating technology-led services with existing products, has been dubbed the ‘services goldmine.’ Examples of this range from the provision of spare parts to product maintenance, repair and overhaul.
A recent report of 50 UK manufacturers by Xerox and Aston University found adopting this model realised business growth of 5-10% a year. However, despite the benefits, servitization has failed to generate widespread awareness in the wider UK market. Barriers cited include a perceived lack of skills and concerns around processes, budgets, legislation and contracts.
With only 30 per cent of UK companies offering services on top of products, the report concluded manufacturing and service are still largely thought of as separate, self-contained sectors, and that a huge opportunity exists to promote more manufacturers to compete through services.
But integrating the two by encouraging skills, contracting structures, risk management mechanisms and financing systems should be paramount. A notable adopter - Rolls-Royce – runs TotalCare, offering maintenance and repair of the engines it sells to airline operators, while monitoring performance and suggesting improvements throughout the product lifecycle.
Given its proven success, this service can add a new dimension to manufacturers in any sector.
Big data isn’t a bad thing
With the continued rise of the internet, the gathering of large amount of data has increased at an enormous rate. In previous years, the idea of Big Data as forceful commodity has been met with apprehension by some manufacturers, because it was expensive to store and needed huge amounts of computing power are needed to analyse it to get anything useful from it.
But the emergence of cheaper storage and computing resources are now available in the cloud, so analysing Big Data is no longer such a financial challenge. As a result, forward thinking manufacturers see this as a golden opportunity to move away from gut instinct boardroom decisions and let cold hard facts and figures influence their decisions.
The benefits of using data effectively are great, as businesses can measure operations, human resources, customer interactions, and supply chain relationships with unprecedented precision. It gives a chance for businesses to get to know their consumer – the primary driver – better than before.
Ride the innovation wave
Good or bad, the economy stands still for no one. And neither will this current trend of companies seeking out new ways of innovating through design, production and distribution.
It’s no coincidence that R&D investments in the UK have risen substantially since the beginning of last year, as confidence returns to many sectors of UK manufacturing, most notably in automotive, aerospace, chemicals and food & drink.
A KPMG report earlier this year stated 63% of manufacturers are looking to increase investment in 2013, while it also revealed 50% of large global companies will seek acquisitions or mergers to enhance innovation resources. Manufacturers exploring the notion of investment in innovation have an abundance of choice, but breakthrough research and development and incremental improvements to existing products and services seem to be the most popular.
It’s no longer about innovation in individual silos, or historical considerations such as products and services, but instead, thinking differently about business operations, processes, technologies and talent.