Annual Manufacturing Report 08 In association with:
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Introduction
Welcome to the Annual Manufacturing Report 2008 sponsored by Barclays Commercial Bank and Microsoft When the Annual Manufacturing Report survey was sent out in 2007 it was at a time when purse-strings all round were starting to tighten and the threat of a serious economic downturn was beginning to be bandied around the financial columns. However, the Northern Rock fiasco was yet to rear its head (and subsequently almost have it cut off) and few outside of the City imagined anything near recession. Had anyone suggested oil prices reaching an alltime high at over $140 a barrel, a 13 per cent fall in house prices, and now a £500 billion bail out to the high street banks, they probably would have been deemed to be a little overzealous in their claims. Yet that’s what’s happened. And that’s the backdrop to this year’s Annual Manufacturing Report. In last year’s foreword, Editor Victoria Hammond summarised that despite “recent turbulence” in the economy, “manufacturers questioned remained broadly optimistic” about the state of the UK’s finances. It should come as no surprise that such positivity has not been expressed this time around; seventy-eight percent are quite pessimistic or worse. But all is not lost. The main message to come out of the Report for 2008 is that manufacturers will tread carefully by reeling in spending, focus on organic growth and rely on the astute sense of caution which has seen them survive troubled times in the past. “Most manufacturers have considerable experience in managing cycles and fluctuations in demand,” said Barclays’ Nick Brayshaw. “It’s
Editor – Mark young M.young@sayonemedia.com T 01603 671313 Art Editor – Martin Mitchell m.mitchell@sayonemedia.com T 01603 671312 Business Development Director – Henry Anson h.anson@sayonemedia.com Publisher – Nick Hussey n.hussey@sayonemedia.com
a core strength of anyone that’s spent their life in manufacturing, particularly in the UK.” Other findings from the survey this year reveal: Despite a widely reported future skills shortage within industry, manufacturers are not currently hindered by it Despite the current economic climate, most manufacturers have seen no change with regards to the availability of funding from banks The focus on export markets and international supply chains continues to grow Alongside the data you’ll find expert analysis from Simon Holloway, Practice Leader in Process management and RFID at Bloor Research, with additional comments from Nick Brayshaw and Ray O’Donoghue of Barclays Corporate Bank and Stephen McBride of Microsoft. In addition, we’ve included an essay on the corporate case for sustainability and revealing case studies supplied by our sponsors. From all at the Manufacturer magazine, we hope you enjoy the Annual Manufacturing Report 2008.
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Barclays Commercial Bank has specialists in over 50 industries. Working exclusively in the manufacturing sector, they can provide the expertise and industry networks to move your business forward. By thinking ahead, we can help you make the right connections. To speak to Ray O’Donoghue, Head of UK Manufacturing, call 07775 540 741*. Alternatively visit www.barclays.co.uk/manufacturing
*Please note that the number quoted above is a mobile number. Barclays Bank PLC is authorised and regulated by the Financial Services Authority. Registered in England. Registered No: 1026167. Registered Office: 1 Churchill Place, London E14 5HP.
Contents
P/02
Case study
How Microsoft helped BAE Systems cut collaboration costs
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Annual Manufacturing Report 2008
In-depth analysis from our experts
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Annual Manufacturing Report 2008
Find out the results of our annual survey
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Sustainability – reaping the rewards or counting the costs? Mark Young reports
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P/50
How business intelligence helped Allied Bakeries improve delivery efficiency and customer service
Gay Sutton reports on the Manufacturing Strategy Review
Case study
Support for manufacturing
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Case study
How Barclays Commercial Bank helped S&A Foods with a bespoke banking package
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Defence manufacturer cuts collaboration costs with innovative supply chain solution Defence company BAE Systems Hägglunds wanted to find a better way to collaborate with its business partners. It worked with Microsoft® Certified Partner Eurostep to deploy its Share-A-space® workspace solution, which engineers and designers use to share information securely. The solution, built using the Microsoft Visual Studio® 2008 development system, complies with defence security restrictions, accelerates changes, and opens up new business opportunities
Business Needs The defence industry’s design and engineering organisations have high security requirements that have traditionally restricted collaboration. But today, the global market is responding to the need for closer business relationships. As the cost and complexity of military equipment increases, manufacturers are working more closely with other companies, such as suppliers, to deliver faster, more cost-effective solutions. Defence and aerospace development company, Sweden-based BAE Systems Hägglunds, is finding new ways to adapt to these market changes. In 2000, the organisation won a major contract from a Swiss national defence procurement organisation to provide ongoing maintenance services for 185 infantry fighting vehicles. Roger Ljung, IT Strategy Manager, BAE Systems Hägglunds, says: “In the past, our customer base has been largely Scandinavian. But increased competition has prompted our customers to buy from overseas
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suppliers. For the first time, we are required to work closely with organisations in Switzerland.” These new partnerships posed a major challenge for BAE Systems Hägglunds. As its designers made engineering modifications to vehicles, they needed to communicate these changes to the partner organisations quickly and efficiently. But security requirements imposed by military customers demand restricted networks, which prohibit Internet connectivity from BAE Systems Hägglunds computers. With 185 vehicles to deliver, each carrying complex equipment and software systems, keeping track of the specific configuration of individual vehicles was a complex process and necessary for ongoing maintenance. It was vital that BAE Systems Hägglunds could easily share information with relevant organisations to eliminate potential delays to the project. “We needed to find a more efficient solution than simply sending changes on CD-ROM through the postal service,” says Ljung.
Case Study
Solution BAE Systems Hägglunds worked with Microsoft® Certified Partner and software developer Eurostep to implement its engineering supply chain solution – Share-A-space®. This offers a common information hub that product designers, manufacturing engineers, and product-support engineers across partner organisations can use to share engineering information securely. The application accelerates the process of implementing changes, helping to ensure that users work from up-to-date models and plans. The solution also supports the Product Lifecycle Support standard published by the International Organisation for Standardisation. This was created to regulate the information needed to maintain complex engineering products such as aircraft and military equipment. Ljung says: “Using Share-A-space, we issue work orders that describe any required changes. Its configuration management features mean we can issue the work order against the vehicles affected by that particular change only.” The Share-A-space system is built using Microsoft Visual Studio 2008 and is deployed on the Windows Server® 2003 operating system, soon to be upgraded to Windows Server 2008. Mattias Johansson, Director of Software Products, Eurostep, says: “Microsoft technology provides a stable development environment for Share-A-space, and helps us to build and update our technology quickly. Alternatives such as J2EE were not mature enough for us to use in an enterprise environment.” Share-A-space generates sophisticated reports using Microsoft Office Excel® 2007. Johansson explains: “The use of Office Excel 2007 to integrate with ShareA-space helps to ensure that non-technical users can view complicated information in a familiar format.” Share-A-space also integrates seamlessly with suppliers’ product data management and enterprise resource management systems such as SAP. Within BAE Systems Hägglunds, the technology works with existing product support solutions. Johansson says: “Microsoft BizTalk Server 2004 securely controls the transfer of files, such as work orders, to and from disparate systems.”
Benefits Share-A-space accelerates the process of implementing engineering changes across partnering organisations without compromising security. It helps ensure that no user has to work from an out-of-date model or incorrect configuration. “We won the Swiss contract over many other firms due to the sophisticated modification services we could offer,” says Ljung. “Share-A-space is important, because it means
At a glance... Customer: BAE Systems Hägglunds Web Site: www.baesystems.com Customer Size: 1200 Country or Region: Sweden Industry: Defence Partner: Eurostep Customer Profile BAE Systems develops, delivers, and supports advanced defence and aerospace systems to Australia, Saudi Arabia, South Africa, Sweden, the United Kingdom, and the United States. Software and Services
Microsoft Server Product Portfolio − Microsoft BizTalk Server 2004 − Windows Server 2003 Microsoft Visual Studio − Microsoft Visual Studio 2008 Microsoft Office − Microsoft Office Excel 2007
For more information about other Microsoft customer successes, please visit: www.microsoft.com/resources/casestudies
that we can manage large projects, such as the delivery of 185 vehicles, efficiently.” The elimination of paper-based processes helps ensure
engineers are using the right version of plans. They can accelerate changes and eliminate the potential for errors and delays. With Share-A-space, BAE Systems Hägglunds can build new
business partnerships that would not have been possible without mature, integrated collaboration technology. The solution complies with defence security
requirements, supporting the seamless transfer of information without the need for Internet-based systems. When changes are approved, Share-A-space
automatically notifies all relevant users, and transfers technical specifications through a subscription service. The solution helps to drive new revenue streams through
after-market services. The system adds value for customers because BAE
Systems Hägglunds can now offer them a detailed repository of maintenance information. The company has cut engineering change approval times
from weeks to days. The company has since won a major contract to supply
similar infantry fighting vehicles to the Dutch armed forces. “Our use of Share-A-space helped us to negotiate the Dutch deal,” says Ljung. This case study is for informational purposes only. MICROSOFT MAKES NO WARRANTIES, EXPRESS OR IMPLIED, IN THIS SUMMARY. Document originally published June 2008
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Annual Manufacturing Report 08 Results analysis Study objectives The Annual Manufacturing Report measures changes in key issues and factors affecting UK manufacturing across a very broad range of subject areas, including the economy, the role of the government and its various agencies and overseas influences and threats. The report identifies key areas of capital expenditure and measures change in major capital investment categories. It also measures the extent of focus on change and improvement in key business processes and techniques and identifies the extent to which initiatives such as customer relationship management, supply chain management, lean manufacturing and change management are being embraced currently and planned for the future, along with the degree of focus and use of information technology.
The survey results An analysis of the findings of more than 700 surveys completed by UK manufacturers’.
Key findings The economy, government policy and company overview Firms are happy to work with the government and comply with the Climate Change Bill as long as it does not leave them competitively disadvantaged on the international front
Finance Manufacturers mostly registered no deterioration in ease of obtaining funding from banks
Purchasing, procurement and logistics Cost and quality remain main drivers in materials procurement; export markets remain key in distribution
Information technology Low levels of investment touted for IT in general and systems to support new product development generally
Methodology In July 2008, 8,000 surveys were sent out to senior managers within four key functions/departments of a typical UK manufacturing establishment:
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No. of employees
Percentage
Less than 100
45%
100 – 249
25%
250 – 499
14%
500 – 999
11%
1000 +
5%
Less than 100
11%
100 – 249
37%
250 – 499
32%
500 – 999
5%
1000 +
5%
Less than 100
32%
100 – 249
36%
250 – 499
20%
500 – 999
9%
1000 +
2%
Less than 100
20%
100 – 249
33%
250 – 499
27%
500 – 999
7%
1000 +
7%
AMR08 results analysis
Section one – The economy, government policy and company overview Economics climate It is not surprising with the current daily news bulletins about the problems in the world economy that the survey participants were fairly pessimistic about the current state of the UK economy (78 per cent greater that quite pessimistic). This is supported by their view of the UK government’s handling of the economic situation being poor (82 per cent greater than quite poor). As for the UK government’s support for the manufacturing sector, once again this is seen as poor (89per cent greater than quite poor). The view of our Prime Minister, Gordon Brown, has not improved since last year’s survey. If anything the opinion of him has weakened with over 67 per cent deciding there has been a greater than moderate deterioration. No one saw an improvement.
Climate change The participants’ view on meeting the current targets of the Climate Change Bill showed a degree of ‘sitting on the fence’ with half the respondents replying with a mark of “3”; just under a third were not so sure that the targets would be met. Three-quarters of the participants saw the Bill as a good thing with the proviso that the government needed to maintain a flexible approach to avoid UK business from being disadvantaged internationally. On the other hand a quarter saw the government as not providing enough incentives to help and encourage business to change. Climate change seemed to spark two sorts of response; either the introduction of a long-term framework for climate change policy will enable business to plan and invest for future change or it would add further to the regulation burden of businesses. In terms of carbon footprint reduction and the fight against climate change, just over 40 per cent of participants were handling this through a process of continual on-going initiatives, which of course means that the organisation can be seen to make steady progress by biting small chunks at a time, as well as handling any changes in terms of regulations or advances in technology. Just over a third of respondents stated that they were mid-way through initiatives. It is good to note that a very small percentage had taken no action at all. This would indicate that “green” is likely to be a major incentive for manufacturers to be seen to be involved in for the coming 12 months. The confidence displayed in the ability to meet environmental standards was higher than Nick Brayshaw, chair of Barclays Manufacturing Strategy Board, expected but in principle he agreed with the
majority outlook on the Climate Change Bill that the government must maintain a flexible approach to avoid leaving UK businesses disadvantaged internationally. “I think UK manufacturers do take the environmental issue seriously, that they are making inroads and that they are prepared to do more. But they want a level playing field to be able to compete abroad,” he said. Energy prices will be the main drivers in reducing usage and therefore carbon emissions, Brayshaw continued. “Businesses will look for initiatives that will mitigate the costs of these price rises and the environmental advantages are thrown in as part of the greater goal of achieving overall sustainability.”
“Businesses will look for initiatives that will mitigate the costs of these price rises and the environmental advantages are thrown in as part of the greater goal of achieving overall sustainability”
Government support agencies and similar organisations Over the last 10 years there has been a growing number of government agencies that have been set up to assist different types of business and different issues. This plethora of potential help can be confusing to many organisations. For this question there were a high number of no returns for different organisations. When asked for which organisation the respondent had had contact with in the last 12 months, the results were spread with Business Link having been contacted by 50 per cent of the respondents. Given the number of small companies this is not a surprising result. The two regional bodies, Regional Development Agencies and Chambers of Commerce were the next most contacted. With the respondents coming from SME part of the business this is again not surprising. When asked about their awareness of organisations other than those they had had contact with UK Trade & Industry stood out with over half the respondents being aware of the organisations. The CBI, Business Link and Regional Development Agencies were known by two-fifths of the respondents.
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Section one continued Business Link is a free business advice and support service, available online and through local advisers, for business start-ups. Regional Development Agencies work with “partners to build on their region’s natural assets, develop the knowledge-based economy, revitalise places and meet the needs of regional businesses”. Learning & Skills Councils were set up to improve the skills of England’s young people and adults to ensure that the country has a workforce of world-class standard. Manufacturing Advisory Service aims to address the practical needs of British manufacturers by delivering handson advice and assistance from experts in a wide range of manufacturing disciplines. UK Trade & Investment has two roles in that it helps UK companies succeed in international markets and also assists overseas companies to bring high quality investment to the UK. Chambers of Commerce is a set of regional bodies that provide assistance to their members and can be viewed as a “business network”. They provide advice and guidance on a number of business topics. The Confederation of British Industry is the UK’s leading {independent} employers’ organisation. The CBI works to promote these interests by lobbying and advising Governments, workers and trade unions, networking with other businesses and creating intelligence through analysis of government policies and compilation of statistics. EEF The Manufacturers’ Organisation provide manufacturing and engineering support and advice at a local level as well as general business support to over 6000 manufacturing, engineering and technology companies in the UK. The Manufacturing Alliance is an initiative that draws together the knowledge and might of Britain’s most prominent manufacturing businesses in order to improve and champion the cause of manufacturing by sharing breakthroughs achieved through thought leadership and informing government and the public at large what manufacturing is really about.
When asked to comment on these organisations’ usefulness, respondents seemed to be reluctant to comment with over 50 per cent making no reply for each of the organisations listed. In two cases respondents were divided on the usefulness of the organisation, namely Chambers of Commerce and the Learning & Skills Councils. Over half the organisations involved in the survey felt that their local/regional government had been helpful and supportive. Ray O’Donoghue, head of national manufacturing at Barclays Corporate Bank commented: “People deal a lot more with local government
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across a whole range of things and they get a lot of services from them whereas views on the central comment tend to just be formed about the economy.”
Growth plans and strategic business drivers Organisations were asked how they planned their vision of the future. Just under two-thirds of organisations replied that they had a detailed company wide strategic plan, whereas a quarter stated that their future plans were more tactical than strategic. When asked about their key business focus over the last and forthcoming 12 month periods, three-quarters of the respondents saw new product development and innovation as the top focus now and in the future. Manufacturers will not survive in business unless they continue to develop new products. Other areas of focus were not surprising with better management of customer relationships, supply chain integration and application of lean manufacturing coming out in the top four. In terms of a measure of business success, all respondents stated that customer satisfaction and retention was key. The other two major measures were seen as quality reputation and profits growth. Operational excellence was also rated as a key measure. Given the economic situation and the increase in competition, all of these make good sense. It would be interesting to see how the organisations actually measured these factors. Around two-thirds of the organisations planned to achieve future growth organically. This was to be achieved either by solely focusing on the existing core activities or through a mix of core activities and expansion of offerings. The fact that firms are more inclined towards organic growth at present was as expected for O’Donoghue. “I think there will be opportunities for acquisition but it’s a measure of people’s lack of confidence and current caution that they are looking to sort things out internally before focusing on the external,” he said. “It’s not surprising that people will focus on their own businesses and existing operations within them before they take on more.” The majority of organisations saw the development of international trade as of concern for their future growth strategy.
AMR08 results analysis
Section two – Finance capital investment levels Business processes In today’s world the thing that makes one organisation different from another is the way it operates, ie. Its business processes, in conjunction with its culture and the people who work for it. Of these it is the processes and the way that they are used that is the big difference. Two of the statements received an average mark of 4. Organisations are actively trying to achieve improvements in speed and efficiency throughout all business processes and at the same time they are using lean manufacturing techniques actively. Process Management is a holistic management practice that models an enterprise’s human and machine tasks and the interactions between them as processes with the view of improving agility and performance. It is a structured approach employing methods, policies, metrics, management practices and software tools to manage and continuously optimize an organization’s activities and processes.
Hedging activity A new question for this year was to ask if organisations used hedging activities. Hedging is a investment strategy designed to minimise risk by identifying opportunities deemed more secure to alleviate the financial danger posed by more speculative ventures. Only half of the organisations involved in the survey said that they engages in hedging activities and in the main they used exchange rate mechanisms.
New product development The survey identified 4 key factors in driving new product development within organisations; namely Customer/Supplier collaboration, Maintain/ gain competitive edge, Cost reduction/control, and Customer retention/satisfaction. These have always been the keys drivers for new product development – so no change here! Just over twothirds of the respondent have a policy of “right first time” for design and launch. In the main this policy was seen as being satisfactory.
Skills The majority of firms reported no problems in terms of a largely touted skills shortage and the reason Ray O’Donoghue stipulates for this diversion from the usual consensus is that firms are currently not actively recruiting since growth aspirations have been scaled back and therefore the skills shortage is not an issue in the current climate of industry. “Had we been in a growth period that data might have looked very different,” he said.
Just under two-thirds of the organisations surveyed were focusing on increasing cash flow as the main area of financial management focus. Just under a third were focusing on reducing cost generally. Reducing the level of debt was also seen as important. Unsurprisingly, the general consensus from respondents is that a much more cautionary approach to spending will be adopted in the foreseeable future. O’Donoghue said machine tools provide a good example of this. “Where five per cent do in fact anticipate spending more in this area, last year that figure was 27 per cent,” he pointed out. “But that’s to be expected,” he added, “we can foresee nothing but a slowdown in capital expenditure in the current climate and this is a reflection of that. People will remain cautious.” O’Donoghue said that capital expenditure was one of the most cut areas in his clients’ budgets, along with research and development.
“We can foresee nothing but a slowdown in capital expenditure in the current climate and this is a reflection of that. People will remain cautious” There was a definite spread in terms of the investment areas that organisations saw as key. Computer hardware, computer software and systems and machine tools were seen as major areas, but of equal importance were the catch-all category of “other capital expenditure”.
Actual and anticipated change in investment levels The level of capital investment was mostly seen as being the same as last year. And as for the next 12 months, it was the same again except in the areas of Communications Infrastructure and other capital expenditure where investment was seen as being less in the main. However when it came to looking 5 years ahead, respondents saw investment in machine tools and new product development as the most likely areas. One of the main areas where investment will be truncated is IT.
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Section two continued Ways of raising capital Contrasting with media reports of banks not offering finance, of the people who responded, over 80 per cent saw no change in the funding available in 2008 compared to previous years. It is interesting to note that a quarter of respondents replied that they had not sought funding. The hedging activities question was introduced to this section as well as the last and in this part of the survey over 60 per cent of respondent made no reply. Of the different instruments available commodity pricing was not used. Capital has been raised over the last 2 years, according to the respondents, through overdrafts, bank loans or company reserves. In terms of the future, organisations see that future capital will be mainly raised from company reserves and bank loans. This change is a reflection of the increased difficulty in raising capital through other means in the markets at present.
“I think from the banks perspective, certainly from Barclays, the message is that we are very much open for business and there’s funding available for decent projects” Both Brayshaw and O’Donoghue took heart in the positive response registered when respondents were asked about the ease of obtaining funding from banks. “I think from the banks perspective, certainly from Barclays, the message is that we are very much open for business and there’s funding available for decent projects,” said O’Donoghue. “I’m happy that manufacturers have remained bullish when it comes to the banks. If people feel they can approach the banks for money and we have it available to give it to them then that’s definitely a positive thing.”
Return on investment When asked about how major capital investment projects were monitored and measured in terms of their return on investment, only 16 per cent sated that they carried out a full financial ROI. In the main either qualitative or financial quantified measures
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are used. Just under half the organisation saw the required payback period as between 2 to 4 years. Around a tenth of the organisations had a payback period of 7 to 11 years and the same number reported that they set no target. O’Donoghue said “as a banker” the low percentage of people carrying out full ROI quantification monitoring on their investments “is worrying”. He said: “People need to be a lot more critical when it comes to monitoring and a lot more diligent before they spend. They need to be a lot more rigorous in how they assess their capital spend going forward.”
Strategic or tactical investment Respondents said that most investments were not strategic, in that funds were spent on replacing existing infrastructures instead of implementing new ones. Brayshaw saw this as “less than encouraging, overall,” but serving as a reiteration of cautious intentions when it comes to investment, as expected. “The fact that people are at least making tactical investment is positive though, as it shows firms are reacting to safeguard themselves.”
Funding company pension schemes and insurances Organisations in the main saw no adverse effects in terms of overseas competition or profitability from the costs incurred in complying with a compulsory requirement to fund company pension schemes. Just under 80 per cent of organisation are offering new staff a money purchase-type scheme. It was the cost of insurance (eg employee liability) incurred at facilities which was seen as having a significant impact on profitability by two-thirds of respondents. There are very few firms that offer defined benefits schemes now, according to O’Donoghue. This is because it suits businesses not to provide them because their liability is then “capped out” and they can accurately calculate and budget for what they have to pay. In terms of employees, though the move away from defined purchase schemes has taken away a lot of certainty for older staff, for young people it provides a lot more flexibility as people can move jobs and take their pensions with them. “Money purchase schemes are a big part of future pension’s strategy in the context of CSR because of the certainty they provide for the business,” Brayshaw added.
AMR08 results analysis
Section Three – Purchasing, procurement and logistics Import levels The 20 per cent swing towards imported raw materials is “a significant shift” driven by the market increase in commodity prices, according to O’Donoghue. The data shows that half of all raw materials are now imported. With the data for components showing a similar trend, “it’s just a sign of the changing nature of the industry towards a global business in terms of supply chain,” he said. When respondents were asked whether they foresaw any change in this percentage, over a third saw it staying the same, whilst 20 per cent foresaw a small increase. Just short of 100 per cent of respondent sourced raw materials and/or components from the EU. The other two regions which were major sources of material were North America and China & the Far East. This pattern did not change when respondents looked at the forthcoming year. The most important criteria affecting the decision to outsource offshore were product quality and cost savings. This came as no surprise to Brayshaw and O’Donoghue. “That won’t change – cost and quality are the nuts and bolts of global supply chain. However much people talk about environmental issues and however much they rise on agendas they will never knock off the cost and quality of supplies and products as the main factors,” said Brayshaw. He went on to describe how among Japanese manufacturers, through quality assurance and efficiency schemes like Lean and Kaizen, producing to high quality means producing and selling at low cost – a production model that is generally yet to be implemented here. In an ideal development, he said, manufacturers will achieve “the new holy grail” whereby low environmental impact is synonymous with low cost. “Environmental issues are seen as being an expense and that mindset needs to be negotiated if the model is to be realized.” Around a third of respondents also felt that the process of identifying and locating a prospective supplier in conjunction with the speed of response and ease of the relationship with the partner were important factors to be considered. This human side of the equation often affects the manner and trust between organisations.
Respondents viewed that this proportion would stay the same or be slightly increased. Over 80 per cent of respondents stated that the EU was their main export market. Just under half exported to North America. Roughly a third exported to NonEU western Europe and Asia/far east.
Overseas threats and opportunities Just over half of respondents saw manufacturing facilities in China and India as a threat. In terms of positive opportunities arising from ‘new’ consumer markets like China and India, more respondents than last year saw no viable openings.
Manufacturing production relocation 60 per cent of respondents stated that they had no intention of moving manufacturing production to a low cost economy over the next 12 or 24 months. But this reduced to around a third when considering a part move. With only a small number of respondents revealing that they intend to move to low cost economies over the year ahead, “most of those that would be looking to move have already done so,” speculated O’Donoghue. “Also, the costs involved now are actually going up and a lot of
“Environmental issues are seen as being an expense and that mindset needs to be negotiated if the model is to be realised” the so-called low cost economies, China for instance, are beginning to place restrictions on how many manufacturers they will allow to operate in the country,” he said. “It may be that it’s dropping off firm’s radars because it simply isn’t a viable option any more.” O’Donoghue cited non-EU Western Europe as an area that may still be an attractive option if firms were looking to move operations.
Export levels
Supply chain and channel partner issues
There was a complete scatter amongst the respondents concerning the proportion of their manufactured end product currently exported with the majority sitting either side of 50 per cent.
Half the organisations rated the quality of manufacturing and process data and knowledge in their organisations as quite good with a further third saying that it was very good. This is
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Section three continued interesting as the results of a survey by BPTrends in February 2008 were not so encouraging, with 57 per cent of their respondents only occasionally documenting work processes, and 55 per cent never or occasionally having standard process models. In Bloor’s experience, organisations tend to know the expected process but rarely know all of the business rules associated with exception and out of the ordinary processes. Stephen McBride, Manufacturing Sales Manager for Microsoft in the UK, said. “One of the issues we’ve found is that most of the practical know-how and best-practice is locked inside people’s heads. Many of these people are now coming to the end of their career-cycle and when they retire that information is gone forever. We are working with firms on information management and communication capabilities to get that knowledge transferred from people and into recognisable tools and processes, these tools can then be used for reference, to search against and provide insight into their business.”
Sharing of data up and down the supply chain This next set of question was aimed at understanding the sharing and collaboration that occurs in the supply chain. Most analysts agree that in today’s environment it is essential for communication and collaboration to occur as the norm in order to make the supply chain not only effective but also efficient. Bloor view as very positive that two-thirds of respondents replied that they received and share quite or detailed information. This two way exchange is essential in Bloor’s view. 50 per cent of organisation saw only minor improvements in the level of information they share with or receive from their channel partners, whereas 30 per cent saw a significant improvement.
Supply chain integration 55 per cent of organisations described their level of supply chain integration as a degree of electronic transactional communication including sales and purchase orders but no real collaboration. Only a quarter saw their level of supply chain integration as highly sophisticated, based on real time sharing of detailed information including production schedules, design collaboration and detailed customer and supplier channel data. It is a little worrying that 19 per cent saw that they had functional systems and processes in place but not really working effectively or there was no supply chain integration and minimal data exchange.
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Given the number of SME responders some of the statistics can be understood, but it does show that there is a need for many organisations to invest in better IT for supply chain management. It is interesting to note that Bloor have came across a number of well-established SCM vendors including SAP at the top end and specialist vendor 3M Highjump who are engineering solutions to support the SME market either through SaaS or through specific industry templates.
“Putting its people at the top of a firm’s priority list and providing them the technology to communicate correctly is what will give the business the edge it needs in the globally competitive market” The message McBride has received from many of his manufacturing clients is one of frustration at the barriers to communication they face at work compared with the accessibility of technology that is now used in social lives and at home. “We use technology to break those barriers down and bring people together. Some companies have found they even have difficulty attracting staff because of what’s on offer technology-wise at other companies, or even in other sectors,” he warned. Putting its people at the top of a firm’s priority list and providing them the technology to communicate correctly is what will give the business the edge it needs in the globally competitive market, he added.
Trade funding If a business buys stock or goods for onward sale, it can leverage against this stock to obtain working capital. That is, it can fund its international trade. There are various types of trade funding facilities that can be structured: Facility available for the client to pay for the goods (works like an overdraft). The lender will advance a per cent against the existing stock (e.g. 20 per cent - 50 per cent of stock in balance sheet) A more structured facility where payment is made by the international trade finance company directly to the supplier of the goods. This can be used for domestic purchases or for imports. Two thirds of respondents stated that they were neither satisfied nor dissatisfied with the current level of trade funding available.
AMR08 results analysis
Section Four – Information technology Just under three quarters of respondents stated that an efficient IT system was essential to the success of their business. The remaining quarter of respondents stated that IT was very important to the success of a business. So here is a clear statement that IT is viewed as key to a successful business. Now compare that with the responses to the next question over the nature of their IT deployment, where over half of the organisations stated that IT deployment was structured but more tactical than strategic. The rest of organisations had either a written, detailed companywide strategic IT development plan or written strategic plans for each department. It is also worth noting that in earlier questions, IT was singled out as an area where future investment would be less.
Priority IT and technology based initiatives The top 5 IT and technology-based initiatives were currently high priority strategies within the organisations: Upgrading IT infrastructures Management information systems (MES) Systems integration Enterprise resource planning (ERP) Warehouse management systems When asked to share their IT plans for the next 12 months there were some interesting changes in priorities. Management information systems (MIS) was the top rated strategy followed by the upgrading IT infrastructures and then first focused application of Customer relationship management (CRM). Enterprise resource planning (ERP) stayed the same with a third of respondents seeing it as important now and in the future. Bloor see some concern in the low level of investment being made in systems to support new product development with the emphasis that organisations have placed on this business strategy. The evidence shows that there is a crying need for systems to support the control and filtering of the risks involved in the continued development of products. McBride picked up on responses concerning Management Information Systems. He said Microsoft’s main focus and where it differs from its competitors is that it aims to provide collaboration and BI tools to the masses – business intelligence systems that can be used by everyone within a company, not just executives. “The people who are in a position to change things are the ones that need information so that they can make educated and informed decisions
which can have an immediate effect rather than waiting for information to be decimated and follow down the organisation,” said McBride. “They need to have a system through which they can ask the right questions, get the right information and make the right decision. It empowers them.”
RFID Radio Frequency Identification (RFID) is evolving as a major technology enabler for identifying and tracking goods and assets around the world. There have been major pushes in the retail sector in the US which have already impacted UK CPG business operating globally. In the pharmaceutical industry, state legislation being introduced this year and next is causing pharmaceutical OEMS and wholesalers to look at how ePedigrees can be used to improve the supply chain process. In automotive and aerospace, the large OEMs are making extensive use of the technology that is resulting in significant savings. In the UK, a number of trials have occurred during 2008 to look at the use of the technology to track patients as well as assets. The latter has resulted in some considerable cost savings. A third of respondents were already using the technology, with a further 13 per cent looking to use it within the next 12 months. However on the negative side two fifths of respondents had no plans at present to use the technology. The key uses were in logistics area. Bloor notes with interest that 13 per cent of respondents were using RFID in PLM situations. When RFID entered into the market at the turn of the century, it built upon the work already carried out in the retail and manufacturing industries on the implementation of barcodes. The most important thing that had to be defined was standards initially for tags, and now for data and middleware, so that organisations were able to work successfully in a global economy. EPCglobal and ISO have done much in the short time working separately. In the UK GS1 has established an RFID Centre of Excellence in Cheshire which offers not only base level education but then provides the ability for organisations to have proof of concepts done in close to working conditions. In a year of operation, GS1 has been involved in some 8 projects. The RFID projects over the last few years have shown that many involve not only RFID but also other sensory devices such as barcodes and photoelectric cells. The recent introduction of support for real-time location systems where RFID is used in conjunction with a location system is another example of this joint working for RFID.
AMR08 11
What can the Government do, or stop doing, to better help UK manufacturing? A selection of responses... Aid More aid at grass roots level Committing to skills development, investment and best practice Better promotion at school/college as a careers choice. Same as engineering
Energy 1) Review the proposed CCL. 2) Bring in laws to control the current electricity/gas market place in respect of contracts - we are having to make immediate decisions on what we believe is the best market rate with no opportunity for a cooling off period Restore stability and confidence; drive to reduce energy costs Enable energy costs to be reduced
Less red tape Support is needed in more than just words. We need less red tape and more encouragement for young people to have their eyes opened to the opportunities in manufacturing. A more encouraging tax regime for companies investing in capital equipment Stop introducing new employment rights and regulations, these are NOT customer based we HAVE to be! Too much red tape and form filling to get anywhere Reduce levels of information gathering which takes up so much time to prepare Stop introducing new laws all the time. Better explain new laws that are brought in. Reduce the level of taxation
Economy Need to support the economy consistently. Scare mongering appears to be rife and as such the economy talks itself into a possible recession by changing behaviours (and) this therefore becomes a self fulfilling prophecy Provide a stable economy to permit long term business planning Remove restrictions and encourage investment
12 AMR08
AMR08 results analysis
Taxation and grants Stop changing taxation issues which makes it an unstable environment for business as a whole. Threatening windfall taxes on successful companies impacts on everyone’s confidence! Generally reduce government spending on unimportant, trivial socialist doggerel policies (waste) and start reducing tax. Lowering taxes throughout an economic system leads to lower prices. Quote - USA! Grants available to buy machinery and training on machinery Revise pension fund burdens imposed by the PPF which do not seem to be applied on a risk basis Keep employee personal tax & NI rate down, and keep interest rates down keep government spending down There seems to be little in the way of support (whether financial or otherwise) for UK manufacturing. Financial assistance will help the manufacturing industry in the UK to re-invest and keep going Reduce payroll taxes - the on costs are driving our production offshore Better access to investment funding for new equipment
Organisations Business link and MAS have been fantastic in supporting our business. Currently working with IFM at University of Cambridge and they are also excelent
Competition Exert tighter control of cheap competition from the far east/ Europe. Tax increase perhaps on overseas suppliers Provide a level playing field vis foreign competitors Stop rushing to be the first country to implement every damn stupid ruling from Brussels
Infrastructure In East Anglia, improve infrastructure, particularly around duelling (SIC) the A11
Election Call an election and let someone more capable run the country
Report analysis written by Simon Holloway Practice Leader, Process management and RFID Bloor Research
AMR08 13
Annual Manufacturing Report 08 The results Section one – The economy, government policy and company overview
Q/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?
Very optimistic 0% Quite optimistic 18% Quite pessimistic 64% Very pessimistic 14% No view 4%
Q/2
How well do you feel the Government is managing the economy? Firstly with regard to the country as a whole.
Exceptionally well 0% Very well 0% Quite well 18% Quite poorly 43% Very poorly 18% Exceptionally poorly 21%
14 AMR08
AMR08 results
Q/3
And secondly with regard to the specific impact on UK manufacturing.
Exceptionally well 0% Very well 0% Quite well 11% Quite poorly 43% Very poorly 21% Exceptionally poorly 25%
Q/4
What effect do you think a government under Gordon Brown will have on the fortunes of the UK manufacturing industry?
Significant improvement 0% Moderate improvement 0% No change 32% Moderate deterioration 46% Significant deterioration 21%
Q/5
How confident do you feel about UK manufacturing’s ability to play its part in meeting the targets set by the Climate Change Bill? Please answer on a scale of 1 to 5, where 5 is very confident and 1 is very unconfident.
1. 0% 2. 32% 3. 50% 4. 18% 5. 0%
AMR08 15
Q/6
What is your attitude towards the Climate Change Bill? The introduction of a long-term framework for climate change policy will enable business to plan and invest for future change 21%
80%
It is a good thing - as long as government maintains a flexible approach to avoid leaving UK businesses disadvantaged internationally 75%
60
Business is being overburdened with regulations to meet climate change targets 21% Reducing carbon emissions is unnecessary - global warming is not affected by human activity 0% The Government is not providing enough incentives to help and encourage business to change 25% Don’t know enough to comment 0%
Q/7
70
50 40 30 20 10 0
What action has your company taken, if any, in terms of carbon footprint reduction and the fight against climate change? Continual on-going initiatives 43% Fully implemented initiatives 0% Mid-initiative 36% Planned/planning initiatives not yet begun 18% No action 3% Action not feasible 0%
16 AMR08
AMR08 results Government support agencies and similar organisations
Q/8
Has your company had contact with any of the following agencies or organisations? A/ Manufacturing Advisory Service (MAS) 39% 50%
B/ UK Trade & Investment 29% C/ Regional Development Agencies 46%
40
D/ Business Link 50% 30
E/ Chambers of Commerce 46% F/ Learning & Skills Councils 32%
20
G/ CBI (The Confederation of British Industry) 14% H/ EEF (The Manufacturers’ Organisation) 32% I/
10
The Manufacturing Alliance 7% 0
J/ No reply 18%
A
B
C
D
E
F
G
H
I
J
Q/9
For each one contacted, please state how useful you found that agency or organisation? 100% 80
No reply Very useful
60
40
Quite useful Not very useful
20
Not at all useful
0
A
B
C
D
E
F
G
H
I
Q/10
For each of the organisations you have not had contact with, please state which you are aware of. 80% A/ Manufacturing Advisory Service (MAS) 29% B/ UK Trade & Investment 54% C/ Regional Development Agencies 39%
70 60 50
D/ Business Link 39%
40
E/ Learning & Skills Councils 32%
30
F/ CBI (The Confederation of British Industry) 43%
20
G/ EEF (The Manufacturers’ Organisation) 61%
10
H/ The Manufacturing Alliance 21%
0
A
B
C
D
E
F
G
H
AMR08 17
Q/11
Thinking now about manufacturing in this region as opposed to nationally, how helpful and supportive do you find your local/regional government? No reply 4% Very helpful/supportive 4% Quite helpful/supportive 50% Not very helpful/supportive 38% Not at all helpful/supportive 4%
Growth plans and strategic business drivers
Q/12
Which of the following phrases best describes this company’s vision of the future? We have a detailed company wide strategic plan 64% Future strategic plans exist for each department 7% Future plans are more tactical than strategic 29% There are no formal plans for the future 0%
Q/13
Which if any of the following initiatives have been a key business focus for this company during the last 12 months? And which, if any, are a planned priority within the next 12 months? Last twelve months Next twelve months
A/
Supply chain integration and partner collaboration 50% 50%
B/
Better management of customer relationship and exploitation of sales opportunities 68% 71%
C/
Exploitation of e-business and web-based opportunities 43% 43% The application of lean manufacturing principles 68% 46%
D/ E/
Change management activity in key business areas 46% 36%
F/
New product development and innovation 75% 64%
G/
Micro and/or nanotechnology 4% 11%
18 AMR08
80% 70 60 50 40 30 20 10 0
A
B
C
D
E
F
G
AMR08 results
Q/14
What are the main business drivers for your company? That is to say which of the following do you regard as important performance measures to gauge company success? A/ Customer satisfaction/retention 100%
100%
B/ Operational efficiencies & cost control 71% C/ Quality reputation 89%
80
D/ Profits growth 89% E/ Revenue growth 50%
60
F/ Market share 29% G/ Innovation & technology leadership 46%
40
H/ Market leadership 36% I/ Growth through acquisition 14%
20
J/ Application of leading edge IT/comms technology 4% K/ Share performance 4%
0
A
B
C
D
E
F
G
H
I
J
K
Q/15
How do you plan to achieve future growth within your company? 100% organic 29% Mainly organic 39% 100% acquisition 0% Mainly acquisition 0% A mixture of both 32%
AMR08 19
Q/16
If you are planning organic growth, will it be achieved through: A focus on existing core activities 50% Expansion of offerings/diversification 7% Both 43%
Q/17
How significant is developing international trade for your future growth strategy? Of vital concern 29% It is an important concern 29% It is a secondary concern 21% It is a prospective concern 18% Of no concern 4%
Business processes
Q/18
Please rate the following statements on a scale from 1 to 5 where 5 is strongly agree and 1 is strongly disagree. 1 2 3 4 5
20 AMR08
100%
80
60
A/
All parts of the business act as an integrated business with one single agenda.
B/
The company is actively trying to achieve improvements in speed and efficiency throughout all business processes.
40
C/
Lean manufacturing techniques are being actively applied to the business.
20
D/
Too much time is spent reacting to events rather than pursuing intended plans and actions.
0
A
B
C
D
AMR08 results New product development
Q/19
Does your company engage in hedging activity? If so, which of the following: Exchange Rate 36% Interest Rates 11% Commodity prices 7% None 50%
Q/20
How important are each of the following factors in driving new product development within this company? No reply
100%
Very important Quite important
80
Not very important Not at all important
A/ Product lifestyle B/ Obsolescence
60
40
20
C/ Use of the web to improve product design timescales D/ Maintain/ gain competitve edge E/ Customer retention/satisfaction
0
A
B
C
D
E
F
G
H
I
F/ Cost reduction/control G/ Customer/ supplier collaboration H/ Innovation and technology leadership I/ Time to market
AMR08 21
Q/21
Does your company have a policy of “right first time” design and launch? No reply 4% Yes 69% No 27%
Q/22
If you answered “yes”, how successful is this policy? No reply 4% Very successful 11% Quite successful 43% Not very successful 11% Don’t know 0%
Skills
Q/23
To what extent do you feel your plans for the future are impaired by the availability (or lack) of appropriate workforce skills? Very disadvantaged 7% Quite disadvantaged 32% Not at all disadvantaged 57% Not really relevant 4%
22 AMR08
AMR08 results What can the Government do, or stop doing, to better help UK manufacturing? A selection of responses... More aid at grass roots level 1) Review the proposed CCL. 2) Bring in laws to control the current electricity/gas market place in respect of contracts - we are having to make immediate decisions on what we believe is the best market rate with no opportunity for a cooling off period. Support is needed in more than just words. We need less red tape and more encouragement for young people to have their eyes opened to the opportunities in manufacturing. A more encouraging tax regime for companies investing in capital equipment. Stop introducing new employment rights and regulations, these are NOT customer based we HAVE to be! Committing to skills development, investment and best practice Better promotion at school/college as a careers choice. Same as engineering. Need to support the economy consistently. Scare mongering appears to be rife and as such the economy talks itself into a possible recession by changing behaviours this therefore becomes a self fulfilling prophecy. Restore stability and confidence and drive to reduce energy costs. Stop changing taxation issues which makes it an unstable environment for business as a whole. Threatening windfall taxes on successful companies impacts everyone’s confidence! Make it a level playing field across Europe at least, Ireland for example, has advantages over us. Provide a stable economy to permit long term business planning. Generally reduce government spending on unimportant, trivial socialist doggerel policies (waste) and start reducing tax. Lower taxes throughout an economic system leads to lower prices. Quote - USA! Grants available to buy machinery and training on machinery. Too much red tape and form filling to get anywhere. Business link and MAS have been fantastic in supporting pour business. Currently working with IFM at University of Cambridge and they are also excelent. Exert tighter control of cheap competition from the far east/Europe. Tax increase perhaps on overseas suppliers. In East Anglia, improve infrastructure, particularly around duelling (SIC) the A11. Revise pension fund burdens imposed by the PPF which do not seem to be applied on a risk basis
Q/24
Approximately how many employees does your company have at this location? Less than 100
50%
100 – 249
25%
250 – 499
14%
500 – 999
11%
1000 – 4999
0%
5000+
0%
AMR08 23
Section two – Finance capital investment levels Capital investment levels
Q/1
What area of financial management is your company currently most focussed on? 80% 70 60 50 40 Increasing cash flow 63% Reducing costs generally 32% Coping with inflation 11% Exchange rate fluctuations 16%
30 20 10
Raising money for investment 0% Reducing debt 21%
0
Q/2
Which of the following areas will you be investing in within the current financial year? 40% 35 30 25 20 Computer hardware 37% Computer software and systems 37% Communications infrastructure 21% Machine tools 37%
15 10 5
Handling and storage equipment 16% Other capital investment 37%
24 AMR08
0
AMR08 results
Q/3
In broad terms, what is the likely level of capital investment in the following areas during this current financial year? 100% 0 1000 - 4999 5000 - 9999
80
10000 - 19999 20000 - 49999
60
50000 - 99999 100000+
40
A/ Other capital investment B/ Handling and storage equipment C/ Machine tools
20
D/ Communications infrastructure E/ Computer software and systems
0
F/ Computer hardware
A
B
C
D
E
F
Actual and anticipated change in investment levels
Q/4
Are your investments levels this year more, less or about the same as last year? 100%
80 No reply More Same
60
Less
40 A/
Other capital investment
B/
Handling and storage equipment
C/
Machine tools
D/
Communications infrastructure
E/
Computer software and systems
F/
Computer hardware
20
0
A
B
C
D
E
F AMR08 25
Q/5
Do you anticipate change next year? 100%
80 No reply More Same
60
Less
40 A/
Other capital investment
B/
Handling and storage equipment
C/
Machine tools
D/
Communications infrastructure
E/
Computer software and systems
F/
Computer hardware
20
0
A
B
C
D
E
F
Major future areas of investment
Q/6
Now thinking ahead for the next five years, what do you anticipate being the major areas of capital investment for this company? 80% 70 60 50
Machinery/machine tools (inc new production facilities) 68% IT equipment/computer hardware and software 11% Property/buildings 16% Vehicles 16%
40 30 20
New product development 53% Other 0% No major expenditure planned 11%
26 AMR08
10 0
AMR08 results Ways of raising capital
Q/7
How feasible has it been for your company to obtain any necessary funding in 2008, as opposed to previous years? No reply 10% Funding inaccessible 0% Funding difficult to obtain 11% No change 53% Funding obtained easier 0% Not applicable - no funding sought 26%
Q/8
Does your company engage in hedging activity? If so, which of the following: 80% 70 60 50 40
Exchange rate 21% Interest rates 10%
30
Commodity prices 0%
20
Energy prices 15%
10
No reply 63%
0
Q/9
Which of the following ways of raising capital has this company used within the past two years? 50% 40
Overdraft 44% 30
Bank loan 44% Venture capital 5% Company reserves 47%
20
Equity scheme 0% 10 Flotation/sale of stock 5% No reply 10%
0
AMR08 27
Q/10
which are the company likely to use over the next two years? 50%
40
Overdraft 44%
30
Bank loan 44% Venture capital 5%
20
Company reserves 47% Equity scheme 0%
10
Flotation/sale of stock 5% No reply 10%
0
Q/11
How do you rate the level of service/advice provided by your current lender?
No reply 16% Excellent 5% Good 26% Average 37% Poor 5% Not applicable 11%
Return on investment
Q/12
To what extent are you typically able to monitor and measure return on major capital investment projects?
No reply 16% Full financial ROI (return on investment) quantification 16% Most benefits are quantified financially, but not all 36% It is mostly only a qualitative assessment 32% It is primarily an act of faith 0%
28 AMR08
AMR08 results
Q/13
Which are the company likely to use over the next two years?
No reply 11% 12 months or less 5% 1-2 years 16% 2-4 years 46% 4-7 years 11% More than 7 years 0% Don’t know 0% No such target usually set 11%
Strategic or tactical investment
Q/14
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)
No reply
11%
100%
0%
75-99%
16%
50-74%
16%
25-49%
32%
1-24%
20%
None
5%
AMR08 29
Funding company pension schemes and insurances
Q/15
How concerned are you about the costs incurred in complying with a compulsory requirement to fund company pension schemes? 100%
Please answer, firstly in terms of the impact of the company’s profitability (A) and secondly in terms of its effect on the company’s ability to compete with overseas competitors that do not face such costs (B). No reply Very significant
80
60
40
20
Quite significant Not significant
0
A
B
Q/16
For new qualifying staff do you offer: 80% 70 60 50 40 30
No pension scheme at all 5%
20
A defined benefits (final salary) scheme 5%
10
A money purchase-type scheme 79%
Q/17
0
How concerned are you about the cost of insurance (eg employee liability) incurred at your facility? Please answer in terms of the impact you feel the costs will have on your profitability. No reply 16% Very significant 5% Quite significant 58% Not significant 21%
30 AMR08
AMR08 results What can the Government do, or stop doing, to better help UK manufacturing? A selection of responses... Call an election and let someone more capable run the country Keep employee personal tax & NI rate down keep interest rates down keep government spending down There seems to be little in the way of support (whether financial or otherwise) for UK manufacturing. Financial assistance will help the manufacturing industry in the UK to re-invest and keep going Enable energy costs to be reduced Remove restrictions encourage investment Reduce levels of information gathering which takes up so much time to prepare Stop introducing new laws all the time. Better explain new laws that are brought in. Reduce the level of taxation Reduce payroll taxes - the on costs are driving our production offshore Provide a level playing field vis foreign competitors Stop rushing to be the first country to implement every damn stupid ruling from Brussels Better access to investment funding for new equipment
Q/18
Approximately how many employees does your company have at this location? Less than 100
11%
100 – 249
37%
250 – 499
32%
500 – 999
5%
1000 – 4999
5%
5000+
0%
AMR08 31
Section Three – Purchasing, procurement and logistics Import levels
Q/1
What proportion of the raw materials used in the manufacturing process at this site are imported? And what proportion of the bought-in components or sub-assemblies are imported? Please answer, firstly in terms of the impact of the company’s profitability (A) and secondly in terms of its effect on the company’s ability to compete with overseas competitors that do not face such costs (B).
100%
80
No reply 100%
60
75 - 99% 40
50 - 74% 25 - 49%
20
1 - 24% None
0
Q/2
How, if at all, do you anticipate these proportions changing over the next 12 months? Significant increase 8% Small increase 20% Stay same 66% Small decrease 2% Significant decrease 2% Don’t know 2%
Q/3
Right now, from which of the following regions do you source any materials or components? 100% EU 98%
80
Non-EU western Europe 14% Non-EU eastern Europe 30%
60
North America 61% Far East and China 73% India/sub continent 27%
40
20
North Africa 2% Other 2%
32 AMR08
0
AMR08 results
Q/4
Come 2009, from which regions do you think you will be sourcing any materials or components 100%
80
60 EU 95% Non-EU western Europe 20%
40
Non-EU eastern Europe 27% North America 59% Far East and China 77%
20
India/sub continent 34% North Africa 5% Other 2%
0
Q/5
When choosing to outsource offshore, what are the most important criteria affecting that decision? 100%
80 A
Product quality 93%
B
Cost savings 84%
C
Environmental management/being green 18%
D
Identifying/locating an appropriate supplier 41%
E
Speed of response 39%
F
Ease of partner/relationship management 36%
G
Design capability 11%
H
Language issues 5%
I
Cultural issues 0%
J
Distance of supplier from your plant 7%
60
40
20
0
A
B
C
D
E
F
G
H
I
J
AMR08 33
Export levels
Q/6
What proportion of your manufactured end product is currently exported? 100%
3%
75-99% 20% 50-74%
30%
25-49%
20%
1-24%
20%
None
7%
Q/7
How, if at all, do you anticipate this proportion changing over the next 12 months? Significant increase 9% Small increase 30% Stay same 45% Small decrease 5% Significant decrease 0% Don’t know 9%
Q/8
Where are your main export markets? 80% 70 60
EU 80% Non-EU Western Europe 33% Non-EU Eastern Europe 11%
40
North America 48%
30
Asia/Far East 30% Australasia 14% South America/Central America 20% Other 11%
34 AMR08
50
20 10 0
AMR08 results Overseas threats and opportunities
Q/9
Do you perceive any threats to this company arising from manufacturing facilities in places like China and India? Yes 55% No 45%
Q/10
Do you anticipate positive opportunities arising from ‘new’ consumer markets like China and India? Yes 43% No 57%
AMR08 35
Manufacturing production relocation
Q/11
What is the likelihood of all or part of your manufacturing production moving to a low cost economy over the next 12 or 24 months? Very likely Quite likely Not very likely Not at all likely
Next 12 months Part
Next 12 months All
40%
80%
35
70
30
60
25
50
20
40
15
30
10
20
5
10
0
0
Next 24 months Part
Next 24 months All
35%
60%
30 25
50 40
20 30 15 10
36 AMR08
20
5
10
0
0
AMR08 results
Q/12
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? 25%
20
15
10 Eastern Europe 23% India 9% China 18%
5
South East Asia 9% Other 2%
0
Supply chain and channel partner issues: Quality of manufacturing and process data
Q/13
How do you rate the quality of manufacturing and process data and knowledge in this company? Please think overall in terms of accuracy, detail and speed of accessibility to those who need it when they need it, when you rate it. No reply 5% Very good 36% Quite good 52% Not very good 7% Poor 0%
AMR08 37
Sharing of data up and down supply chain
Q/14
How much information do you currently receive from your channel partners? Very detailed 11% Quite detailed 57% Not very detailed 27% Minimal/none 5%
Q/15
How much information do you currently share with your channel partners? Very detailed 11% Quite detailed 55% Not very detailed 27% Minimal/none 7%
Q/16
Over the next 12 months, do you anticipate the level of information you share with or receive from your channel partners will show Major improvement 0% Significant improvement 30% Minor improvement 50% No improvement 20%
38 AMR08
AMR08 results Supply chain integration
Q/17
Overall, which of the following phrases best describes the current degree of supply chain integration within this company? Highly sophisticated, based on real time sharing of detailed information including production schedules, design collaboration and detailed customer and supplier channel data 25% A degree of electronic transactional communication including sales and purchase orders but no real collaboration 55% Functional systems and processes in place but not really working effectively 9% No supply chain integration and minimal data exchange 11%
Trade funding
Q/18
On a scale of 1-5 where 5 is high, how satisfied are you with the trade funding? No reply
9%
1
2%
2
11%
3
66%
4
9%
5
3%
AMR08 39
Section Four – Information technology
Q/1
How important is an efficient IT system to the success of your business? Essential 73% Very important 27% Quite important 0% Not Very important 0% Not at all important 0%
Q/2
Which of the following phrases best describes the nature of your IT deployment at this company? A written, detailed company-wide strategic IT development plan 40% Written strategic plans for each department 7% Structured but more tactical than strategic 53% First come first served 0%
40 AMR08
AMR08 results
Q/3
Which of the following IT and technology-based initiatives are currently high priority strategies within the company, in the sense that their implementation has been started or progressed within the past 12 months? A
Upgrading IT infrastructures 73%
B
Management information systems (MES) 67%
C
Use of internet for sales and marketing 27%
D
Systems integration 33%
E
Enterprise resource planning (ERP) 33%
F
Supply chain management and integration (SCM) 20%
G
Product engineering data management (PDM) 13%
H
Customer relationship management (CRM) 27%
I
Intranet development 33%
J
Warehouse management systems 33%
K
Wireless technology 27%
L
E-business 13%
M
Use of public or private web exchange 7%
N
Enterprise application integration (EAI) 7%
O
Product lifecycle management (PLM) 20%
80% 70 60 50 40 30 20 10 0
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O AMR08 41
Q/4
And which of these initiatives will be high priority strategies during the next 12 months? A
Management information systems (MIS) 60%
B
Supply chain management and integration (SCM)13%
C
Upgrading IT infrastructures 47%
D
Use of internet for sales and marketing 13%
E
Systems integration 20%
F
Enterprise resource planning (ERP) 33%
G
Product engineering data management (PDM) 13%
H
Customer relationship management (CRM) 40%
I
Warehouse management systems 20%
J
Intranet development 20%
K
E-business 13%
L
Product lifecycle management (PLM) 13%
M
Wireless technology 13%
N
Use of public or private web exchange 0%
O
Enterprise application integration 0%
P
Application service provision 0%
60% 50 40 30 20 10 0 42 AMR08
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
AMR08 results
Q/5
Does your company use or plan to introduce RFID/wireless technology to any part of your operations? Already uses 33% Within the next 12 months 13% Within the next 2 years 0% Sometime in the future 13% No plans at present 41%
Q/6
If you do use or plan to introduce RFID/wireless technology to your supply chain/logistics activities, what do you/will you use it for? 60% 50 40 30 Warehouse operations 33%
20
Logistics 20% Inventory control 27% Work in progress 40%
10
Tracking and tracing 60% Product lifecycle management 13%
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Sustainability – reaping the rewards or counting the cost? Sustainability has for over a decade been on the agenda of all businesses and not least manufacturers, due to the nature of input materials and process by-products of industry But many firms consider sustainability as nothing more than a distraction from their primary operations which will cost them money and offer them nothing more than a negligible sense of moral achievement at best. Thus, they make a token gesture in its name and get back to ‘real’ business. “Awareness, cost and time are the main objections,” said Ray O’Donoghue, National Head of Manufacturing at Barclays Corporate Bank. “Especially in the current economic uncertainty when purse strings are tightening and people’s diaries are filled with creating strategies to renegotiate business models because of it.” In addition, many firms will not be aware of what initiatives constitute a step toward sustainability. For example, efficiency measures such as lean, kaizen and TQM and ongoing continuous improvement cultures have been widely implemented across all areas of manufacturing and, if they are successful, they increase sustainability substantially. More efficient processes use less power, create fewer defects, and induce less waste. They therefore entail a healthier balance sheet and a healthier planet.
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So, sustainability – nobrainer or profit drainer? First to understand the subject… From a business perspective, it can be regarded as a bedfellow of corporate social responsibility (CSR); though not one and the same they go hand-in-hand with ideals that mirror each other’s in some places and complement one another’s elsewhere. Like CSR, environmental concerns are a strong issue within sustainability but the concept is by no means limited to it and is defined by it only in ignorance. From a manufacturing perspective, The Lowell Centre for Sustainable Production describes it as “the creation of goods and services using processes and systems that are non-polluting, conserving of energy and natural resources, economically viable, safe and healthful for employees, communities, consumers and socially and creatively rewarding for all people.” Most experts on the topic break sustainability into three contributing sections: society; economy and environment.
Sustainability
be. Therefore alongside sustainability initiatives, a business information programme and assigned personnel is important to said initiatives’ ongoing drive and success. Sustainability is a philosophy. One that Steve Downing, associate professor at Henley Management College, says has four key principles: living within the biophysical parameters of the earth; living in harmony with other life forms; living to allow future generations to do so also; and living with greater equity. And sustainable practice, as a strategy born out of that philosophy, is fast transgressing from a ‘should do’ to a ‘must do’ operation. Currently sitting alongside things like charity work, PR and efficiency drives, it could soon be reeled off in the same breath as measures like auditing, health and safety training, or food hygiene; it will be obligatory.
Trading emissions The European Union Emissions Trading Scheme (EU ETS), a system comprising 10,000 manufacturers and energy companies across the continent with mandatory involvement for the biggest industrial polluters, is soon to be rolled out among some smaller enterprises and industries not currently involved. With the first phase introduced in 2005, phase two of the initiative began in January of this year. It will run until the end of 2012. Plans for the third phase are still under deliberation but it is thought the scheme will broaden its horizons to cover industries like aviation, maritime and metal commodity producers. There will also be a stronger presence in the scheme from chemicals manufacturers.
The United Nations breaks the topic up into two – ‘ecosphere’ and ‘anthropo-sphere’. Concerns in the former bracket include bio-diversity, hazardous waste, greenhouse gas, air quality and de-forestation while the latter involves issues like crime, population, equality, nutrition and poverty. Many factors have an effect on the sustainability of a firm’s practices. While there are specialist strategies that can and in most cases should be introduced, much of sustainability is generally good housekeeping. For example: effective transportation systems – ensuring road-miles are kept to a minimum and loads are stocked to a maximum; quality control – keeping defects to a minimum and ensuring no faulty products leave the plant; and waste management – keeping waste to a minimum and looking to recycle as much as possible while implementing systems like anaerobic lagoons that can turn waste water into hydroelectricity. But monitoring is crucial; close scrutiny of key performance indicators in every operation empowers businesses with the knowledge when things aren’t running as competently as they could
In short, the scheme works by the allocation of a level of carbon that a firm is allowed to emit. Firms can sell any leftover credits at a value dependent on market conditions but usually at around £16 to £24 per tonne. If a firm has used its allocation it must buy more. Trading schemes like this are seen as a leading device in cutting carbon emissions, as if firms don’t reduce their carbon footprints it will cost them money; whereas if they do, they can potentially profit. Such schemes therefore bridge the gap between economic and environmental concerns and thus are becoming a leading tool in the pursuit of sustainability. Small firms not obliged to enter are not excluded from emissions trading and can buy allocations as an offsetting facility. In May of this year, the European Commission announced that UK carbon emissions from participants in the scheme rose 5.9 per cent between 2005 and 2007 – over triple the average increase of 1.9 per cent across the 24 member states of the EU for which data is published. The EU ETS is regulated in England and Wales by the Environment Agency.
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Sustainability means survival But sustainable practice is not only becoming obligatory from a legal perspective. Due to the forces that drive it such as customer demand and cost-reduction, it is becoming essential simply to survive. Gareth Kane is a sustainability consultant and blogger. “Sustainability with a big ‘S’ is about economics, environment and ethics,” he says. “In the past there has been a need to differentiate between this and the small ‘s’ sustainability i.e. the medium term viability of an organisation. But now I believe the two have converged and Sustainability is not an option when it comes to sustainability,” he commented. For “not an option,” read compulsory; there is no choice to make. In what he calls “the business case for sustainability,” Steve Downing points out that the widespread adoption of sustainability as a means for raising the best-practice bar and as a gauge of company credentials serves as an aid to the natural selection process of markets. The business case for sustainability… “…suggests increasing public awareness of sustainability principles and issues, raising expectations on business performance. The ‘license to operate’ is raised and if businesses do not respond they face a range of risks and reputational (share price) damage. The other side of risk is opportunity and it is argued that the application of sustainability principles and related ideas such as ‘biomimicry’ and ‘closed loop systems’ allows the business to reduce costs, increase revenues, innovate, differentiate and enhance brands and enjoy further competitive advantages from improved recruitment and retention and ability to partner and lobby government.” So only the firms with the most efficient processes can maintain a presence in the market. And in this context, the benefits to the environment achieved are an auxiliary yet favourable by-product. Any positive PR generated also helps to sustain the company as well as natural resources.
Cambridge University Institute for Manufacturing Research Dr. Julian Allwood of the Sustainable Manufacturing Group, part of The Institute for Manufacturing at Cambridge University, presented a report in 2004 in which he outlined the topic of sustainable manufacturing along with the practical research the university had undertaken. Sustainable manufacturing, according to the report, involves “Developing technologies
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In September Barclays Commercial Bank held its inaugural Green Leaders in Business Awards. Three companies that “showed innovative ways of doing business or developing and marketing new goods and services that will help us to build a sustainable economy” from a pool of twelve, across three turnover brackets, were given honours by group chairman Marcus Agius. “Helping to build a sustainable future is more than just a matter of conscience,” he said, “it makes sound commercial sense.” The event was held in front of a crowd of 200 at a “glittering gala” in East Wintergarden, London. The winners were Moixa Energy in the under £1 million turnover category, Zytek Group for £1m to £20m and Innocent drinks for £20m plus. To promote the adoption of greener processes and to alleviate the costs manufacturers face in implementing them, Barclays Commercial Bank offer an environmental loan which affords firms a 60 basis point (0.6 per cent) reduction on the interest rate if they are to use the money for initiatives aimed at lowering carbon emissions. to transform materials without emission of greenhouse gases, use of non-renewable materials or generation of waste.” And although the subject of sustainability in manufacturing was first broached at a United Conference in 1992, Allwood points out that the issue of sustainability is not a recently conceptualized ideal. He quotes The Epic Gilgamesh, one of the earliest known works of fiction, from 2600 BC: ‘Utanapishtim spoke to Gilgamesh, saying: O man of Shuruppak, son of Ubartutu: “… Abandon wealth and seek living beings! Spurn possessions and keep alive living beings!”’ But, as previously alluded to, four and a half thousand years later, though the basic premise remains the same, the ideal has been negotiated. Sustainability no longer solely relates to ‘sustaining’ life, if in fact it ever did. Today, in a manufacturing context at least, sustainability does not have to mean relinquishing possessions in order to preserve life, as it were. In fact, quite the opposite – sustainability in industry is as much about saving cash as saving the world. If a car uses less fuel, it costs less to complete a journey and less carbon dioxide is emitted along the way. The Cambridge report suggests five maxims for achieving sustainable manufacturing: “Use less materials and energy”; “substitute input materials – non-toxic for toxic”, “renewable for nonrenewable”; “reduce unwanted output – cleaner production”, “industrial symbiosis”; “convert outputs to inputs – recycling and all its variants”;
Sustainability
and “changed structures of ownership – product service systems, supply chain structure.” Dr. Allwood and his team have developed technology and strategies in a variety of areas that could be adopted by manufacturers across a broad range of sectors. One such proposal is “closing the loops” in set areas of the world whereby the production, distribution and recycling of goods is bound to the area it finds itself in. The drivers for this approach are that 10 per cent of the world’s energy use is related to freight and that most energy used in manufacturing goes on the production of primary materials. Globalization means that goods end their lifecycle a long way from where they are produced and recycling of materials is therefore more difficult. The new system involves more efficient tracking of demand through the smaller distribution networks and therefore a more efficient ‘make-to-demand’ production schedule. The report suggests small-scale production technology with low tooling and therefore low set-up costs along with small-scale recycling technology to send goods directly back through the production process. Along with the savings on distribution and storage costs the system helps firms comply with end-of-life legislation which obliges manufacturers of various goods to ensure goods can be disposed of in an environmentallyfriendly fashion or recycled. Another initiative involves a new model for paper recycling. Instead of sending paper
straight through the existing system whereby the paper is collected and processed at regional centres, Cambridge have developed technology which can be used in offices to remove the ink from sheets so they can be used two or three or times before going through the conventional means. There are further proposals in the report regarding localization, bulk production and recycling of scrap aluminum by cold bonding.
The future A consideration of the future is the rationale for sustainability’s rise to prominence. Whether that refers to the prospects of rainforests and ozone layers, balance sheets and profit margins or supply and demand, the reason for ‘sustaining’ something is so it exists at least in a nonnegatively negotiated state at some indefinite future point in time. Aside from strong order books for manufacturers of energy efficient light bulbs and a more competitive waste management services market, as we’ve already heard, the experts see sustainability in its broadest form as crucial to the success of individual firms. Sustainability as the corporate-culturally conceptualized ideal is critical to sustainability in the dictionary definition sense of the word. For further details, contact Ray O’Donoghue on 07775 540741 or by email at raymond.o’donoghue@barclayscorporate.com
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Business intelligence helps bakery improve delivery efficiency and customer service Each day, Allied Bakeries produces and delivers around 2 million products, including bread and rolls, to 12,500 stores across the United Kingdom and Ireland. To handle such high volumes, managers need access to detailed business data. However, manual processes across the customer services area were making it hard for them to track efficiency
Situation Business intelligence is crucial to AlliedBakeries. The company, known for its leading brands such as Kingsmill and Sunblest, produces and delivers bread, rolls, tea cakes and muffins to around 12,500 stores every day. Its managers direct strategic and tactical operations from the head office in Maidenhead, the United Kingdom (U.K.). Most of its products are produced the night before delivery and have a short shelf life, which means managing accuracy of deliveries requires a tight operation. Many of the company’s 4,500 employees are involved in this process, working from numerous locations across the U.K. and Ireland. Like all large companies, Allied Bakeries needs to focus on optimising business performance to streamline customer service and keep costs down. Tony Jaskeran, Head of Business Intelligence, Allied Bakeries, explains that the main challenge for decision makers was obtaining a complete picture of operations in an environment where data was held and managed separately at each location. Jaskeran says: “Our existing system had been in place for many years, and it remained a manually intensive process to compile information to produce reports or track our order fulfilment.” IT specialists had to define and manipulate the source data to produce reports. “Managers described the specification to our technical professionals, who then manipulated the system,” Jaskeran says. “It was the only way to look at trends or analyse efficiency. Users couldn’t easily access the system and view the data. And they had to use a series of spreadsheets and local adhoc systems to consolidate the information.” Jaskeran was keen to extend the information to people across the business, especially to three key levels of employee:
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Strategic – supply chain directors need to look at key performance indicators (KPIs) to assess percentages of delivery accuracy. Tactical – each manufacturing site serves particular stores within its logistical area. Operations managers and customer service reporting managers need to examine success rates and business performance within their own region. Operational – distribution and transport managers look at order fulfilment at their site, down to the base level, such as picking the products, dispatch, and delivery. “Properly gauging industry fluctuations and understanding supply chain and sales growth relies on this kind of analytical information,” says Jaskeran. “Customer service is also a priority because it differentiates us from competitors. It’s vital that we are able to provide highquality products and deliver the correct quantities within the time scale our customers dictate.”
Solution The first phase of the project addressed the company’s need to track the processing of customers’ orders more efficiently. The aim was to provide employees with a reporting system that offered variations they could design and create themselves. According to Jaskeran, the system needed to: Offer ease of access for users. Significantly reduce the need for the IT team to produce reports. Provide analysis at the lowest level of granularity.
The existing management information systems had, over the years, become Oracle-owned. But working with Microsoft® Gold Certified Partner Edenbrook, Jaskeran and his team chose to develop a business intelligence solution on Microsoft SQL Server™ 2005. Jaskeran says: “We had a large investment in Microsoft software and found that the majority of solution vendors that are the best in their space tend to use SQL Server solutions.” The cost of procurement, training, and long-term support for the technology was also a major factor in the company’s decision. “The Oracle applications had come to the end of their life, so it was expensive
Case study
to move to the latest release,” says Jaskeran. “Our IT team would need specialist training, whereas Microsoft software is more cost effective. With licensing and developing costs included, SQL Server 2005 was at least 40 per cent less expensive than the Oracle solution. It also offers seamless integration, so we needed far fewer people to implement the system.” The new business intelligence solution has transformed the way people use data to meet customer needs. Traditionally, data analysis tools were accessible only to those with years of datamining experience. SQL Server 2005, however, offers new features for everyday users. One of these features – Report Builder – is available as a component of SQL Server 2005 Reporting Services. It’s an out-of-the-box, end-user tool, which employees can use to create reports. “It was a free component that was easy for people to learn and use because it’s similar to their Windows® environment,” says Jaskeran. The technical team has also designed and automated the solution to deliver tailored analysis, which helps managers and senior staff track customers’ orders against delivery figures. “We can look at the original order placed by the customer, amendments to that order, and the final order that was delivered and invoiced,” says Jaskeran. Simon Goldsmith, Business Intelligence Practice Manager, Edenbrook, was part of the team that led the implementation. He says that a great deal of manual effort has been removed from user processes. “They now have a quick view of fulfilment information broken down by customer, and can use it to generate their own reports and analysis.”
Benefits All key decision makers across the business – from strategic users to local managers – can now use and apply business intelligence in their everyday jobs. People can view and define data with easy-to-use tools and deliver meaningful reports that support the company’s strategy to improve customer service. Previously customer service operatives spent a significant amount of their time collating reams of data from numerous manufacturing and production sites. Now, the entire workflow is automated, freeing these people to focus on more strategic activities. Delivery drivers record arrival times and delivery statistics on handheld devices, and this information is fed automatically into the system, which highlights discrepancies between the original and final orders. The information they used to spend so long analysing is distributed straight to the manufacturing sites, and the reports are generated automatically.
Within weeks of deployment, the efficiency of order fulfilment rose by half a per cent. “It might not sound like much at first,” says Jaskeran. “But, when you think about the fact we’re delivering to about 12,500 locations and producing 12.5 million items, half a per cent is a very significant number.” Jaskeran says this result reflects the success of the technology in helping track efficiency. “Detailed information is now readily available,” he says. “Managers can use the Microsoft business intelligence solution to identify trends and act on them faster. Our delivery accuracy and, more importantly, our service delivery to our customers have improved significantly.”
Information access helps employees enhance customer service The business intelligence reports measure KPIs, helping managers to evaluate the progress individual sites are making. Allied Bakeries can also provide this information to customers that request it. “We can provide more accurate reports straight off the system, quickly and easily,” says Jaskeran. “We have transformed our processes and can now spot trends and make decisions earlier. This granular level of information analysis helps us reach improvements in information and efficiency quickly and increase customer loyalty.”
Helping employees work more productively As the project was rolled out, each morning, senior managers and directors held conference calls with representatives from each production site. From the start, they’ve been able to review any potential service issues, and make decisions based on the information available in the new system. Users can now navigate around the system easily with little training. Taylor says: “It is very simple to use. Once people have learnt the basics, they can find what they want quickly. The business intelligence solution has given us exactly what we wanted—and more.” e People-Ready Business Integration with External Systems SQL Server 2005 technology can link quickly and easily to business applications to retrieve data held in these systems and incorporate it into reports, providing more strategic or operational information for decision makers. This seamless integration was important to Allied Bakeries. “We’re assessing enterprise resource planning systems at the moment, says Jaskeran. “It’s good to see that all these systems are supported by the Microsoft business intelligence strategy, and it influenced our decision to work with Microsoft technology.”
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Support for manufacturing Gay Sutton reports on the Government’s Manufacturing Strategy Review and asks what does it offer for the future of the sector?
F
ollowing many months of consultation and study, the Government has finally published its long awaited Manufacturing Strategy Review. Building on the review of 2002, the document sets out government’s vision for the future of manufacturing in the UK: the challenges it faces, how the global marketplace is evolving and the opportunities that are there to be exploited. And finally it proposes a clear and extensive strategy for supporting manufacturing. One of the first things to leap out from the publication is that there seems to be a genuine understanding and acknowledgement of the excellence of UK manufacturing, its value to the UK economy and its critical importance to the future prosperity of the nation. The review identifies five key areas where it believes government action and support can significantly improve manufacturing’s performance and competitiveness and open up new markets. The document then delivers an action plan that includes proposed investment levels, a clear timeline for delivery and, perhaps most importantly, it designates responsibility for delivery to named organisations. This is perhaps one of the biggest lessons that seems to have been learned from the original 2002 strategy which, while creating some excellent initiatives, such as the Manufacturing Advisory Service (MAS), and the National Skills Academy for Manufacturing, has singularly failed to deliver in other areas. Baroness Shriti Vadera, minister for business and competitiveness at BERR, who headed up the review along with Delyth Morgan from the Department for Innovation, Universities and Schools (DIUS), assured me that the
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Government was wholeheartedly committed to the review. “We will drive each area of the strategy forward by a rigorous implementation process that we are establishing with key partners, including Regional Development Agencies,” she promised. “This strategy is a high priority for both BERR and DIUS.” That is reassuring, but governments do come and go, and ministers have an unfortunate habit of following each other in a continuous cycle of change and renewal. The sector needs to be assured that this is a long-term commitment that transcends politics and personalities. “The 2008 strategy is not a party political policy,” she insisted. “The strategy has been developed with the help of industry and is putting in place measures for the long-term future of the manufacturing sector. “In many areas, manufacturers can expect to see enhanced support in place quickly,” she continued. “For example, to help more companies take advantage of value chain opportunities in India and China, we will be recruiting specialist advisers to be deployed by the end of this year. And, as part of its ongoing support for manufacturing, the Technology Strategy Board will issue in early 2009 a new £24 million call for high value manufacturing R&D projects, with an expectation that successful projects will be underway within around six months. “Some policy measures will necessarily have a longer delivery time but we are committed to ensuring that each policy will be driven forward without delay.” With these promises on the table, let’s have a look at some of the key points that come out of the review, how much is going to be spent, and who will be delivering and when.
Manufacturing Strategy Review
At a glance... Global value chains
Perceiving that it is vital for manufacturers of all sizes to become part of the global value chain, the review proposes that: India and China: UK Trade & Investment (UKTI) will put together a new package of support for 600 companies of all sizes to identify opportunities in India and China. It will recruit new industry experts to assist in this, and will promote UK manufacturing through a range of marketing campaigns. This is to be in place by the second quarter of 2009. Intellectual property: A new publication from the IP Office provides guidance on protecting and exploiting intellectual property in key emerging markets. Available now. Clusters: BERR and UKTI will develop a new ‘Cluster Mark’ award to support and encourage clusters and raise the profile of cluster members.
Technology exploitation Utilising the latest technology across all areas of the business can create that all important competitive advantage, while companies that develop new technology will ride the crest of the wave rather than spend their lives catching up. The proposals are: Coventry Manufacturing Technology Centre. Government will invest £30 million through Advantage West Midlands and EMDA to deliver this new facility by 2010. Over 10 years the centre is expected to see £130 million business-led applied research and its exploitation. Government is also keen to receive proposals for widening the scope of the network of Technology Centres. Collaborative R&D: The Technology Strategy Board will be investing a further £24 million into collaborative businessto-business and business-to-academia research projects focused on products, production processes, services and value systems. It will also streamline the process by which it assesses applications for funding into new projects. Innovation vouchers: Over the English regions, the Regional Development Agencies (RDAs) will provide 500 SMEs with an innovation voucher to work with a knowledge-base institution of their choice – an overall investment of £3 million to be delivered by 2011. Government’s aspiration is that, if proven effective, the number of vouchers may be doubled to 1,000.
Intangibles Acknowledging that investment into other intangible areas such as software, design and branding have a considerable impact on competitiveness, the review promises: Design makes a difference: The Design Council and the RDAs will strengthen the uptake of the Designing Demand programme, and will improve its linkage to other business support programmes such as the MAS. The programme helps companies exploit good design to boost performance and increase their market share. DIUS is to oversee this initiative. Design skills: Support will be provided for the UK Design Skills Alliance, a new organisation to deliver the skills needed by the industry, to drive professional development and provide a link between practicing designers and academia.
People and skills A skilled and motivated workforce is essential to competitiveness. Companies are investing but there is, and will continue to be, a huge gap in skills unless strong action is taken. The review pledges the following: Access to training: From April 2009, Business Link with be the single port of call for all business support. In addition, no matter which national, regional and local skills organisation you go to, you should be able to receive a single seamless service for addressing skills needs. DUIS, BERR, the UK Commission for Employment and Skills (UKCES) and the RDAs have been tasked to ensure the delivery of this. Simplification of the system: UKCES is developing proposals to simplify the skills system, reporting to government in autumn 2008. The manufacturing sector is to be a first pilot for relevant proposals; including building Train to Gain as a more integrated service that offers a range of options for employers. Apprenticeships: 1,500 new high apprenticeship places will be created. To accelerate output from this, bids will be invited from larger manufacturers to train more apprentices than they need, including for their supply chains. Note: this is in addition to the 9,000 new apprentice enrolments promised for manufacturers recently by the Sector Skills Councils. DUIS and LSC to deliver this. Image of manufacturing: The new body, Manufacturing Insight, will be created, tasked with improving the public perception of manufacturing, informing the media and making young people aware of the career opportunities. BERR and DUIS to oversee. Engaging schools: To promote manufacturing to young people, BERR, DIUS and DCSF will be launching the ‘Manufacturing the Future’ campaign. It will use the Science and Engineering Ambassadors and work with Manufacturing Insight.
Low carbon With many business opportunities ahead for low carbon technologies, the strategy proposes: Exploiting the low carbon revolution: A new low carbon industrial strategy to be published in 2009, bringing together all government activity to help manufacturers adapt to the low carbon economy and identify and respond to growing market opportunities. BERR to deliver. Nuclear power capability: Aimed at ensuring UK manufacturing can participate in global nuclear power building, a newly created Office of Nuclear Development will provide clear information on the needs of the UK programme, help develop capability where gaps are identified, identify and address skills and technology needs, and work with UKTI to develop export strategies. BERR is to oversee. Renewable energy: The Office for Renewable Energy Deployment (ORED) will be established, which among other duties will raise the global profile of manufacturers in the supply chain. Alongside MAS and UKTI, it will advise manufacturers on how to effectively exploit the growing renewable market. BERR to deliver. Cars: Already supporting a pilot programme for electric cars, government promised to develop a programme for low carbon and fuel cell technologies.
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Case study
S&A Foods S&A Foods Ltd is a food manufacturing business based in Derby. It specialises in the production of authentic chilled ready meals which it supplies to supermarkets The company began in 1986 when Perween Warsi, a passionate and innovative cook with a devotion to quality ingredients, moved to the UK from India. On arrival she was soon disappointed by the Indian meals stocked by British supermarkets. Her palate was left offended by the lack of taste and authenticity in the food advertised as a bona fide representation of her homeland cuisine. So she decided to address the situation. She set to work in the modest surroundings of her own kitchen, creating the recipes with which she was determined to change the market. Her ambition and resolution were the only matches to her talent and day after day she would call the supermarkets asking them to trial her food. After months of trying, one of the UK’s largest supermarket chains finally agreed to a blind tasting of Mrs Warsi’s foods alongside other samples. Her culinary creations were a hit; orders immediately followed. Mrs. Warsi quickly established S&A Foods Ltd as a large scale manufacturer. The business now produces in the region of 1.25 million ready meals per week. Perween Warsi has since been awarded a CBE and an MBE and sits on the CBI (Chartered Business Institute) national committee. The company banked with another high street bank for many years as it grew and was firmly embedded into the institution. Nevertheless, Michael Parker, Relationship Director within the Midlands Larger Business team had identified S&A as an ideal target for Barclays Commercial Bank. Michael specialises in manufacturing businesses. He has a good knowledge of the food sector and a strong awareness of the issues faced by businesses like S & A. He started to get to know the business and build a relationship with the directors. It became clear that the business would benefit from a bespoke banking package for its seasonal trading pattern and concentration of sales through its supply to a leading supermarket. Michael Parker approached Phil Hill, director trade services, to explore ways of turning the retailer’s invoices into cash. The problem was that traditional confidential invoice discounting was deemed inappropriate due to concentration issues and an overdraft would not deliver the flexibility required.
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The solution was to produce a credit agreement and present to the company a package including a Selective Invoice Financing (SIF) product and Committed Money Market Loan (CMML). SIF is a unique product designed to offer additional cash flow to customers producing goods and services to blue chip companies – like the supermarkets which S & A supplies. Typically SIF can release up to 90 per cent of invoice value of cash tied up in key and identifiable debtors. Invoices are usually financed for up to 90 days, generally in nonrecourse, as the bank adopt the credit risk in case of buyer default. As a result it can be treated in certain circumstances as ‘off balance sheet’. This method of funding has often historically proven to be cheaper than other financing options. The CMML, a fully revolving credit line, provides the flexibility that businesses like S&A need to cover seasonal working capital requirements. It’s a committed line which the company can dip in and out of as required. Borrowing costs are fixed at the outset for each drawing and linked to Libor (London interbank offered rate). This method can help to keep tighter control over costs and budgeting. These were an exact fit for the business banking requirements of S&A Foods Ltd and a decision to bring the whole of the company’s banking arrangement to Barclays Commercial Bank was happily agreed on both sides of the coin. Deal Team: Michael Parker, Relationship Director, Phil Hill, Director Trade, and Ian Reynolds, Key Account Manager.
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