79. In Manufacturing – why Waste your time Tilting at Windmills?

The UK is only just recovering from one of the longest slumps in history. Throughout the recent tough economic downturn well known brands from both manufacturing and retail industies have suffered terribly and some were lost or restructured – think Woolies, HMV (as we knew it) or the entire British steel industry. Despite the weak recovery, it is still not an easy environment to operate in. There is always change, both economic and political, that has and will continue to present numerous challenges.

This is what we see as the 7 main challenges faced by UK manufacturers today:

1. Are You Working Under The “Field Of Dreams” Philosophy?

We have said it before and we say it again:

“Turnover is vanity, Profit is sanity – but Cash is reality”. (Sometimes called the “Banker’s Mantra”)

How many times have you heard someone (perhaps one of your customers or suppliers) say “I have just spent a small fortune on a brilliant new piece of kit.   And now I have got to grow my business by x% to be able to afford the repayments”?

And this x% usually refers to the top line – sales, turnover – the vanity stuff. And they often confidently make this statement without any thought as to whether their business is fit or ready to grow.

This is how you have can get real bang for your buck.

The first step to take is to identify how profitable and cash efficient your business really is; called operational efficiency, then develop a plan to ratchet it up.

Operational efficiency underpins a number of sectors – and none more so than the packaging industry.

And volume – doing lots more of the same sort of thing – is key. But before you jump straight to dialling up the volume, make sure you are going to generate more profit and, critically, more cash; don’t be a busy fool running fast to try and stay still.

There are many different aspects of operating efficiency, including purchasing, stock management and lean production. If these are analysed on a regular basis and solutions sought, then you can cut costs, increase profit margin and generate cash to afford the repayments on that bit of kit.

2. You Have Got To Sell It First

It is no good just having the most efficient factory or the sexiest machines. You have got to position your business in the market in such a way that existing and potential customers would be mad not to buy from you.

This very rarely means competing on price – quite simply, unless you are one of the seriously big players in your market (in the packaging world there are only a handful) you will not have their economies of scale and you will really struggle to match their efficiency and size. And therefore price.

3. Not Having The Right Information

Only by knowing where value is being added can you understand how best to market and sell your products.

If you are not aware of the value of goods at each stage of your process and how the finished products can help your clients – you will struggle to really understand how you add value and therefore how to charge accordingly. (Why not have a look at our free Entrepreneur’s Guide – “Measuring what Matters”?)

4. Sourcing Reliable Raw Material At Competitive Prices

The sourcing of raw material is always a constant worry for manufacturing businesses – especially if those materials have to be sourced from abroad where they are liable to foreign currency exposure. And foreign supplies are also highly likely to give you problems with continuity of supply and quality of product.

If we take the packaging industry as an example there are really only 3 suppliers of core product – corrugated board. And, unless you are a huge operator, you will not be able to negotiate huge discounts – so why waste time tilting at windmills??

5. That Red Tape

Government regulations are a constant distraction when it comes to manufacturing. We have had health and safety, and in recent years it has been the impact on the environment; and that really affects YOU if you are a UK manufacturer.

But carbon footprint and WEEE aren’t just about meeting regulations. We are all becoming more environmentally focused and therefore are looking for ‘green’ companies to invest in and trade with. Yet not all processes can be completely ‘green’.

You need to bring your customers, suppliers and investors on a journey, your journey, so that they can readily see that you are taking your obligations and responsibilities seriously.

6. The True Cost To Service Clients

It isn’t just the manufacturing or the assembly of the product that costs businesses; there are other associated costs like marketing, sales, administration, etc. that have to be put in the mix, too. Businesses have to decide what can be given away and what can be charged for.

Obviously the aim is to recover as much as possible, minimise losses and in turn generate higher profits. And this can seem like a Herculean task in a climate of hugely competitive pricing.

That said – are you fully briefed on the “price : volume dynamic” for your business? You really should be and if you want to learn more then either contact Tectona or click here for more information.

7. Stock Management

It can be really difficult to get stock management just right. For example, do I buy a large consignment and benefit from a lower unit price – or take the hit on unit price with less capital tied up? Stock not only costs money but can deteriorate. Look for ways to streamline stock processes, reduce storage costs and limit wastage.

The Final Word For Manufacturing Companies

There are numerous challenges facing UK manufacturing. Yet with some thought and advance planning coupled with the right support and advice each challenge can be met and overcome.

Tectona Partnership is a team of 15 top notch finance directors who are here to help you identify these issues early and minimise the chances of you tilting at windmills or remaining a fully paid up member to that Field of Dreams philosophy.

Posted in Tectona Ten - Business Planning.

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