Scotland has a proud history of manufacturing, but the current climate has hit the sector hard, says Campbell Mclundie, Partner at Scott-Moncrieff.
According to recent figures from the CBI, growth is flat, with export orders continuing to fall. Coupled with high operating costs, the battle for Scottish manufacturers is still very much uphill.
However, there are improvements that can be made to make the sector more fleet of foot. Scottish manufacturing still has healthy potential – and while some of the change required might require a complete mind shift, those that have already gone down this route are reaping the benefits – primarily, they’re still in business, but further to that, the future looks much better.
Sweating Scotland’s manufacturing assets is vital. The days of one machine or production line producing a single finished item is gone. Configured output is the way forward.
The customers are still out there, and increasingly, they want a tailored service. The manufacturers that can produce a volume of their core item, and then have the flexibility to present that item according to the customer’s specific needs, are those that are growing.
It sounds simple. However, there are two key barriers that Scotland’s manufacturers must break down to be able to shift from being a product focused sector to customer focused.
Firstly, the infrastructure must be re-purposed. Ironically, it’s the old Victorian-engineered infrastructure that is still going strong. If it ain’t broke, don’t fix it.
While the indefatigable machinery might allow the manufacturer to go on and on churning out the same old widgets, times change. Nine times out of ten, it can be fitted into a more innovative approach to production that could increase the efficiency, and longevity, of the business by offering a more flexible service.
Creating stock of standard product and having the means to tailor that product according to different customers’ needs makes complete sense. It allows the manufacturer to deliver what the customer wants, and quickly. This might mean reconfiguring or sub dividing an entire production line set up, but it’s an investment in the future.
There’s no denying that the sector finds this type of approach a challenge. For too long manufacturers have been driven by long production runs with minimum change to standard products, and a service approach that is flexible and innovative is possibly just outside the zone of comfort.
But the two approaches do not need to be mutually exclusive. With a little forethought and recognition of the key elements of production most impacted by client differences, a slicker production process which meets client demands with minimum cost can be achieved.
Another significant barrier is created by the on-going tension between sales teams and production. Sales recognise that the customer wants something unique, and may make promises that, because of a fixed approach, production can’t deliver. Or if it can, it’s often at a cost that barely covers the sales margin.
Re-engineered production lines can make a company much more flexible, so that sales and production can work together. The best organisations are those where both sides understand each other’s challenges and know how to measure and manage the implications of the client’s demands.
Re-engineering the production line doesn’t need to be cost prohibitive. Often it’s a case of taking existing resource and refocusing it. In some cases, research and development tax credits can assist with the cost of change or product redesign.
Once production is re-engineered, there are another couple of management tools that manufacturing companies can use to make their approach even more nimble. Firstly, think big – if the customer is happy, think about tie-in deals – securing income and jobs in the long term.
Secondly, pin down costs. The number of manufacturing companies that don’t know the cost price of their product is staggering. An objective strategic review is worth its weight in gold.
The result of all this change is less held stock and faster delivery times – thereby leading to quicker invoicing, less storage required and customers happy with their configured product.
Simply by breaking down a few barriers and thinking differently, Scottish manufacturing companies can become much leaner, and give themselves a fighting chance. Keeping the customer happy is what it’s all about, and we all know what happy customers do – they come back.
Campbell Mclundie is a partner at Scott-Moncrieff, leading accountants and business advisors.