ICT
FINANCE
I N
B Y
A S S O C I AT I O N W I T H
PURCHASING, PROCUREMENT & LOGISTICS
ECONOMY, GOVERNMENT & POLICY
S P O N S O R E D
Delighted. Proud. Ready to use our Manufacturing expertise to help you achieve more. Delighted. Proud. to use our Manufacturing toto As specialists in Manufacturing,expertise our aim is always Having won this award for theReady second time delight clients by implementing proven Microsoft in three you years, we’re naturally delighted help achieve more. and proud.
Having won this award second time Delighted. Proud. Ready toand use We’re also very grateful tofor ourthe clients, partners in three years, we’re naturally delighted staff for making it possible. Indeed, what gives us help you achieve more. and proud. greatest satisfaction is that the award criteria recognised the powerful of eBECS’ We’re also very grateful ourthe clients, partners Having won this awardtocombination for second time and business acumen, technological expertise and us the staff for making it possible. Indeed, what gives in three years, we’re naturally delighted very positive feedback fromthe ouraward clients. greatest satisfaction is that criteria and proud.
Dynamics® AX and Microsoft Dynamics® CRM solutions thatindrive efficiency, profit andisgrowth. As specialists Manufacturing, our aim always to our Manufacturing expertise toThis award inspires us to achieve even more on behalf delight clients by implementing proven Microsoftof existing and AX newand eBECS’ clients.Dynamics® Thank you. CRM Dynamics® Microsoft solutions drive efficiency, and growth. ThisAX IfAsyou’ d likethat to achieve more withprofit Microsoft specialists in Manufacturing, our aim isDynamics always to award inspires Dynamics us to achieve even more on behalf of and Microsoft CRM, let’ s talk. Call Stephen delight clients by implementing proven Microsoft existing new441 eBECS’ clients. Thank you. Wilson onand 08455 441 or emailDynamics® swilson@ebecs.com Dynamics® AX and Microsoft CRM If you’d likethat to achieve more withprofit Microsoft Dynamics solutions drive efficiency, and growth. ThisAX and Microsoft Dynamics CRM, let’ s talk. Call Stephen award inspires us to achieve even more on behalf of Wilson onand 08455 441 or email Thank swilson@ebecs.com existing new441 eBECS’ clients. you.
recognised the powerful combination of eBECS’ We’re also very grateful to our clients, partners and business acumen, technological expertise and the staff for making it possible. Indeed, what gives us very positive feedback from our clients. greatest satisfaction is that the award criteria If you’d like to achieve more with Microsoft Dynamics AX recognised the powerful combination of eBECS’ and Microsoft Dynamics CRM, let’s talk. Call Stephen business acumen, technological expertise and the Wilson on Derbyshire 08455 441S41 441 or email swilson@ebecs.com very positive feedback fromBridge our clients. eBECS Limited, Enterprise House, Business Centre, Beresford Way, Chesterfield, 9FG Tel: 08455 441 441 Fax: 08455 441 728 Email: info@ebecs.com www.ebecs.com
Offices in: United Kingdom | North America | Kingdom of Saudi Arabia | Jordan | China eBECS Limited, Enterprise House, Bridge Business Centre, Beresford Way, Chesterfield, Derbyshire S41 9FG Tel: 08455 441 441 Fax: 08455 441 728 Email: info@ebecs.com www.ebecs.com
Offices in: United Kingdom | North America | Kingdom of Saudi Arabia | Jordan | China eBECS Limited, Enterprise House, Bridge Business Centre, Beresford Way, Chesterfield, Derbyshire S41 9FG Tel: 08455 441 441 Fax: 08455 441 728 Email: info@ebecs.com www.ebecs.com
2012
ANNUAL MANUFACTURING REPORT
CONTENTS
CONTENTS 4 FOREWORD By Terry Scuoler 5
EXECUTIVE SUMMARY By Tim Brown
6–13
ECONOMY, GOVERNMENT & POLICY Survey & analysis
14–23
FINANCE Survey & analysis
24–33
PURCHASING, PROCUREMENT & LOGISTICS Survey & analysis
34–41
ICT Survey & analysis
42
BEST OF THE REST Findings from other research
EDITOR - Tim Brown t.brown@sayonemedia.com SUB-EDITOR - Roberto Priolo r.priolo@sayonemedia.com ART EDITOR - Martin Mitchell martin@opticjuice.co.uk RESEARCH MANAGER - Tim Brown t.brown@sayonemedia.com PUBLISHER - Henry Anson h.anson@sayonemedia.com
Neither The Manufacturer nor SayOne Media can accept responsibility for omissions or errors. TERMS AND CONDITIONS Please note that points of view expressed in articles by contributing writers and in advertisements included in this report dot not necessarily represent those of the publishers. Whilst every effort is made to ensure the accuracy of the information contained in the report, no legal responsibility will be accepted by the publishers or contributors for loss arising from use of information published. All rights reserved. No part of this publication may be reproduced or stored in a retrieval system or transmitted in any form or by any means without prior written consent of the publishers. Copyright ©SayOne Media 2013. Head Office: Elizabeth House, Block 2, Part 7th Floor, 39 York Rd, London, SE1 7NQ T +44 (0)207 401 6033 F +44 (0)207 202 7488 www.sayonemedia.com
3
2012
ANNUAL MANUFACTURING REPORT
FOREWORD
FOREWORD
I Terry Scuoler Chief Executive EEF, the manufacturers’ organisation
am delighted to introduce this year’s Annual Manufacturing Report. It has been a challenging time for the UK economy and business and our sector has been no exception. The first eighteen months of recovery to mid-2011 were positive and promising, particularly for manufacturers. Our sector was delivering an increased share of output, providing a boost to our trade performance and investing more than the wider economy.
The Government’s £1 trillion export target is a bold statement of intent, but it will only be achieved if it is supported by a clear strategy, which is seen as a priority by all parts of government. Only then will this ambition be seen as credible by business and the public.
Clearly some of our economic worries are linked to the on-going problems of the Eurozone and the corresponding lack of confidence in the UK’s economic prospects, but it is not just the Eurozone which is affecting our ability to grow. We in the UK have many advantages when it comes to winning the competition for investment, but we need to hear from Government a more compelling message about the kind of economy it is trying to create and why future investment should be made here, rather than in overseas competitive markets.
I believe we need an economy-wide industrial strategy, a business-plan for the Government, which speaks to business about the kind of economy that the Coalition is trying to create and how it will be achieved. Unfortunately, the existing Plan for Growth is unwieldy and has simply not been visible and influential across Government. It has failed to register adequately with business.
There has also been much talk about the need for a UK ‘industrial policy’, with suggestions that government should focus on specific sectors or companies. There will be individual examples where such a course may be appropriate, but I do not believe that such an approach will deliver the growth and investment our economy needs. Instead, the Government’s focus should be on creating the right environment for all Since then the UK economy has stalled businesses seeking to grow and ensuring and has seen virtually no growth, let alone the investment and export focused that everything it does supports, rather than hinders, those objectives. Only by doing so, growth that politicians and economists can we hope to achieve stronger and betterbelieve necessary for a better balanced economy. So where do we go from here? balanced growth.
There is much the Government has done, which we support, starting with the firm action that has been necessary to get to grips with the public finances. There have also been some individual growth measures which have boosted industry. Welcome as these measures are, industry, however, does not see Government demonstrating the same relentless focus on growth as it has on meeting the fiscal mandate.
4
Industry is looking for a clear economic vision with coherence and accountability across all parts of government. This will create long term certainty which is critical to unlock business investment. The Coalition has been right to prioritise reducing the public deficit and the fiscal mandate provides a clear road map of how it will be achieved. We now need the Government to demonstrate the same urgency, commitment and clarity on growth. Only such our approach can deliver the investment, exports and growth our economy desperately needs and help secure our future competitiveness.
2012
ANNUAL MANUFACTURING REPORT
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY Welcome to the Annual Manufacturing Report 2012 sponsored by Barclays and eBECS.
I
Tim Brown Online and reports editor, The Manufacturer
n 2012 the macroeconomic issues impacting on British manufacturers have continued. The issues facing the Eurozone remain of high concern and overall UK growth has remained minimal. However, in many areas of the Annual Manufacturing Report 2012, the responses from manufacturers more closely reflect the pre-recession ‘AMR figures from 2007/08, which is very encouraging.
By comparison, industry’s perception of how well the government is managing the economy has declined significantly since last year with a 19% decrease in the number of respondents reporting that they believe the Government is managing the economy ‘Very well’. This was also reflected with how helpful and supportive manufacturers reported finding their local/regional government with 61% reporting that they found local government unhelpful.
By comparison with the figures from 2011, confidence appears to be returning to the UK manufacturing sector. Manufacturers are still understandably concerned about their future prospects but companies are looking to make investments, a prospect that will be further strengthened by the Government’s December announcement of an increase in capital allowances to £250,000. However, 38% of companies are forecasting a cut in IT spend over the next year.
There were mixed results in the use and perceived usefulness of business agencies with some enjoying a growth in interaction with manufacturing companies in 2012 whilst others saw a contraction. The changeover of the MAS franchise has not impacted its popularity which was up 13% this year, bringing it back into line with 2010 levels. EEF improved its position to report its strongest engagement with manufacturers from the last three years.
Companies are displaying a strong focus in 2012 on research and development in order to create new products. Indeed 98% of companies reported plans to spend the same or more on new product development in the coming year with over a third planning to increase spending in this area in 2013. Financing has also improved this year with an 8% decrease (from 12% to 4%) in the percentage of companies reporting that funding has been impossible to obtain. Structured funding solutions have continued to be an attractive option for manufacturers and are a positive strategic consideration for companies. Such funding is aligned to the specific profile of a business and is supportive of investments in tangible expenditure including assets, stock or sales.
Interestingly, in the last 12 months there has been a reduction in sourcing of materials from China, India and Russia which has confirmed a trend that sourcing from the ‘Far East’ is being reduced. Possible explanations for this include poor quality, long lead times and reticence about surrendering IP due to the inherent risks involved. The overall improvement in confidence and the increase in investment plans are very encouraging and suggest that the recovery is underway. There seems to be a long way to go but by comparison with the past two years, manufacturers are reporting that they are in a stronger position and are hopeful that this improvement will continue. From all at The Manufacturer magazine, we hope you enjoy the Annual Manufacturing Report, 2012.
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2012
ANNUAL MANUFACTURING REPORT
ECONOMY, GOVERNMENT & POLICY
ECONOMY, GOVERNMENT & POLICY Analysis by Tim Brown, Online and Reports Editor, The Manufacturer
T
he Manufacturer is the premiere UK industry publication providing manufacturing news, articles and insights while promoting best practice in the manufacturing industry. Covering all manufacturing sectors The Manufacturer, is an essential resource for every manufacturing boardroom and for senior management, delivering thought leadership articles, regulatory updates and best practice case studies on a monthly basis. Far from simply a print magazine, The Manufacturer has a strong web presence and offers tailored weekly newsletters. An active events schedule also attracts an engaged readership community and supports understanding between manufacturers and those providing services to them. Events range from intimate dinners through to our
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annual flagship conference and awards scheme, The Manufacturer Director’s Conference and The Manufacturer of the Year Awards. Strong partnerships with academic bodies, including Cranfield University and Cardiff Business School, and trade associations like EEF and MTA make The Manufacturer an important platform for national campaigns and political lobbying. In particular The Manufacturer is proud to support employer-led skills development through its partnership with sector skills council Semta. Tim joined The Manufacturer in 2009 after working as a journalist for seven years in Australia on a range of lifestyle and business magazine publications. His primary areas of interest include the automotive industry and business development.
2012
ANNUAL MANUFACTURING REPORT
ECONOMY, GOVERNMENT & POLICY
1 How optimistic are you about the UK economy and
the effect the general economic situation will have on UK manufacturing over the next 12 months or so?
3 Whilst under the Coalition, what impact will
the Government have on the fortunes of the UK manufacturing industry? Significant improvement Moderate improvement No Change Moderate deterioration Significant deterioration
Very optimistic
Quite optimistic
Quite pessimistic
The level of optimism amongst manufacturers is improving with almost half (46%) of respondents reporting that they are ‘Quite optimistic’ - the highest figure since 2008. Still over 50% remain pessimistic with 9% reporting that they are ‘Very pessimistic’.
Very pessimistic
While the increase in overall optimism is encouraging, the initial euphoria about the potential for improvement in the economy under the coalition government has been replaced with disillusionment. Last year the jury was out on their opinion of the Government but now the jury is in with only 2% of
2A How well do you think the Government will manage
the economy with regards to the country as a whole?
Exceptionally well
Very well
Moderately well
respondents expecting the government to handle the economy ‘Very well’ compared to 21% last year. There was also a 9% increase the number of respondents reporting that they expect the Government’s management of the economy with regards to manufacturing to be very poor.
2B How well do you think the Government is managing the economy
with regards to its specific impact on UK manufacturing?
Moderately poorly
Very poorly
Exceptionally poorly
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2012
ANNUAL MANUFACTURING REPORT
ECONOMY, GOVERNMENT & POLICY
4 How advanced is
2012
your company in adopting the following environmental and low carbon initiatives? Â
Overall year-on-year there has been an improvement in almost all areas of manufacturers’ environmental initiatives with basically no back sliding in commitment. There are encouraging signs that companies are increasingly addressing the root causes of climate change such as energy efficiency and greening the supply chain. This is in comparison to last year when respondents appeared to be more focused on dealing with the symptoms of climate change such as waste management.
Of the 13% of companies actively using renewable fuels, it would be interesting to see what proportion of green energy makes up their energy mix. In the vast majority of cases it is likely that it comprises only a fraction of the total energy consumption which further heightens the need for increased use.
8
Undertaken
Planned
Not started
2011
The critical goal in the race against climate change is an increase in the use of renewable fuels and, although there has been an improvement in this area (+8% by comparison with 2011), still 68% of companies are not using and are not planning to use any form of renewable energy. The consumption of fossil fuels for energy is the principal root cause of climate change which needs to be addressed. While there is a great need for further technological developments in the area of renewable fuel, it is also clear that the uptake of existing options has been slow.
2012
ANNUAL MANUFACTURING REPORT
ECONOMY, GOVERNMENT & POLICY
5 Has your company had contact with any of the following agencies or organisations?
N/A N/A
of manufacturers contacted UKTI in 2012
N/A N/A
N/A N/A
2012
2011
2010
6 For each one contacted, please state whether or not you found that agency or organisation useful
There were mixed results amongst business agencies with some enjoying a growth in interaction with manufacturing companies in 2012 whilst others saw a contraction. The changeover of the MAS franchise has not impacted its popularity which was up 13% this year, bringing its performance back into line with 2010 levels. It was a similar story for EEF, to which almost half of respondents (49%) turned to for advice in 2012 while the UKTI continued its improvement in popularity, reaching 56% of manufacturers in 2012. Overall,
the respondents reported a decline in the usefulness of the agencies contacted. This possibly indicates the level of complexity of the issues which are facing companies and may be directly related to the tough macro economic situation over which the trade bodies have no influence. The most significant decline was the LEPs (formerly RDAs) whose restructuring at the end of 2011, although maintaining engagement over the last 12 months, has decreased its reported usefulness sharply. The lack of engagement achieved by the Catapults and their poor performance in terms of usefulness is disappointing but the centres, which are overseen by the TSB, are still
in their infancy and their impact will hopefully grow over the next 12 months. The impact of the Carbon Trust has continued to decline to less than half of what it was in 2010. The two major business bodies, EEF and CBI, were the only two groups that improved or roughly maintained their positions. Of the only 18% of companies that engaged with the CBI, 63% reported them being useful by comparison with only 25% last year. Impressively, of the 49% of respondents that this year dealt with the EEF in 2012, 75% reported finding the Manufacturers’ Organisation useful.
>>> CONTINUED ON PAGE 10
9
ECONOMY, GOVERNMENT & POLICY
2012
ANNUAL MANUFACTURING REPORT
6 CONTINUED
2012
For each one contacted, please state whether or not you found that agency or organisation useful Useful Not useful
2011
10
2012
ANNUAL MANUFACTURING REPORT
ECONOMY, GOVERNMENT & POLICY
7 Thinking now about manufacturing in this region as opposed to nationally, how helpful and supportive do you find your
local/regional government?
Compared to the last three years, 2012 has seen a shift towards local government being considered unsupportive. It would still seem that local government has failed to register the importance of manufacturing and there is a high level of frustration about the lack of support local government provides to industry.
2011
2012
Helpful and/or supportive
2010
2009
Not helpful and/or supporting
8A Which if any of the following initiatives have been a key business focus for this company during the last 12 months? Â
2012
2011
2010
2009
11
2012
ANNUAL MANUFACTURING REPORT
ECONOMY, GOVERNMENT & POLICY
8B Which if any of the following initiatives are a planned priority within the next 12 months? Â
2012
The three biggest areas of change and improvement compared to last year are: better management of customers; the application of lean; and new product development. Businesses seem to have been more proactive about improving their businesses after last year reducing interest in these areas due to the tough economic times. Looking forward, this trend towards a more forward thinking approach looks set to continue in the coming year at least in terms of customer management and new products. It is difficult to detect long-term planning in lean with a consistent decline in forward planned initiatives. The application of micro technology and nanotechnology finally seems to be getting some traction with the highest ever number of companies reporting a focus on this topic.
12
2011
2010
2009
10 How significant is developing international trade for
your future growth strategy?
2012
Important or vital concern
2011 2010
Secondary or prospective concern
No concern
2012
ANNUAL MANUFACTURING REPORT
ECONOMY, GOVERNMENT & POLICY
9 Which if any of the following initiatives are a planned priority within the next 12 months?
2012
10 CONTINUED How significant is developing international
trade for your future growth strategy?
It is evident that 2011 was a nightmare year for manufacturers with a 10% decline in focus on exporting and developing international trade. The high level of disruption caused by the financial crisis seemed to hit exports last year which has resulted in record trade deficit figures this year. Fortunately, more companies have reported a greater focus on trade this year which we will hopefully see reflected in improved export figures in the next 12 months.
2009
2011
2010
2009
Customer satisfaction and retention remains as the top (82%) business driver for companies which is closely followed by quality reputation (79%). This is positive as they both focus on the needs of the customer rather than internal measures and are both root cause improvement mechanisms. There has been a gradual decline over the last four years in operational efficiencies and cost control but this could be a positive step demonstrating a reduction in counterproductive ‘efficiency’ measures. The lack of focus on IT technology is concerning with almost no companies considering it a focus. This could be for a number of reasons but could possibly indicate a lack of positive previous experiences due to the high level of complexity of manufacturing-related IT products and high failure rates. If this is the case, ignoring IT is not the answer. More careful selection of IT partners is critical and more research might be required before a choice is made.
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2012
ANNUAL MANUFACTURING REPORT
FINANCE
FINANCE Analysis by Mike Rigby, Head of Manufacturing, Transport and Logistics, Barclays
I
t is encouraging to see that the results of this survey indicate a positive return in confidence in terms of investment and access to funding. Manufacturing investment has grown strongly over the past year, and although it will be tempered by economic uncertainty, the sector is likely to benefit. Investment in research and development (R&D) in particular has seen a renewed focus which will help to drive growth and success. Demonstrating a focus on new product development, 98% of companies reported plans to spend the same or more on new product development with over a third planning to increase spending this year. Across the board, only a minority of companies reported that they spent less this year than last year on all major areas of investment. In 2011, over 30% of companies reported that they spent under £10,000 on machinery and machine tools and just over 25% spent over £500,000. In 2012, only 11% (a decrease of 21%) of companies reported that they would spend under £10,000 on machine tools and 34% (an increase of 9%) reported that they intended to spend in excess of £500,000. With the predictions of continued low interest rates, the prospect remains stable for manufacturers in the current restricted growth environment. Any change in interest rates or inflation will ultimately see a division in the sector, with opportunities and challenges at either end of the market. Positively the number of customers that consider the service and advice of their lender to be excellent has remained in double digits for the second year running and remains 5% higher than in 2010. For more than a decade Barclays has been at the forefront in providing support and funding to the manufacturing sector. Working with our team of dedicated, sector-specific Relationship Directors, you can be confident that you will always have access to the right specialists, perfectly placed to understand your business and connect you to the expertise that you need. To find out more information contact Mike Rigby, Head of Manufacturing, Transport and Logistics at michael.rigby@barclays.com or visit barclays.com/corporatebanking.
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2012
ANNUAL MANUFACTURING REPORT
FINANCE
1 What area of financial management is your company currently most focussed on? Â
Increasing cash flow Reducing costs generally Coping with inflation Exchange rate fluctuations Raising money for investment Reducing debt
Businesses have revealed that they are less focused on costs. This is represented by the second lowest figure in five years. Companies being less concerned about reducing costs is reflective of an increasingly positive business outlook.
2 Which of the following areas will you be investing in within the current financial year? Â
Manufacturers seem to be experiencing a dilution of working capital and are increasing this area of focus ensuring that this translates into cash generation. This is reflected by close to half of the respondents reporting that cash flow is a current priority. With trade improving, an increase in trade related opportunities is presented. Considerable renewed interest in raising money for investment suggests a move toward a longer term investment view.
Investment in computer hardware and software is commonly considered discretionary or short-term. In more challenging times expenditure on IT can be delayed or deferred. According to the figures from question one, 2011 presented caution and conservation of cash, as was illustrated with half the companies focused on reducing costs generally. With the focus on reducing costs lowered to 33%, investments such as IT have shown to be ones that businesses are finding more appealing.
2012
2011
2010
2009
>>> CONTINUED ON PAGE 16
15
2012
ANNUAL MANUFACTURING REPORT
FINANCE
2 CONTINUED
Which of the following areas will you be investing in within the current financial year? A low number of respondents reporting a focus on handling and storage equipment is a reflection that not all manufacturers seem to require complex handling and storage equipment. This notion is likely to be compounded by growth in companies receiving goods made to order. The shift away from batch production has reduced warehousing requirements and expenditure on handling and storage equipment. Figures from the British Automation and Robotics Association suggest that the UK lags behind other industrialised countries in terms of the incorporation of automation, including parts delivery and production line movement. A greater focus incorporating automated handling equipment on a production line, may be an area worth investigating to maximise productivity. Often the ROI for such investments can be achieved in under two years.
16
3 In broad terms, what is the likely level of capital investment in the following
areas during this current financial year?
Under £10,000
£10,000 - £50,000
The figures from question three continue the trend from the previous survey, where more companies are making larger investments across a variety of assets. This is a clear, positive indicator for the manufacturing industry. Positively there has been a considerable increase in companies seeking to spend more. In 2011, over 30% of companies reported that they spent under £10,000 on machinery and machine tools and just over 25% spent over £500,000. In 2012, only 11% (a decrease of 21%) of companies reported that they would spend
£50,000 - £100,000
£100,000-£500,000
under £10,000 on machine tools and 34% (an increase of 9%) reported that they intended to spend in excess of £500,000. Similar changes are apparent in property/ buildings and IT. Whilst no companies reported last year that they intended to spend over £500,000 on IT, this year 11% of companies reported plans to implement large IT projects of over £500,000. Level of capital investment in new product development has marginally increased. However, 31% of companies are still seeking to spend over £100,000 on new
Over £500,000
product development. Considering the strong emphasis placed on innovation driving economic growth, this reported level of capital investment is perceived to be encouraging. The increase in spending could be a reflection that, over the last couple of years, companies may have underinvested in certain areas. Confidence is clearly improving and it would appear from the reported increase in expenditure on machine tools that companies are investing in income lines. Hopefully in the near future new product development and innovation will become renewed areas of focus.
2012
ANNUAL MANUFACTURING REPORT
FINANCE
4A Are your investments levels in the following areas this year more, less or about
the same as last year?
Across the board, only a minority of companies reported that they spent less this year on all major areas of investment. Companies seem to now be considering new product development with 96% of companies spending at least the same if not more in 2012. It would appear that although expenditure is still comparatively low, the trend is moving in a positive direction. Although only 12% of companies reported spending less on handling and storage, comparative to last year, there has been a 7% drop in companies that spent more in this area, from 40% to 33%. Close to half the companies have spent a larger amount on machine tools and IT than the previous year, correlating with the findings of the previous questions.
Less
Same
More
Don’t know
4B Do you anticipate to be more, less or about the same in the following areas
next year?
The trend for growth in capital investment seems unlikely to continue into 2013 with fewer companies expressing plans to increase spending next year and more companies planning to decrease spending in key areas including IT and property. In 2011 just over 50% of the companies reported plans to spend more on machine tools in 2012. This was reflected in the results of this year’s spending activity as reported in question 4a. Fewer respondents indicated that they planned to continue the prioritisation of machine tools as an investment focus which may be due to strong investment in the present year.
Less
Same
More
Don’t know
Demonstrating a focus on new product development, 98% of companies reported plans to spend the same or more on new product development with over a third planning to increase spending in this year.
17
2012
ANNUAL MANUFACTURING REPORT
FINANCE
Comparative to last year, the area of capital expenditure likely to experience the biggest decrease over the next five years will be handling and storage equipment while IT, machine tools and new product development continue to be areas of focus. The concentration on new product development was also demonstrated last year but didn’t translate into large scale investments. Innovation, coupled with research and development are critical to help both the manufacturing sector and the UK economy improve. It is important for investment to now match these aspirations.
5 Now thinking ahead for the next five years, what do you anticipate being the
major areas of capital investment for this company?
Minor Medium Major Don’t know
6 How feasible has it been for your company to obtain any necessary
funding in 2012, as opposed to previous years?
Compared to last year, there has been an 8% decrease (from 12% to 4%) in the percentage of companies reporting that funding has been impossible to obtain, while additionally there was a 5% increase (from 6% to 11%) in businesses reporting funding being easier to obtain. Equally as encouraging is that this year saw the lowest number of companies reporting that they did not seek funding at all. This is reflective of an improving sector and economic landscape. The increased reporting of funding being difficult to obtain could possibly be reflective of companies that may have reported funding as inaccessible last year, having since revised their response to report it as difficult to obtain. As part of the Bank of England’s Funding for Lending Scheme, Barclays continues to provide support for Manufacturing businesses and their growth and investment strategies.
Funding inaccessible
18
Funding difficult to obtain
No change
Funding obtained easier
Not applicable - no funding sought
2012
ANNUAL MANUFACTURING REPORT
FINANCE
7A Which of the following ways
of raising capital has this company used within the past two years? 2012 2011 2010
7B Which of the
following ways of raising capital is the company likely to use over the next two years?
In this year’s survey additional response options were added including ‘hire purchasing’ and ‘invoice financing’. Both choices were encompassed in the asset finance option last year. Structured funding options, such as these, are likely to be used by 35% of respondents, which was similar to last year’s asset financing figure. A negative economic outlook generally presents less appetite for unstructured funding solutions. As the economy recovers there is an opportunity for companies to request an increase in their overdraft facilities, or unstructured lines of credit, as was experienced this year with an 8% rise in the use of overdraft facilities. This is an upward trend that encouragingly looks set to continue. The reduction of bank loan requirements as a method
N/A N/A N/A N/A N/A N/A
of funding over the next two years suggests a move away from long-term funding (greater than five years) toward short-term funding (less than five years). The reduction in the use of company reserves this year is also predicted to continue over the next two years. For some companies this may be that reserves had been exhausted. Structured funding solutions are a positive strategic consideration for companies as funding is aligned to the business profile and is supportive of investments in tangible expenditure including assets, stock or sales. Companies can react well to increases in their working capital requirements and maintain the desire to protect their cash flow while mitigating financial risk and not borrowing beyond their means.
N/A
N/A N/A N/A N/A N/A N/A N/A N/A
2012
2011
2010
19
2012
ANNUAL MANUFACTURING REPORT
FINANCE
8 How do you rate the level of service/advice
provided by your current lender?
9 How satisfied are you with the trade funding
options available from your bank?
2012
2011
2010
Positively the number of customers that consider the service and advice of their lender to be excellent has remained in double digits for the second year running and remains 5% higher than in 2010. This may indeed be a reflection of the increased popularity of more structured financing methods.
2012
It is not surprising to see that manufacturers find trade funding options increasingly available. An improvement in the number of respondents reporting satisfaction with trade funding options is reflective of an appetite to model working capital requirements around solutions such as trade loans and letters of credit.
Barclays Supplier Finance (BSF) is an alternative financing solution to support suppliers by offering alternative financing options with visibility over future cash flows. Barclays Supplier Finance (BSF) supports working capital initiatives whilst maximising efficiencies in liquidity, supply chain management and mitigating supplier risk.
2010
2011
Excellent
Very unsatisfied
Good
Moderately unsatisfied
Average
Indifferent
Poor
Moderately satisfied
Not applicable
Very satisfied
20
2012
ANNUAL MANUFACTURING REPORT
FINANCE
10 To what extent are you typically able to monitor and
measure return on major capital investment projects?
There was a large reduction this year in the number of manufacturers reporting that they operate mainly qualitative assessments, and a significant increase in the number of companies reporting that they are operating full financial ROI quantification on all major investments. This is a reassuring response as the assumption is that if a company is only operating a qualitative assessment process, investment cannot be justified financially.
Full financial ROI (return on investment) quantification on all investments Most benefits are quantified financially, but not all Some ROI quantification Mainly operate qualitative assessments
This improvement is noted by companies presenting stronger financial performance as well as an increase in investments made over the recent period.
11 What is the typical required payback
period for a return on a major capital investment project?
This year 21% of companies, the highest number for six years, reported a typical payback period to be between four to seven years, which is considered an agreed standard period for ROI on capital equipment purchases.
12 months or less
1 - 2 years
2 - 4 years
This is an exceptionally strong result, considering a large reduction (-17%) over the last 12 months in the number of companies reporting that no ROI targets are set. This relates to the reduction of qualitative assessments noted in the previous question. The number of companies still requiring a one to two year payback period (27%) is rather alarming comparative to previous years. Generally however, these responses reflect a positive outcome and confirms that businesses are making financially driven assessments of their return on investments and that generally the required payback period has increased.
4 - 7 years
2012 2011 More than 7 years
2010 2009 2008 2007
No such targets usually set
01
02
03
04
05
06
0
21
2012
ANNUAL MANUFACTURING REPORT
FINANCE
12 In broad terms what percentage of
capital investment is strategic as opposed to replacement? (Strategic being investment to support the forward vision of the company)
13 What percentage of your business is conducted offshore?
0-10% 10%-20% 20%-30%
2012
30%-40% More than 40%
2011
2010
2009
2008
100% 25-49%
75-99% 1-24%
From a macro economic perspective, any increase in offshore business is likely to be a reflection of stabilisation and improvement in Europe. Companies are likely to strive to be involved in high performing,
high growth regions and at present those are not within the UK, or indeed Europe, but further afield such as in the BRIC countries. The focus on markets further afield could account for some of the anticipated growth demonstrated in this question.
50-74% None
This year has produced the most positive results seen for this question since this survey began in 2008 with companies increasingly organising capital investments strategically. This improvement supports previous findings that the confidence to invest in longer-term assets has increased and additionally reflects the increase in new product development and machine tool expenditure, illustrated earlier in the section. Often both these areas of expenditure are made strategically.
22
There seems to be a general trend amongst UK manufacturers to increase the amount of business they are conducting overseas. This year 35% of companies reported that they conduct 20% or more of their business offshore compared to 15% only 12 months ago.
14 Is your level of offshore activity likely to increase or decrease over the
next 12 months?
A majority of respondents have reported increasing or maintaining offshore activity which would again reflect the likelihood that stability is returning to the EU market. It is unsurprising that companies seem to be focused on offshore business where they are currently enjoying better growth rates than they are currently finding in the UK. 2010 2011 2012
2012
ANNUAL MANUFACTURING REPORT
FINANCE
15 What percentage of your production
16 Is your level of outsourcing likely to increase or decrease over the next
is outsourced?
12 months?
Increase Decrease Stay the same Don’t know
2012 There is a continuing trend for UK manufacturers to increase outsourcing various parts of the manufacturing process. This year saw the lowest figures, since data has been collected, of companies outsourcing less than 10% of the production.
2011
0-10% 30-40%
It is not clear what, if any, of this increase is reflective of overseas outsourcing. In the purchasing and procurement section, companies were surveyed to ascertain the likelihood of their increasing the level of overseas production. Overall, the level of growth in that area has, according to this survey, remained relatively consistent over the last two years.
2010
10-20% More than 40%
The increasing trend to outsource looks set to continue. As suggested last year, when completed in a strategic manner, the use of outsourcing can add significant value to a company’s production line.
20-30% Don’t know
17 Over the last 12 months, how has your spending changed in the following areas?
A further reflection of confidence in the market is presented by more than half of UK companies planning to increase spending on marketing with only 7% of companies anticipating decreased spending in this area. Interestingly, despite this interest in marketing, only 20% of companies are looking to increase advertising.
Increase Stay the same Decrease
Comparing spending predictions within this year’s finance section to last year’s, there seems to have been little change. The only area of considerable change has been a reduction in the number of companies planning to increase employee bonuses which decreased from 30% last year to 11% this year.
23
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
PURCHASING, PROCUREMENT & LOGISTICS Analysis by Barry Evans, former Senior Research Associate, Lean Enterprise Research Centre (Cardiff Business School)
T
he Lean Enterprise Research Centre (LERC) is one of the Cardiff University Business School’s major research centres. The Centre was founded by Professor Peter Hines and Daniel T Jones in 1994 and focuses on identifying new sectors which are suitable for pioneering lean thinking research programmes. Barry Evans has worked on research projects related to lean thinking, value stream improvements and value chain analysis for a range of clients including: DEFRA, Food Chain Centre, UK retailers and UK manufacturers. He has also undertaken work relating to Lean Systems Thinking in the public sector and worked as the lean process manager in Tesco Supply Chain Development.
24
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
1 What proportion of the raw materials used in your company’s UK based
manufacturing production sites are imported?
More than 50% Less than 50% None
of UK manufacturers import half or more their production materials.
2 What proportion of bought-in components or sub-assemblies used in
your UK production sites are imported?
More than 50% Less than 50% None
45%
of UK manufacturers import half or more of their components and sub-assemblies.
25
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
3 How, if at all, do you anticipate these proportions changing over the next 12 months?
of UK manufacturers import half or more of their components and subassemblies.
20%
Although a small decrease was indicated in 2011, in 2012 there has been a much larger increase in the amount of materials and sub-assemblies being imported into the UK. Currently more than half of the companies surveyed here import over 50% of their materials and similar figures were reported for components and sub-assemblies. These figures are likely to remain or even increase slightly over the next 12 months but are a stark reflection of the UK’s negative balance of trade. Significant increase
Small increase
Stay the same
Small decrease
Significant decrease
Don’t know
4 Right now, from which of the following regions do you source any materials or components? 2012 2011 2010 2009 EU
86
93
97
100
Non-EU western Europe
18
29
15
26
Non-EU eastern Europe
20
36
15
14
North America
48
42
55
40
Asia incl. Japan and China
68
79
64
70
India/sub continent
26
36
15
30
North Africa
6
0
3
2
Australasia
9
0
0
2
5 Come 2013, from which of the following
regions do you think you will be sourcing any materials or components? 2012 2011 2010 2009
2012 STATS HIGHLIGHTED BELOW
4 5
18% 21%
4 5
4 5
48% 44%
4 5
86% 83%
20% 26%
4 5 4 5
68% 67%
6% 9% 4 5
26% 33%
EU
83
93
91
98
Non-EU western Europe
21
50
22
26
Non-EU eastern Europe
26
36
28
26
4
North America
44
43
50
40
5
Asia incl. Japan and China
67
79
75
70
India/sub continent
33
57
28
44
North Africa
9
0
3
0
Australasia
6
0
3
5
26
9% 6%
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
6 When choosing to outsource offshore, what are the most important criteria affecting that decision? (Ranked from 1 to 10.)
Product quality Cost savings Environmental management/being green Identifying/locating an appropriate supplier Speed of response Ease of partner/relationship management Design capability Language issues Cultural issues Distance of supplier from your plant
1 38 / 54% 32% 2% 17% 0% 0% 3% 3% 3% 2%
For the fourth year in a row quality emerged as the most significant factor affecting the decision to outsource offshore. This is an indication of the continued failure of foreign providers to meet the expectations of UK manufacturers. However, the ability to save money has been shown to be a major consideration with cost
2 40% 30 / 38% 5% 8% 2% 6% 3% 3% 3%
3 5% 11% 6% 19 / 23% 27% 8 6% 3% 5% 10%
4 3% 2% 11% 13 / 23% 27% 17 / 23 6% 6% 2% 13%
5 0% 8% 5% 10% 19 / 46% 32% 10% 6% 2% 10%
6 0% 0% 10% 17% 13% 17% 22% 14% 3% 3%
savings again coming in as the second most important criteria affecting this decision. The increased importance of Speed of response may be the result of the de-stocking that occurred over 2010-2011 with the need for foreign providers to be responsive having increased to ensure orders are satisfied. The importance of considering the
In the last 12 months there has been a reduction in sourcing of materials from China, India and Russia which has confirmed a trend that sourcing from the ‘Far East’ is being reduced. Possible explanations for this include poor quality, long lead times and reticence about surrendering IP due to the inherent risks involved.
7 2% 3% 13 / 31% 3% 5% 19% 29% 14 / 23% 8% 14%
8 3% 3% 19% 6% 2% 11% 5% 25% 16% 10%
9 5% 5% 10% 5% 5% 2% 6 38% 17% 35 / 31% 11%
10 5% 6% 21% 2% 2% 3% 6% 6% 24% 25 / 46%
environment when looking at a foreign provider has disappointingly decreased to be one of the least important considerations for UK suppliers. It must be remembered that environmental cautiousness often makes good economic sense too, particularly when factoring in transport costs and the increasing costs of fuel.
7 What proportion of bought-in components or sub-assemblies
used in your UK production sites are imported?
Concerns about the impact of exporting work overseas on the loss of tacit knowledge have proven to be well founded. The inability for some goods to be sourced locally is undoubtedly impacting on the ability of UK manufacturers to negotiate economically beneficial deals from abroad. This combined with the increase in wage costs in countries such as China and continually increasing transport costs, which have increased the costs of overseas sourced goods, may indeed see a continuing trend for declining imports from these regions. The number of companies sourcing goods from within Europe has also experienced a gradual decline over the last four years while goods from North Africa and Australasia seem to be picking up some of the slack.
95-100%
75-95%
50-74%
25-49%
1-24%
None
27
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
8 How, if at all, do you anticipate this proportion changing over the next 12 months?
There has been a 9% decrease in the number of companies that export at least 50% of their products compared to 2011. This is likely a reflection of the stronger sterling but is a further indication of the UK’s poor balance of trade. Although it is possible that 2011 was somewhat of an anomaly and that the figures have simply levelled out. Indeed, by comparison with 2009, the 2012 figures are quite encouraging. And with close to 90% of companies expecting that their levels of export will stay the same or increase, we should hopefully see next year’s figures improve further. Small increase
Stay the same
Small decrease
Significant decrease
of manufacturers expect to increase exports in 2013
Significant increase
37%
Don’t know
9 Where are your main export markets?
There has broadly been a continuation in the export targets. However, there has been a drop in export focus on Russia and an increase in exports to North America. However, the increased focus on the USA is the only area of improvement with all other regions remaining static or decreasing. It is important to recognise however that China has remained a focus for over one third of UK manufacturers. A focus on North Africa had been looking like developing into a consistently improving area of focus for UK companies but this year it has dropped back down to 2009/2010 levels. The consistent decline in focus on the EU market is a clear reflection of the economic issues facing the region but at this stage it does not appear that other areas are being attacked with enough fervour. No data has been collected relating to exports to South America and the south of Africa. This information will need to be collected next year to provide a complete picture of where UK manufacturers are focussing their exports targets.
28
2012 STATS HIGHLIGHTED BELOW 33% 21% 44%
80%
36% 12%
21%
26% 2012 2011 2010 2009 EU
80
86
94
89
Non-EU western Europe
33
36
25
15
Non-EU eastern Europe
21
36
28
20
North America
44
36
53
33
Asia incl. Japan and China
36
36
31
37
India/sub continent
21
21
28
14
North Africa
12
21
16
7
Australasia
26
29
22
15
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
10 Do you anticipate positive
opportunities arising from ‘new’ consumer markets like China and India?
11 What is the likelihood of part of
your manufacturing production moving to a low cost economy over the next 12 or 24 months?
2012
12 What is the likelihood of part
of your manufacturing production returning to the UK over the next 12 or 24 months?
2012
2012
2011
2010
2011
2011
Very likely Quite likely Not very likely
2010
Not at all likely Don’t know Not applicable
2010
2009
Yes No Don’t know
There has been a slight revision on last year’s figures but still a majority of companies are expecting a growth in opportunities in new consumer markets. Perhaps this decrease in confidence brings it more into line with the actual export figures. 2011 may have also been an anomalous year with the impact of a lower currency rate spawning increased exports that were not necessarily sustainable.
2009
Very likely Quite likely Not very likely Not at all likely Don’t know
For the first time in three years, companies have indicated that they are very likely to return part of their manufacturing production to the UK. However, while this is encouraging, there are still a quarter of companies considering moving part of their operations overseas. And while over 70% of companies consider it unlikely to undertake operations overseas, the fact that 30% are still considering it means that the operating environment is still not appealing enough to ensure British-based companies remain on these shores. As mentioned last year, companies that are considering moving operations overseas must beware of the hidden implications that such decisions will have. These include a loss of skills; difficulties with consistent quality; and long lead times.
29
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
13 If you are likely to move all or part of your manufacturing production to a low cost economy, where
is your company considering moving to?
2012 6% 2011 29%
2012 31% 2011 36%
2012 ??% 2011 ??% 2012 20% 2011 24% 2012 8% 2011 21%
2012 2011 Non-EU eastern Europe
6
29
Asia incl. Japan and China
31
36
India/sub continent
20
14
Mexico/South America
8
21
South East Asia
6
7
Don't know
27
29
Other
22
21
2012 6% 2011 7%
14 If you outsource any of your processes overseas, how would you rate your level of satisfaction with
your outsourcing decision. 2012 Totals 2012 Very satisfied 8% 55% Satisfied 47% Indifferent 38% 38% Unsatisfied 5% 7% Very unsatisfied 2%
2011 Totals 2011 0% 57% 57% 36% 36% 7% 7% 0%
Of those considering moving part of their operations overseas, far fewer are considering Non-EU eastern Europe countries such as Russia as potential places to set up shop. It will be interesting to see if Russia’s joining of the WTO earlier
30
2010 Totals 2010 17% 61% 44% 13% 13% 26% 26% 0%
2009 Totals 2009 4% 65% 61% 28% 28% 4% 7% 3%
this year has any impact on its attractiveness as an outsourcing destination. There has also been a considerable drop in interest in Mexico and South America as a destination for offshoring. This could be because of several reason
including difficulties with local regulations, unrest in the region and cultural complications.
The Manufacturer looked at the uptake of robotics and automation in foreign countries compared to the UK. By comparison with In terms of terms of the levels almost all other countries, with satisfaction with their the rate with which the overseas outsourcing, the UK is implementing majority of companies report automation is far slower. being either indifferent If this trend continues, the or satisfied with their result will be that foreign outsourced work. As was countries are not only able stated last year, members of to compete on price but UK supply chains clearly have also on repeatability and their work cut out for them also quality, something that to compete with their foreign manufacturers in the UK have counterparts. A report often considered our unique released earlier this year by selling point.
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
15 How much information do you currently receive from your channel partners?
Very detailed
Quite detailed
Not very detailed
Minimal/none
11%
of manufacturers receive very detailed information from their channel partners.
Don’t know
16 How much information do you currently share with your channel partners?
59% of manufacturers share detailed information with channel partners.
2012
2011
2010
31
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
17 Overall, which of the following phrases best describes the current degree of supply chain integration within
this company? Â
2012
of manufacturers have no supply chain integration.
32
2011
2010
Since 2010 there has been a 19% increase in companies reporting highly sophisticated sharing of information through the supply chain.
2012
ANNUAL MANUFACTURING REPORT
PURCHASING, PROCUREMENT & LOGISTICS
18 How will your level of investment in supply chain integration change over the
next 12 months.
2012
53% of manufacturers plan to increase investment in supply chain integration.
The evidence continues to show that world class organisations engage in longterm collaboration arrangements with fewer trusted suppliers. This activity is probably the single biggest potential contributor to an organisation’s plans for sustainable improvement. It is great therefore to see a 5% increase in companies expecting to see a ‘significant increase’ in their supply chain integration in the next 12 months and no
2011
2010
companies expecting it to decrease. While this is encouraging, still more than a quarter of companies report that the information they receive from their channel partners is not very detailed. As was reported in last year’s Annual Manufacturing Report, there is a wealth of knowledge which says that, particularly if you are in an innovative type market place with highly complex products and processes,
then collaboration is demonstrably a better arrangement. For companies with more simple products, a more adversarial approach can reap gains, particularly in price. However, even in those situations, the long-term gains from developing better relationships throughout a supply chain can often deliver much more consistent improvements which not only assist with the bottom line but also in terms of quality, ontime delivery and future innovation.
33
2012
ANNUAL MANUFACTURING REPORT
ITC
ICT Analysis by Kevin Hall, CEO, eBECS
K
evin Hall, co-founded eBECS in 1999, he has since led eBECS to be the most successful Microsoft Dynamics partner in the UK, winning Microsoft Dynamics Reseller of the Year in 2010 and 2012. eBECS is a specialist in the design and delivery of solutions for manufacturing, distribution and the service industries. eBECS delivers world class lean and agile business solutions using Microsoft Dynamics AX and Dynamics CRM. Its solutions streamline and integrate processes, minimise waste, optimise the supply chain and manage demand-driven operations. eBECS is a global company with a personal touch, and it takes enormous pride in its large referenceable customer base.
34
2012
ANNUAL MANUFACTURING REPORT
ITC
1 Was your total ICT expenditure (including hardware, service, software,
infrastructure, training, etc) from last financial year less, more or the same?
In the last 12 months almost half of manufacturers increased their expenditure on IT, with 48% reporting an increase over prior year IT spend. This is a significant transformation from 2010, when only 13% of them had increased their IT costs over the previous year, and one that is indicative of the adversity of economic conditions in 2009/10. Put another way, the number of respondents spending less on IT—the surest sign of budgetary cutbacks in the face of adversity— plummeted sharply, from 33% to 19% in 2012. Indeed, in 2012 a massive 81% of companies either maintained or increased their IT spend.
2012
48%
2011 Less
More
of manufacturers reported spending more on IT in 2012 than in 2011
The Same
2 Will your proposed expenditure for next financial
year be less, more or the same?
2012
2011
38%
of companies forecast spending less on IT in 2013
Less
More
The Same
But looking forward, manufacturers are less sanguine. Compared to 2010 when only 6% of companies planned to reduce their IT expenditure, we see that 38% of companies are forecasting a cut in IT spend over the next year. In short, while manufacturers seem to have re-engaged with IT projects that may have been postponed or cancelled during the recession, it is apparent that economic confidence remains fragile, and manufacturers are proceeding cautiously. That said, the lack of confidence is far from unanimous. Fully one third of manufacturers—36%—plan to increase spend, and a quarter—26%—plan to hold it level.
35
2012
ANNUAL MANUFACTURING REPORT
ITC
3 Which of the following IT and technology-based initiatives are currently high priority strategies within the company, in
the sense that there is a current project or that one is planned to start in the next 12 months?
2012
The key question, then, is where precisely will this increased or maintained level of investment be spent? One immediately noteworthy finding is that in terms of initiatives that currently comprise manufacturers’ high priorities, only three out of twelve such areas are predicted to see a lower level of expenditure than in 2010. The three in question: financial or accounting software, Manufacturing
36
2010
Execution Systems, and Supply Chain Management, where—roughly speaking— approximately half the percentage of respondents reckoned these were high priorities compared to 2010. Conversely, there were also clear ‘hot buttons’: the use of the Internet for sales and marketing, system integration, ERP, CRM, warehouse management system and Product Data Management. The conclusion to be
drawn? Core business processes, that undeniably add value, remain the focus of manufacturers’ attention. Finally, although no historical data exists with which to compare, the fact that more than a quarter of companies consider business analytics and reporting software as a high priority speaks volumes about the growing importance of analytics within manufacturing.
2012
ANNUAL MANUFACTURING REPORT
ITC
4 Over the past 12 months, have you made any new IT investments to improve your company’s performance in any of the
following business processes?
Just as pertinently, where have manufacturers actually been spending their money? Once again, it’s not difficult to see where they haven’t been spending it. Compared to 2010, IT expenditure on supply chain management stands out as having been de-prioritised. Likewise—albeit to a lesser extent— expenditure on energy efficiency. Once again, the key areas of interest revolve around the order-to-fulfilment process: forecasting, planning and scheduling, customerrelated activities, and CRM. This focus on the customer does suggest that many companies have historically not adequately managed customer (and potential customer) information, and are now looking to drive increased sales through better engagement. In this economy, is that a surprise? At eBECS, we don’t think so. At eBECS customer Anglo-Krempel, a specialist composite and polymer product supplier to the aerospace industry, a focus on precisely these areas has paid large dividends.
2012
2010
5 Have your new ICT initiatives been focused primarily on improving existing
processes and ways of working or have they focused on meeting new challenges and requirements faced by the company? Essentially, this question positions IT expenditure as a way of improving existing processes and ways of working, versus IT expenditure targeted on meeting the challenges of new requirements and new business models.
2012
Although the percentages vary, the story in 2012 is the same as 2010: what manufacturers are prioritising is expenditure on improving what they do—by a factor of roughly three-to-one.
And, of course, this ties in with companies reporting increased use of reporting and CRM solutions to help improve current issues within the Improving existing workplace. Looking forward, it also suggests that companies processes and ways are looking to IT to help simplify and improve efficiency in of working other areas of the business, and that this may in turn lead Meeting new challenges them to be able to take on new challenges in the future. and requirements
2010
37
2012
ANNUAL MANUFACTURING REPORT
ITC
6 What challenges that have resulted in the introduction of new ICT initiatives?
2012
What is it that drives IT expenditure? In short, we know what companies are intending to spend money on, but what business challenges and imperatives have underpinned that decision? Again, comparison with 2010 is informative: across the board, except in the area of raising innovation performance, there has been an increase in challenges being met with new IT initiatives. The conclusion is clear: IT investment is increasingly being seen as the route to tackle manufacturing challenges. That said, the bigger picture is also clear: service challenges and increased price competitiveness remain as the two core challenges that have resulted in the introduction of IT initiatives. The voice of the customer, in short, is paramount.
38
2010
7 To what extent did the introduction of ICT lead to an improvement in
the following?
Clearly, manufacturers have high expectations that their IT expenditures will— deliver the goods. But how realistic are those expectations? Certainly, past IT expenditure, in a fairly high number of instances, has led to no improvement in a range of areas extending from manufacturing costs to downtime, and energy efficiency to inventory levels.
But hope isn’t entirely misplaced: there are reports of moderate improvement in most areas. 51% of respondents, for instance, saw a moderate improvement in productivity, and 56% did so in profitability. And most gratifyingly, around a quarter of respondents are able to point to significant improvements in three areas: productivity, competitiveness, and inventory management.
The bottom line? Target your IT expenditure well, and implement it carefully. Ill-chosen software, sloppily installed, rarely delivers the goods. At eBECS, we like to cite building and landscaping product manufacturer Marshalls as an example of a business that is getting widespread benefits from a well-chosen product— Microsoft Dynamics AX— that has been carefully implemented across the business.
2012
ANNUAL MANUFACTURING REPORT
ITC
8 Which of the following phrases best describes the nature of your IT deployment
at your company?
This aspect of the survey probed how manufacturers characterise their IT deployment. Is it strategic? Or tactical? And if strategic, is that strategy a companywide one, or merely departmental?
2012
With remarkable candour, one-in-eight respondents confess to a tactical IT deployment, and a further one-in-six own up to IT deployments characterised by a departmental strategy. But gratifyingly, more respondents than in 2010 reckoned that their IT deployments illustrate a companywide strategy, and by a significant margin.
72% of c om pa com emp nies pan loy a y IT st -wide rate gy
2011
Company-wide strategy
Departmental strategy
Tactical rather than strategic
A significant improvement A moderate improvement
80 % of companies saw a productivity improvement due to ICT implementation
No improvement
39
2012
ANNUAL MANUFACTURING REPORT
ITC
9 Thinking about your company’s customer relations management, have you (or will you) implemented new software
solutions to achieve any of the following?
2012
2010
And what of CRM, in particular? As manufacturers mature in their understanding of what CRM can deliver, an increasing number of businesses are adopting CRM for reasons other than simple salesforce productivity. More than half of those surveyed—51%—identified delivering higher levels of customer service as a reason for adopting a CRM solution. Almost as many—45%—identified improving or maintain customer loyalty as a driver. Next: the improved marketing of new products or services, and the targeting new markets, both with 40%.
45%
of companies have implemented (or are planning to implement) a CRM system to improve/ maintain customer loyalty
40
eBECS customer Aston Martin, for instance, is targeting CRM on precisely these areas, and in the process eliminating a suite of cumbersome spreadsheets. Increased salesforce productivity, in fact, was a rationale in just a third of manufacturers—36%—which is heavily down from the almost two-thirds responding so in 2010.
2012
ANNUAL MANUFACTURING REPORT
ITC
8 What do you believe are the current major barriers to investment and implementation of IT within your organisation?
2012
2010
Finally, the survey turned to the major barriers to the investment and implementation of IT within manufacturers. And here, messages were mixed, with both good news and bad news. The good? Try this: in 2010, 77% of respondents cited lack of management buy-in as a barrier. In 2012, just 39% did so. Or this: in 2010, 20% of manufacturers cited employee resistance as a barrier. In 2012, three-quarters as many—15%—cited the same reason. But the bigger picture remains constant: overwhelmingly, cost is the biggest barrier, cited by 53%, followed by lack of management buy-in, at 39%. For vendors and users alike, as we enter 2013, the lessons are salutatory—and couldn’t be clearer.
26% of companies saw risk in the current economic climate as a barrier to ICT implementation
41
2012
ANNUAL MANUFACTURING REPORT
BEST OF THE REST
BEST OF THE REST THE LEADING MANUFACTURING COUNTRIES Manufacturing output statistics see the UK as the 9 largest manufacturer in the world.
60,000
th
CHINA $1,923 bn
EMPLOYMENT IN THE
MANUFACTURING SECTOR ROSE
US $1,856 bn JAPAN $1,084 bn GERMANY $614 bn
in the first two quarters of this year. In the three months to June 2012 there were 60,000 more people in the industry compared with the same time a year ago. Source: Office of National Statistics, June 2012
ITALY $308 bn BRAZIL $282 bn SOUTH KOREA $279 bn FRANCE $268 bn UK $231bn INDIA $226 bn Source: UN Statistics Division
2 OUT OF 3 COMPANIES have to use their own funds to finance their business because they cannot obtain bank support. Source: Trade Finance Survey, Trade and Export Finance Ltd, March 2012
FOOD AND DRINK
in particular benefitted from the Diamond Jubilee celebrations with output from this sector rising by 2.2% in May compared to April. Source: Office of National Statistics, May 2012
42
80% of employers don’t believe school leavers are left prepared for the world of work. Source: Federation of Small Businesses, August 2012
80%
As much as 80% of a company’s total carbon impact lies outside their direct operational control. Source: Carbon Trust research, November 2012
2012
ANNUAL MANUFACTURING REPORT
BEST OF THE REST
72%
of manufacturers will take an interest in reviewing supply chain risks over the next 12 months. Source: The Weakest Link, UK Plc’s Supply Chain, Zurch, July 2012
GOODS EXPORTS
Some sectors have had a really good recovery, with output up by more than a fifth since the end of 2009 – including electrical equipment (21%); metal products (23%); Motor vehicles (27%); Mechanical equipment (36%) and other transport (43%).
Electrical equipment (21%)
Motor vehicles (27%) Other transport (43%)
Metal products (23%)
Source: Office of National Statistics
Mechanical equipment (36%)
to non EU markets
WERE UP 10%
in the year to September compared with a 6% decline to EU countries.
Source: Office of National Statistics
40%
Source: 2013 Global Manufacturing Competitiveness Index, Deloitte
Source: NABE Industry Survey, July 2012,
The leading cause of supply chain disruption is unplanned IT or telecom outages with 52% of organisations surveyed experiencing some or high impact disruption as a result, followed in second place by adverse weather, experienced by 48% of firms.
53
The UK is predicted to drop from the 15th most competitive nation today to the 19th position in five years’ time.
of the panellists forecasted that GDP growth would be 2% or less and 11% suggested that it would be 1% or less in this survey.
Source: Business Continuity Institute (BCI) , November 2012
457,000 PEOPLE
started an apprenticeship in the academic year 2010/11, a 63% increase on the previous year. Manufacturing specific apprentices increased by 29%. Source: National Apprenticeship Week, February 2012
%
of manufacturers make products that are sold to a UK user or used as parts in UK production.
Source: UK Manufacturing: Supply chain insight research, Barclays, August 2012
The UK buries and burns at least £650 million a year of valuable materials. Source: Friends of the Earth, August 2012
Many businesses aren’t equipped to handle a first aid emergency, with 50% of employers lacking any formal process for assessing first aid needs. Source: St John Ambulance, September 2012
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