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Contents
Contents 4 5
Foreword by Terry Scuoler Executive Summary by Tim Brown
6-13
Economy, government & policy – Survey & analysis
14-27
Finance – Survey & analysis
28-38
Purchasing, procurement & logistics – Survey & analysis
39
Manufacturers’ Opinions: What can the Government do?
Editor - Tim Brown t.brown@sayonemedia.com
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Art Editors Alex Cole a.cole@sayonemedia.com Martin Mitchell m.mitchell@sayonemedia.com Research Manager - Tim Brown t.brown@sayonemedia.com Publisher - Henry Anson h.anson@sayonemedia.com
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3
Foreword developments are core activities for manufacturers, supporting a consistent focus on the customer; efforts to capitalise on emerging growth sectors Terry Scuoler and cost reduction in the face Chief Executive, of soaring input costs. EEF, the manufacturers’ organisation It is clear however that in the short-term sentiment am delighted to introduce this year’s has weakened and companies are more Annual Manufacturing Review. cautious. While this Review demonstrates Manufacturing has come a long way over that manufacturers are engaging in a host of the past 18 months, with output showing solid activities to build their competitive advantage, growth and making a significant contribution to there are inevitably questions as to whether the fortunes of the wider UK economy. While it policy makers, finance providers and indeed is clear from the overall results that we are living overseas partners are doing all they can to in a more challenging business environment support growth ambitions. Overall, the survey than this time last year, the tactics that provides some mixed messages about the UK’s companies are using to underpin their long-term attractiveness for manufacturers, with many competitiveness provide cause for optimism. considering alternative locations for investment. Despite sluggish growth in some of our We may be at a crossroads and it seems main markets, world trade is still growing. The manufacturers are not entirely convinced that increased use of UKTI support evident in the policy makers will chose the right path. The survey backs what we hear from across the rapid change in sentiment since the early sector; companies are increasingly active in summer means the nature of the challenge overseas markets, especially the emerging facing government has changed. We now need economies where the best export prospects to see government getting its growth agenda are to be developed. Gaining a foothold in back on track by systematically attacking the these markets has long been a priority for biggest barrier to growth. This means reducing many manufacturers and it is encouraging that, the burden of taxes and regulation and making despite global economic uncertainties, these it easier for companies to find the finance and objectives remain on track. skills they need to grow their businesses. Our sector is increasingly at the heart of the While 2011 has been more challenging than economic debate of how we rebalance our most of us had expected, long-term growth economy and success stories abound, even in across our economy will depend more on challenging times. investment and exports and less on spending by Equally, the unrelenting focus on innovation is government and households. Manufacturing is also evident. New product, process and service at the heart of this.
I
4
By Tim Brown
Welcome to the Annual Manufacturing Report 2011 sponsored by Barclays Corporate.
I
n the last couple of years, the overwhelming focus of manufacturers has been on the impact of macroeconomic pressures. Those concerns have continued and have been exacerbated in the last couple of months due to the turbulence in the Eurozone. However, more so than in previous years, this year’s Annual Manufacturing Report (AMR) has revealed a greater polarisation in the fortunes of British companies. As would be expected, both winners and losers have emerged from the global financial crisis. This has been shown in the stark disparity in capital expenditure between companies. While there has been an increase in the number of companies looking to spend over £500,000 on machine tools this financial year, there has also been a considerable increase in the percentage of companies anticipating an investment of less than £10,000. Similarly, while 13% of companies rated the level of service of their lender as excellent (8% more than 2010), there was an increase of 14% to 19% of companies who this year rated the service level as poor. This polarisation of opinion was also reflected in the critique of local government with a large growth in the number of companies considering local government to be unhelpful while there was also a considerable growth in the number of businesses that rated them as very helpful. The growth in criticism of the banks and policy makers indicates a worrying level of frustration and difficulty within the manufacturing sector. Fortunately, manufacturers are not simply looking for scapegoats and are actively seeking the assistance of industry experts from a multitude of organisations to help guide them towards sustained growth. While
in the previous two years the Carbon Trust was the most sought after industry body, this year the Chambers of Commerce took the honour with 60% of companies reporting having made contact and 70% indicating that it was useful. Most impressive though was the increase in the number of companies that made contact with the UKTI which doubled to 49%. Importantly, of the nearly half of manufacturers who made contact with the UKTI, over 80% rated their input as useful. Perhaps this is an indication of a greater number of companies looking to take advantage of the growing export opportunities which will hopefully lead to more winners in the coming year and fewer losers.
Executive Summary
Executive Summary
Other findings from this year’s survey: Manufacturers have a fairly pessimistic view of the future of the economy and industry. Compared to last year, there has been a decrease in the proportion of raw materials and or components which are being sourced from overseas. Over the next 12 months, no company reported an intention to spend less on new product development. Less than 40% of companies report that lean manufacturing is actively applied in their workplace compared to nearly 60% last year. Nearly 35% of companies suggest that they are considering moving part of their production to a low cost economy. Alongside the data, you’ll find expert analysis from: Mark Lee, Head of Manufacturing Transport and Logistics, Barclays Corporate Barry Evans, Senior Research Associate, Lean Enterprise Research Centre (Cardiff Business School) From all at The Manufacturer magazine, we hope you enjoy the Annual Manufacturing Report, 2011.
5
Survey results & analysis
Section one The economy, government & policy Analysis by Barry Evans Senior Research Associate Lean Enterprise Research Centre (Cardiff Business School)
T
he Lean Enterprise Research Centre (LERC) is one of the Cardiff University Business School’s major research centres. The Centre was founded by Professor Peter Hines and Daniel T Jones in 1994 and focuses on identifying new sectors which are suitable for pioneering lean thinking research programmes. Barry Evans has worked on research projects for a range of clients related to Lean Thinking, Value Stream and Value Chain Analysis including DEFRA, Food Chain Centre, UK Retailers and Manufacturers. He has also undertaken work relating to Lean Systems Thinking in the public sector and worked as the lean process manager in Tesco Supply Chain Development. www.leanenterprise.org.uk
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?
2011 2010 2009 2008
6
Very optimistic Quite optimistic Quite pessimitic Very pessimistic Don’t know 0% 29% 58% 5% 8% 2% 31% 50% 14% 3% 0% 40% 52% 2% 6% 0% 18% 64% 14% 4%
2a
How well do you think the Government will manage the economy? Firstly with regard to the country as a whole.
21% 6%
0% 45% 40% 13% 8% 4%
75%
24% 28%
24%
3% 2% 8%
2b
Section one The economy, government and policy
2011 2010 2009
0% 0% 0%
And secondly with regard to the specific impact on UK manufacturing.
2011 2010 2009
0% 0% 0%
0%
5% 6%
37% 36%
20%
30%
13% 19%
11% 4%
34% 33%
30%
20%
7
3
Whilst under the coalition, what impact will the Government have on the fortunes of the UK manufacturing industry? 2011 2010
3% 2%
32%
38%
39%
31% 21% 22%
5% 7%
It seems the jury is out concerning people’s optimism regarding the economy and the way in which the Government is handling the situation. In terms of the economy as a whole, there has been a 15% increase (to 21%) in the number of respondents that think the Government is managing the economy very well. This sentiment has not continued when looking at the manufacturing industry. Although only 3% consider that the Government will manage the economy exceptionally poorly, 11% consider that its impact on manufacturing will be exceptionally poor. Overall, manufacturers have a fairly pessimistic view of the future of the economy and industry.
4
How advanced is your company in adopting the following low carbon initiatives?
Undertaken Planned Not started
11% 11% 21%
79%
45% 34%
24% 18% 24% 18%
58% 58%
5% 18%
76%
3%
8% 39% 3% 32% 8% 16% 18%
8
58%
61%
66%
89%
5
Has your company had contact with any of the following agencies or organisations?
2011 2010 41%
55% 24%
47%
32%
63%
49%
57%
62% 61%
16% 33%
14% 24%
Section one The Economy, Government and Policy
It seems that companies are doing a lot to reduce the symptoms of climate change but are not addressing root causes. This conclusion is based on the majority of respondents selecting ‘not started’ for areas such as emerging green technologies, rationalising work processes, renewable fuels and greening the supply chain”. There is a lot of positive environmental activity occurring in manufacturing firms but most of the focus areas are mainly dealing with the symptoms and it is not clear how sustainable those initiatives will be if companies are not dealing with issues at root cause level.
41% 47%
41% 67%
6
For each one contacted, please state how useful you found that agency or organisation?
Useful Not useful 64%
36% 83% 17% 71% 28% 59% 41% 70% 30% 67% 33% 25% 75% 80% 20% 80% 20%
9
As in previous years, manufacturers are turning to a wide range of agencies/organisations for advice and help. The CBI was least contacted organisation and of the small number that did associate with the CBI, the great majority of them found them not to be useful. It is heartening that apart from the CBI, a significantly higher proportion of manufacturers found the organisations useful rather than not useful. The UKTI has experienced the greatest growth in popularity with 49% of companies reporting making contact (compared with 24% last year) and the greatest number (83%) of companies reported finding them useful. It will be interesting to see how the recent national consolidation of MAS impacts on their popularity next year.
7
Thinking now about manufacturing in this region as opposed to nationally, how helpful and supportive do you find your local/regional government?
Very helpful/supportive Quite helpful/supportive Not very helpful/supportive Not at all helpful/supportive 2011
2011 2010 2009 13% 7% 6% 32% 40% 39% 24% 40% 30% 31% 13% 25% 2010
2009
There has been no major shift in this area in that over half find the contribution of local/regional government’s not helpful. Manufacturing needs all the support it can get. It is important for local/ regional governments to realise that manufacturing is vital to their local economies and needs to be supported. Manufacturing definitely isn’t dead despite continued popular opinion to the contrary!
10
8a
Which if any of the following initiatives have been a key business focus for this company during the last 12 months? 26% 38% 38%
70% 63% 69% 13%
32% 28%
39% 60% 69% 29% 58% 49% 45%
60% 67%
0% 4% 2%
8b
Which if any of the following initiatives are a planned priority within the next 12 months?
2011 2010 2009
26% 33% 33%
Section one The economy, government and policy
2011 2010 2009
55% 48% 56% 37%
19% 33%
47% 54% 60% 37%
52% 43%
61% 60%
73%
3% 4% 3%
It is pleasing to see that better management of customer relationships and exploitation of sales opportunities has remained as a focus for companies. The large decreases in areas including supply chain integration, lean management, change management and new product development is quite surprising. It is possible that the decline in focus on lean or change management may suggest that companies consider themselves to be in good state. However, it may also suggest companies are not taking a sufficiently long-term view of their future sustainability. Importantly, companies are planning on improving their focus on new product development next year.
11
9
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?
89% 92% 93%
71%
2011 2010 2009
87% 87% 84% 81% 89%
84% 75% 80%
29% 45% 48% 18%
34%
34% 38%
16%
3% 6% 3%
0%
43%
49%
34% 38%
15%
9% 11%
8% 13%
It is great that customer service is still top although it is worrying that it has declined at all compared to previous years. Most companies are focused on improving profit but interestingly much fewer interested in growing revenue. This was a similar sentiment that was expressed in the finance section. Focusing exclusively on cutting costs is not a recipe for growth and it is not sustainable. In addition, when companies try and cut costs, costs often actually increase.
10 2011 2010
How do you plan to achieve future growth within your company?
47%
32%
47%
40%
0% 0% 0% 2% 5%
12
26%
11
How significant is developing international trade for your future growth strategy?
2011
2011 2010 2009 2008 63% 74% 74% 58% 24% 16% 18% 39% 13% 10% 8% 4%
2010
2009
2008
International trade is still a concern for the vast majority of respondents. It is odd that, despite the current currency advantage, companies see international trade as less significant than in previous years and are focusing on organic growth. One would have thought that now would be the time when companies would be more focused on overseas opportunities but perhaps some are consolidating their position at home. This would explain the growth in the number of companies reporting that international trade is a secondary or prospective concern. Since 2008, the number of companies reporting that international trade is of no concern has increased year-on-year to its highest level this year of 13%.
12
Please rate the following statements on a scale from 1 to 5 where 5 is strongly agree and 1 is strongly disagree.
Section one The economy, government and policy
Important or vital concern Secondary or prospective concern No concern
Strongly disagree 1 Disagree 2 Neither agree or disagree 3 Agree 4 Strongly agree 5
In the area of improving speed and efficiency, close to 90% of respondents agree that this is an area of focus at their company (this is similar to last year’s figures). Similarly encouraging is the 70% of companies which agree or strongly agree that their businesses are well integrated – that is a 20% improvement on last year’s figures. Given the proven role of lean in helping companies to improve, it is odd that less than 40% of companies report that lean manufacturing is actively applied in their workplace compared to nearly 60% last year. That decline in lean has coincided with a small increase in companies being reactive rather than proactive. That will likely be a continued trend if companies discount the potential benefits of lean.
13
Section two Finance Analysis by Mark Lee Head of Manufacturing, Transport and Logistics Barclays Corporate
W
ith a clear focus on client relationships, Barclays Corporate provides integrated banking solutions to businesses with an annual turnover of more than £5 million or its currency equivalent. We serve our clients via a global network of relationship, industry sector and product specialist managers, who provide tailored solutions to meet their needs. These include lending, risk management, trade, cash and liquidity management, and specialist asset and sales financing. Additionally, clients are offered access to the products and expertise of other businesses in the Group, particularly the investment banking solutions of Barclays Capital and the private wealth management expertise of Barclays Wealth. At Barclays Corporate we are committed to the manufacturing sector and to understanding how changes within the industry impact manufacturers on both a short term and long term basis. We have relationships with a quarter of all UK manufacturers and keep track of developments in the sector through strong links with key manufacturing bodies. Nationally we have a team of over 100 Manufacturing Relationship Directors. You can be confident that you will always have access to the right specialists, who understand your business and connect you to the expertise that you need. Barclays Corporate are committed to becoming the bank of choice for UK manufacturing firms, with a focus on maintaining and growing Britain’s place on the global manufacturing stage. barclayscorporate.com
1
What area of financial management is your company currently most focused on?
14
Increasing cash flow Reducing costs generally Coping with inflation Exchange rate fluctuations Raising money for investment Reducing debt
2011 2010 2009 2008 31% 29% 29% 44% 50% 33% 45% 22% 13% 0% 0% 8% 0% 19% 10% 11% 0% 0% 4% 0% 6% 19% 4% 15%
2
Which of the following areas will you be investing in within the current financial year?
2011 2010 2009
31% 47% 38%
Section two Finance
In line with the findings from the last two years, manufacturers have continued to focus on reducing costs while increasing cash flow. The number of manufacturers whose primary financial objective is now to reduce costs has grown to an all time high of 50%; a worrying statistic as it indicates a definite nervousness to invest. By focusing on reducing costs over and above the increasing cashflow, companies are again moving back to a consolidation position, which could be putting future growth at risk. Overall the finance element of this report reflects current volatility in the economy and suggests a more cautious tone than was reflected in last year’s findings. There is further evidence of caution apparent from the increased concern over inflation. The rise in commodity prices in areas including metals, rubber and foods has surely fuelled concern as has the continued increase of energy prices. As with last year, raising money for investment was not a priority for most companies. However, with the current low base rates, financing options remain at historically very competitive rates. The indication that companies are less focused on reducing debt is somewhat encouraging and links to evidence that the sector has de-leveraged significantly over the last 18 months. Although exchange rate fluctuations have not been selected as the area of greatest concern, this is undoubtedly still an area of particular focus for manufacturers, particularly those companies operating in the export market.
55%
65% 56%
31% 30% 15%
50% 47%
60%
38% 35% 37%
56% 47%
75%
6% 5% 0%
Fundamentally these results indicate that investment is set to drop. There is clear pressure on capital expenditure and decreasing investment in areas such as machinery and machine tools highlighting the fact that companies intend to run their existing machinery for longer. There is always a potential cost involved in putting off cap-ex spend whereby ongoing maintenance costs can outweigh the cost of a new piece of kit in the long term. In addition, those companies that are choosing not to invest, or reduce their investment do run the risk of losing their competitive advantage.
15
3
In broad terms, what is the likely level of capital investment in the following areas during this current financial year?
Under £10,000 £10,000 - £50,000 £50,000 - £100,000 £100,000-£500,000 Over £500,000
When looking at these results compared to last year, there has been more than 20% increase in the number of companies looking to spend less than £10,000 on machine tools. This year, more than 50% of manufacturers have revealed that they are planning on investing over £100,000 in machinery and machine tools with 27% looking to spend over half a million pounds in this area. Although 40% of companies are likely to spend less than £10,000 on property and buildings, the equivalent number are looking to spend £50,000 or more. Compared to last year, there has been solid improvement in the areas of property and buildings as well as new product development. There seems to be a focus on investment in new products, and importantly research and development. This is a positive trend and it is encouraging to see manufacturers focus their investment priorities on making new products that keep them competitive. Gaining an advantage through product development is a positive course of action.
4a
Are your investment levels in the following areas this year more, less or about the same as last year?
16
Less Same More
4b
Do you anticipate investment to be more, less or about the same in the following areas next year?
Section two Finance
Less Same More
The results from questions 4a and 4b are relatively positive. Aside from property and buildings, in all other areas of investment almost half of the companies surveyed reported spending more than the previous year. There seems to be a form of polarisation occurring where companies with stronger performance which have emerged successfully from the global financial crisis are able to increase their investment levels while companies that continue to struggle need to focus on tightening control of their spending. Niche sub sectors have perhaps developed a unique selling distinction and are therefore performing particularly strongly. Importantly, no companies reported that they are intending on spending less on new product development over the next 12 months. This is promising and shows that UK manufacturers are focused on continuing to bring new products to market. More than half of companies are also looking to spend more on machinery and machine tools next year. This indicates that companies are looking to couple new product development with investment in new equipment to bring innovation to the marketplace.
17
5
Now thinking ahead for the next five years, what do you anticipate being the major areas of capital investment for this company?
Minor Medium Major Don’t know
Similar investment patterns seen in questions 4 and 5 look set to continue in the medium term. The focus on machinery and machine tools as well as new product development as major areas of investment are in line with last year’s results. While this shows a similar optimism that was displayed last year, it is clear that last year’s positivity has not eventuated into investment levels this year. This cautious but optimistic tone is understandable considering the continuation of the current uncertain economic period. Hopefully confidence in next year’s outlook will prove more founded.
18
6
How feasible has it been for your company to obtain any necessary funding in 2011, as opposed to previous years? 2011 2010 2009 2008 13% 5% 0% 0% 25% 24% 26% 11% 38% 33% 35% 53% 6% 19% 7% 0% 19% 19% 28% 26% 0% 0% 4% 10%
Section two Finance
Funding inaccessible Funding difficult to obtain No change Funding obtained easier Not applicable - no funding sought Don’t know
As with previous years, this year the largest proportion of respondents (37.5%) stated that there has been no change to feasibility with which companies could access finance. Similarly, the trend continued from last year with a quarter of companies reporting that funding was difficult to obtain. Importantly however, the number of companies reporting that finance was easier to obtain fell by nearly 13% while the number of companies reporting that funding was inaccessible rose by 7.5%. The only way to improve these statistics is through open and frequent discussions between banks and manufacturers to help jointly formulate robust business plans and strategies which allow consistent access to finance, facilitating growth and financial success. The lending market is operating in a different environment in comparison to that three or four years ago. Undoubtedly there has been some impact on the controls and requirements that banks in general have around funding. Banks are most certainly assessing risk more carefully which is essential to ensure the future security of the global economy. Another important point for consideration is that 3 to 4 years ago there were a lot more foreign banks active in the UK market. When the recession hit, many of those banks retreated back to their home markets. While some of the more standard UK based lenders have recently been increasing the availability of funding, there is a notable gap which has been left by these foreign lenders which banks such as ourselves are working hard to fill.
19
7a
Which of the following ways of raising capital has this company used within the past two years?
2011 2010
27%
45% 33%
50%
7% 15% 55% 0%
80%
5%
0% 0% N/A
37%
0% 0% 5%
7b 2011 2010
32%
Which of the following ways of raising capital is the company likely to use over the next two years? (Mark as many as apply). 13%
37%
33%
53%
7% 5% 53% 58% 0% 0% 0% 0% 0% 0%
37%
13%
15%
20%
This year asset finance was added to the list of choices for ways in which companies raise capital. With close to 40% of companies utilising this as an option, it is clearly a very popular instrument for raising capital and suits the sector well. The logistics and cap-ex spend which takes place in manufacturing is appropriate for asset finance. Company reserves have been used while bank loans and overdrafts have been reduced which indicates that companies have de-leveraged and used the cash to pay down bank loans. This behaviour is what we would have expected in the current environment. While the economy has been seen as having recovered from the economic crisis, the continued economic turbulence has clearly resulted in a much greater focus on self reliance with a 25% growth in companies relying on company reserves over the last two years. According to the results, that figure will return to the more common 50% range. However, this decrease in the use of reserves has not been supplemented elsewhere, which either reflects an intention to ‘tighten the belt’ and reign in spending over the next 24 months or, if that is not the case, a shortfall in funding.
20
8
How do you rate the level of service/advice provided by your current lender?
13% 5%
2011 2010
38%
47%
Section two Finance
As last year’s respondents hinted in their predictions for the subsequent two years, venture capital funding has been reported as a viable alternative for only 6.6% of respondents. Perhaps due to the turbulent economic period, venture capital investors are not currently interested in the long term investments and a lack of liquidity which are typical characteristics modelled by industrial investments.
25% 19%
19% 5% 6%
24%
The greatest change to figures this year, compared to last year, in terms of respondent opinions has occurred at either end of the spectrum. There has been a good growth in the number of companies reporting excellent levels of service and advice but at the other end of the scale there has also been an increase. A polarisation of responses has emerged again in this question and it is important for those companies having difficulty with their current lender to communicate their difficulties and, if need be, research what else is available in the market place.
9
How satisfied are you with the trade funding options available from your bank?
13%
11%
2011 2010
25% 11%
38%
37%
19%
42%
6% 0%
Whilst a quarter of companies reported satisfaction with options, there are an even greater number of companies reporting dissatisfaction. To assist in improving the available options, manufacturers and their financial partners should engage in a detailed and effective dialogue. Communication will assist the financier to better understand the needs of the company, enabling them to work alongside manufacturers to achieve ultimate financial success. Trade funding has definitely become an area of focus for Barclays Corporate. The trend for banks in general to focus on this area proves that there is a need for this type of funding to be made available. It is likely that, over the next two years, there will be a considerable increase in the prevalence of trade products. We are already starting to see supplier financed programmes becoming more active as a tool for funding a supply chain. This has become an area of focus for many banks.
21
10
To what extent are you typically able to monitor and measure return on major capital investment projects?
Full financial ROI (return on investment) quantification on all investments Most benefits are quantified financially, but not all Some ROI quantification Mainly operate qualitative assessments Don’t know
2011 2010 2009 13% 14% 34% 31% 42% 31% 18% 38% 22% 31% 6% 11% 7% 0% 2%
Alarmingly, this year has seen a dramatic increase in companies operating mainly qualitative assessments rather than full financial return on investments. To ensure financial success and economic sustainability, businesses must focus decisions around rigorous business reporting, including set periods for returns and must not operate simply to satisfy immediate imperatives. This may also be an indication that some of these respondents are simply not currently making major capital investments. If that is the case then it stands to reason that they do not need to complete major ROI analysis for some of their less significant ongoing costs. The 31.2% operating qualitative assessments are potentially performing maintenance capital expenditure rather than major new cap-ex.
22
11
What is the typical required payback period for a return on a major capital investment project?
Section two Finance
2011 6%
13%
38%
13%
6%
25%
0%
0% 7% 5% 0% 29% 16% 23%
47%
52% 38% 46% 49% 5% 4%
11% 18%
0% 2% 0% 3%
2010 2009 2008 2007
10% 2%
11% 7% 4%
0% 0% 0%
The number of companies requiring a payback on major capital investments in more than four years has seen a promising increase. Compared to the previous four years, this year’s results revealed the largest number of companies allowing targets of more than seven years.
23
Of the companies that set targets however, the majority still require payback within four years, most between two to four years. While there has been an encouraging growth at the longer end of the spectrum, there has been the same level of growth in companies requiring payback within 12 months. This shows that many manufacturers are still cautious about allowing ROI to extend beyond five years with some struggling to justify spend unless it results in immediate returns. Achieving a return in less than four years is not always realistic. To ensure continued strength, the UK manufacturing industry must ensure short-term gains are not the primary focus of the company at the expense of long term strategic advances.
12
In broad terms what percentage of capital investment is strategic as opposed to replacement? (Strategic being investment to support the forward vision of the company)
24
100% 75-99% 50-74% 25-49% 1-24% None
2011 2010 2009 2008 0% 0% 0% 0% 14% 24% 16% 18% 45% 33% 51% 18% 14% 29% 11% 36% 20% 14% 18% 22% 7% 0% 4% 6%
2011
2010
2009
2008
13
How concerned are you about the cost of insurance (e.g. employee liability) incurred at your facility? Please answer in terms of the impact you feel the costs will have on your profitability
Very significant Quite significant Not significant Don’t know
Section two Finance
This year almost half of the companies report that 50-75% of their investment is strategic. As with all previous years, no companies consider all their capital investment to be strategic. While it is understandable that companies cannot make 100% strategic investments due to unforeseen circumstances, it is disappointing to see a decline in the number of companies acting in primarily strategic terms and the number of companies reporting that at least three-quarters of their investments are strategic have dropped by more than 10%. There is still a considerable number of companies unable to invest strategically which demonstrates that some companies remain uncertain about the long term strength of their operations and perhaps do not have the capital currently available to make forward thinking strategic plans. From these figures it seems that we are looking at a seemingly flat economy for the near future. However, I think the sector is more able to withstand shocks and pressures as companies have emerged from the recession more operationally efficient and not too encumbered by debt. As a result British companies should be in good shape to withstand limited growth and ready to fight for market share.
2011 2010 2009 25% 5% 11% 50% 57% 57% 25% 38% 27% 0% 0% 5%
This year has seen a 20% increase in the number of companies reporting that they consider the cost of insurance to be very significant. Insurance is an important topic for boards across the corporate world at the moment. The remit of a board has become increasingly wider as the costs in a number of areas, including insurance, have become more volatile. In the past, many boards didn’t stray far past topics of operational efficiency and debt. As this remit has grown it is fair to see growth in concern in this area.
25
14
What percentage of your business is conducted offshore?
69%
66%
13%
2011 2010
5% 0% 4% 6% 0% 6% 19% 0% 6%
15
Is your level of offshore activity likely to increase or decrease over the next 12 months?
Increase Decrease Stay the same Don’t know No Responses
2011 2010 6% 33% 0% 0% 75% 52% 13% 15% 6% 0%
2011
2010
Despite ideas of on-shoring, it seems that most companies are continuing their current use of overseas production. However, compared to last year there are fewer companies looking to increase their offshore activity. This could indicate the turning of the tide and perhaps next year there might be a stronger indication of companies looking to repatriate some of their operations back to the UK. If that is the case it would indeed be a positive sign for the strength of UK industry.
16
What percentage of your production is outsourced? 2011 2010
25% 10%
0% 10% 0% 5% 6% 14% 6% 0%
26
63% 61%
17
Is your level of outsourcing likely to increase or decrease over the next 12 months? 2011
2011 2010 19% 19% 13% 5% 62% 76% 6% 0%
2010
Section two Finance
Increase Decrease Stay the same Don’t know
There is a small indication here that some companies are looking to move part of their previous work back in-house to manage outcomes and risk more effectively. However, the majority are still looking to maintain their outsourcing levels. The use of contract workers to complete tasks can add value to a company’s products by allowing them to focus on strategic development and growth. These are areas of growing importance for many companies.
18
Over the last 12 months, how has your spending changed in the following areas?
Increased Stay the same Decreased
There is a solid increase of more than 10% in the number of companies which have increased marketing spend. This has been coupled with nearly 90% of companies reporting that they have maintained advertising expenditure. These figures align themselves with the idea that companies are bringing new products to the market. It is hugely encouraging to see that manufacturers are supporting new product innovation with robust marketing campaigns to ensure good sales performance and long term financial growth.
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Section three Purchasing, procurement & logistics Analysis by Barry Evans Senior Research Associate Lean Enterprise Research Centre (Cardiff Business School)
T
he Lean Enterprise Research Centre (LERC) is one of the Cardiff University Business School’s major research centres. The Centre was founded by Professor Peter Hines and Daniel T Jones in 1994 and focuses on identifying new sectors which are suitable for pioneering lean thinking research programmes. Barry Evans has worked on research projects for a range of clients related to Lean Thinking, Value Stream and Value Chain Analysis including DEFRA, Food Chain Centre, UK Retailers and Manufacturers. He has also undertaken work relating to Lean Systems Thinking in the public sector and worked as the lean process manager in Tesco Supply Chain Development. www.leanenterprise.org.uk
1
What proportion of the raw materials used in your company’s UK based manufacturing production sites are imported?
95-100% 75-95% 50-74% 25-49% 1-24% None Don’t know
2011
28
2011 2010 2009 0% 0% 2% 21% 15% 13% 7% 28% 28% 36% 12% 20% 36% 33% 33% 0% 3% 0% 0% 9% 4%
2010
2009
2
What proportion of bought-in components or sub-assemblies used in your UK production sites are imported? 2011 2010 2009 0% 0% 0% 7% 15% 7% 14% 15% 9% 36% 24% 17% 29% 37% 50% 14% 9% 10% 0% 0% 7%
2011
3
2010
2009
Section three Purchasing, procurement and logistics
95-100% 75-95% 50-74% 25-49% 1-24% None Don’t know
How, if at all, do you anticipate these proportions changing over the next 12 months?
Significant increase Small increase Stay the same Small decrease Significant decrease Don’t know
2011
2011 2010 2009 0% 3% 4% 21% 15% 20% 71% 73% 54% 7% 6% 11% 0% 0% 2% 0% 3% 9%
2010
2009
Compared to last year, there has been a decrease in the proportion of raw materials and or components which are being sourced from overseas. The majority of companies also stipulate that they expect those levels to remain the same in the coming years. Just over 20% of companies do report expecting a small increase in the quantity of goods they import in the coming year.
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4
Right now, from which of the following regions do you source any materials or components? Mark as many as apply.
Non-EU western Europe 2011: 29% 2010: 15% 2009: 26%
North America 2011: 42% 2010: 55% 2009: 40%
EU 2011: 93% 2010: 97% 2009: 100%
Non-EU eastern Europe 2011: 36% 2010: 15% 2009: 14%
Asia incl. Japan and China 2011: 79% 2010: 64% 2009: 70%
North Africa 2011: 0% 2010: 3% 2009: 2% India/sub continent 2011: 36% 2010: 15% 2009: 30% Australasia 2011: 0% 2010: 0% 2009: 2%
5
Come 2012, from which of the following regions do you think you will be sourcing any materials or components? Mark as many as apply. Non-EU western Europe 2011: 50% 2010: 22% 2009: 26%
North America 2011: 43% 2010: 50% 2009: 40%
EU 2011: 93% 2010: 91% 2009: 98%
Non-EU eastern Europe 2011: 36% 2010: 28% 2009: 26%
North Africa 2011: 0% 2010: 3% 2009: 0%
Asia incl. Japan and China 2011: 79% 2010: 75% 2009: 70% India/sub continent 2011: 57% 2010: 28% 2009: 44%
Dont know 2011: 0% 2010: 3% 2009: 0%
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Australasia 2011: 0% 2010: 3% 2009: 5%
6
When choosing to outsource offshore, what are the most important criteria affecting that decision? Rank from 1 to 10. Most important
Least important
1
2
3
4
5
6
7
8
9
10
Product quality
54%
15%
15%
0%
0%
0%
0%
0%
8%
8%
Cost savings
15%
38%
15%
15%
0%
0%
0%
15%
0%
0%
Environmental management/ being green
8%
8%
8%
8%
8%
0%
31%
15%
8%
8%
Identifying/locating an appropriate supplier
8%
0%
23%
23%
8%
15%
8%
8%
0%
8%
Speed of response
0%
0%
8%
15%
46%
31%
0%
0%
0%
0%
Ease of partner/ relationship management
0%
23%
15%
23%
15%
15%
8%
0%
0%
0%
Design capability
0%
0%
0%
8%
15%
8%
15%
15%
38%
0%
Language issues
0%
8%
8%
0%
8%
15%
23%
15%
15%
8%
Cultural issues
8%
8%
0%
0%
0%
8%
8%
15%
31%
23%
Distance of supplier from your plant
8%
0%
8%
8%
0%
8%
8%
15%
0%
46%
Criteria:
% change in high importance (criteria ranked 1-4) between 2010 and 2011
Product quality
+3%
Cost savings
+11%
Ease of partner/ relationship management
+20%
Identifying /locating an appropriate supplier
+16%
Speed of response
-28%
Section three Purchasing, procurement and logistics
Despite the decrease in the amount of goods being imported, compared to last year, a greater number of companies report receiving materials or components from Non-EU eastern and western Europe, Asia and India. While the proportion of goods has declined, clearly many companies are still sourcing goods from overseas. North America and Europe declined slightly as areas from which companies are sourcing materials and components. Clearly then, companies are looking further afield to the low-cost economies to source their goods and those figures are to continue or increase in the next 12 months. Except for the lack of data relating to Brazil, as would be expected there is increased activity in the BRIC countries. According to next year’s forecasts, India is fast catching China as the destination of choice for low cost production.
Yet again for the fourth year, product quality and cost savings have emerged as by far the most significant criteria impacting on the decisions of manufacturers. When comparing the percentage change from last year for several of the key areas, it would seem that partner collaboration has become a more important consideration. Companies reporting that the distance from their supplier was their least worrying concern more than doubled to 46% of respondents. That figure strengthens the findings from the previous questions which showed that companies are increasingly confident in sourcing materials or components from suppliers located large distances away.
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7
What proportion of your manufactured end product is currently exported?
95-100% 75-95% 50-74% 25-49% 1-24% None
2011 2010 2009 7% 6% 2% 29% 31% 13% 21% 9% 17% 0% 15% 17% 36% 33% 44% 7% 6% 7%
2011
8
2010
How, if at all, do you anticipate this proportion changing over the next 12 months?
Significant increase Small increase Stay the same Small decrease Significant decrease Don’t know
2011
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2009
2011 2010 2009 7% 7% 0% 36% 45% 54% 43% 45% 38% 0% 3% 4% 0% 0% 0% 14% 0% 4%
2010
2009
9
Where are your main export markets? Mark as many as apply Non-EU western Europe 2011: 36% 2010: 25% 2009: 15%
North America 2011: 36% 2010: 53% 2009: 33%
EU 2011: 86% 2010: 94% 2009: 89%
Non-EU eastern Europe 2011: 36% 2010: 28% 2009: 20% Asia incl. Japan and China 2011: 36% 2010: 31% 2009: 37%
North Africa 2011: 21% 2010: 16% 2009: 7% India/sub continent 2011: 21% 2010: 28% 2009: 14%
Section three Purchasing, procurement and logistics
There has been a small amount of growth in the number of companies exporting more than 50% of their end product. As exchange rates dropped, more companies are looking to exploit export opportunities. Companies that have traditionally concentrated on the home market maybe beginning to look abroad. Despite the improved balance of trade, there has been a strong increase in the number of companies that are unsure of what the future holds in terms of export growth. This is perhaps a sign of the uncertain economic period.
Australasia 2011: 29% 2010: 22% 2009: 15%
Comparing the figures from 4, the trade gap is not in favour of the UK with more companies importing from regions including China, India and the US compared with the number that are exporting. 79% of UK companies import from China while only 36% export to China 36% of UK companies import from while only 21% export to India 43% of UK companies import from the US while only 36% export to the US If the UK economy is to improve, the disparity in those figures needs to decrease. In comparison, the North African market (including the Middle East) is improving with exports growing 5% and imports declining. For companies looking to further strengthen their foreign ties, the UKTI is a good place to start when looking to develop export opportunities.
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10
Do you anticipate positive opportunities arising from ‘new’ consumer markets like China and India?
Yes No Don’t know
2011 2010 2009 64% 49% 39% 29% 45% 54% 7% 6% 7%
2011
2010
2009
Since 2009, there has been a strong increase in companies seeing growing opportunities in the developing economies. While this is encouraging the percentage of companies exporting to these regions has not increased in line with the growing levels of confidence but have remained relatively constant. Perhaps as consumer demand continues to grow in these regions, export levels will gain better traction and the trade gap mentioned in question 9 will decrease.
11
What is the likelihood of 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 Don’t know
2011
34
2011 2010 2009 7% 9% 15% 29% 15% 9% 43% 27% 22% 14% 45% 54% 7% 4% 0%
2010
2009
12
Very likely Quite likely Not very likely Not at all likely Don’t know Not applicable (don’t have an overseas operation)
2011 2010 0% 0% 14% 6% 21% 30% 7% 15% 0% 4% 57% 45%
2011
2010
Section three Purchasing, procurement and logistics
What is the likelihood of part of your manufacturing production returning to the UK over the next 12 or 24 months?
Consistently since 2009, there has been a growth in the number of companies reporting that it is either ‘not very likely’ or ‘quite likely’ that they will move part of their production to a low cost economy. While it is encouraging to see a small decrease in the number of companies suggesting that a move is ‘very likely’, overall nearly 35% of companies suggest that it is on the cards, an increase of around 10%. Those figures are very alarming. Companies that are considering this need to consider all the factors and not just the short term financial gains. There are other hidden factors that such moves will invoke including the loss of skills, knowledge and capability as well as the difficulty many companies have extricating themselves should they want to return. There is now a host of academic literature which is starting to emerge surrounding the myriad of issues which can be faced by companies that decide to offshore part of their operation. The growth in the number of companies reporting in question 12 that it is quite likely that they will return production to the UK is consistent with those academic reports.
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13
If you are likely to move all or part of your manufacturing production to a low cost economy, where is your company considering moving to? (Mark as many as apply.)
Non-EU eastern Europe: 29%
Far east and China: 36% South East Asia: 7% India/sub continent: 14%
Mexico/ South America: 21%
Don’t know: 29%
14
Other: 21%
If you outsource any of your processes overseas, how would you rate your level of satisfaction with your outsourcing decision. 2011
Very satisfied
0%
Satisfied
57.1%
Indifferent
35.7%
Unsatisfied
7.1%
Very unsatisfied
0%
Totals 2011 57.1%
35.7% 7.1%
2010 17% 44%
13% 26% 0%
Totals 2010 61%
13% 26%
2009 4% 61% 28% 4% 3%
Totals 2009 65% 28% 7%
This year no companies report being ‘very satisfied’ with their overseas outsourced production but there are also fewer companies reporting being ‘unsatisfied’. The majority of companies report being either indifferent or satisfied with their outsourced work. Clearly members of UK supply chains have their work cut out for them to compete with their foreign counterparts. However, by going above and beyond what their overseas competitors are offering, they may still snare work away from foreign companies that are not doing enough to satisfy their clients.
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15
How much information do you currently receive from your channel partners?
2011
16 2011 2010
2011 2010 2009 7% 3% 5% 43% 49% 42% 14% 25% 33% 14% 6% 10% 21% 17% 10%
2009
2010
Section three Purchasing, procurement and logistics
Very detailed Quite detailed Not very detailed Minimal/none Don’t know
How much information do you currently share with your channel partners? 14% 3%
36%
55%
14%
21% 14%
3%
21% 18%
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17
Overall, which of the following phrases best describes the current degree of supply chain integration within this company?
2011 2010
21% 3%
57%
67%
14% 18%
7% 12%
18 2011 2010
How will your level of investment in supply chain integration change over the next 12 months. 7% 0%
50%
55%
29%
42%
0% 0% 0% 0% 14% 3%
Evidence is that world class organisations engage in long-term collaboration arrangements with fewer trusted suppliers. This activity is probably the single biggest potential contributor to an organisation’s plans for sustainable improvement. It is great therefore to see a 7% increase in companies expecting a ‘significant increase’ in their supply chain integration investment in the next 12 months and no companies reporting that they expect it to decrease. It is concerning though that there has been a sizeable increase in respondents saying that they are not sure of the plans for supply chain investment. There is a wealth of knowledge which says that, particularly if you are in an innovative type market place with highly complex products and processes, then collaboration is demonstrably a better arrangement. For companies with more simple products and requirements, a more adversarial approach can reap gains, particularly in price. However, even in those situations, the long-term gains from developing better relationships throughout a supply chain can often deliver much more consistent improvements which not only assist with the bottom line but also in terms of quality, on-time delivery and future innovation.
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Skills Improve basic education standards and encourage practical and technical skill levels in secondary and tertiary education. Stop talking down the status of manufacturing jobs with expressions like “if you don’t work hard, pass this exam and be nice to teacher you will end up in a factory.” Our workers are not the ‘dregs of society’. They take responsibility for complex products and go home with a sense of achievement for a job well done. Pressure educational institutions to offer fewer humanities subjects and increase core maths and science subject places. Improve the way English is taught at school level. Bring back grammar into the curriculum. Utilise over 55 year old business/managers who have retired or cannot find work due to ageism & use them to support small companies who cannot afford the expertise they often require. Let them help small companies be more organised, efficient & competitive (at a reasonable daily rate). More financial support for creation of new jobs even if the company is part of a large group. instill youth training programmes and offer incentives to Uk Companies to do so
Red tape We are trying to construct a new building on site to increase our capacity and diversify, have finance arrange but have a major problem getting planning consent (for a site which is allocated as employment land) because it is outside the village framework. Yet if we were in the village, congestion would be a problem! Reduce the amount of regulation we have in order to supply our customers competitively. The health and safety requirements are a burden and are out of kilter with other countries. Trade agreement to reduce export tariffs from China.
Politics Ensure where possible adopt a local purchase policy, all great manufacturing have a strong home market on which they grow a strong export sector. The Government needs to treat each region equally fairly, and ignore perceived political leanings. The North East’s RDA, One NorthEast, should be immediately reassembled. A separate bank should be set up to provide financial support to the SME community, with preference being given to manufacturers. 350 characters is not enough to sort out this mess! Reduce immigration to help give the young people a chance. Allow businesses to get on with it as they have done for the last 200 years, unfettered by bureaucrats who have never worked in industry.
Regional Understand that the South-East is not London and that this area need access to funding and not just the north. How about retaining some of this valuable brownfield land for future industrial development?
Manufacturers’ Opinions: What can Government do, or stop doing, to better help UK manufacturing?
Manufacturers’ Opinions:
Energy and environment Reduce their financial and vocal support for biomass so that the furniture industry can compete fairly when it comes to the supply of timber residues. Reduce fuel duty for hauliers.
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