Looking to grow your manufacturing businesses?

Following up on last week's article on the key developments of the UK manufacturing sector we are introducing a cross-section of the most important innovations for manufacturers.

Every company’s growth potential and journey is different. Each has a different starting point, market opportunity and competitive environment. Regardless of how you want to grow – or just stay competitive in a growing market – innovation is always at the heart of optimisation.  

PwC captured some key data in theirGlobal Innovation Survey highlighting that 20% of the most innovative companies saw on average a 11.3% year-on-year growth, while 20% of the least innovative companies only saw on average a 3.2% year-on-year growth.  

There are different levels of risk, reach and value connected to treading new ground and innovating. Everyone seems to agree that innovation is important (92% of executives) – but what does innovation mean. We’re listing 9 key innovations required for growing manufacturers.

1. Keeping an eye on global exports

While manufacturing has emerged from recession, the market in which firms must now operate will be more competitive than before the recession. Constant downward pressure on prices due to a combination of weak demand in the rich countries and lower wage costs in emerging markets will force manufacturers in both west and east to adapt the way they do business. Emerging markets, especially those in Asia, will continue to play to their strength of price competitiveness. The Council on Competitiveness’s Global Manufacturing Competitive Index (GMCI), rates China, India and Korea in the top three positions.

A place of support is the UK Trade & Investment, which offers SMEs superb support and information on the overseas market and can also help with introductions.

2. Operational optimisation

Increasing productivity is one of the key factors to increase competitiveness. Over 80% of manufacturers cite this as a past and future motivation. It will require them to invest more in innovation, even at a time when their revenue streams may come under pressure from public sector spending cuts and doubts over private sector recovery.

3. Lean manufacturing

The search for operational excellence is ongoing and many firms are moving towards lean manufacturing methodologies to achieve their best performance. This will require them to increase their focus on eliminating waste or non-value added processes within their production systems. If in scaling up you want, for example, to dispense with the problem of non-conforming products from ever making the light of day from your facility, not only does it make sense to invest in new integrated vision technology, it also makes business sense to upgrade your product ID and inspection equipment, too.

Lean Manufacturing

So-called “lean manufacturing” tools like iDSnet Manager will help reduce waste by fusing quality control, which identifies defective products but doesn’t add value, with quality assurance, which designs production and packaging processes to minimise defective output.

4. Platforming

“Platforming” is a technological means of reducing waste and improving efficiency by enabling one production line to make as many components or products as possible, promoting competitive advantage at big production volumes. Car manufacturers and biotech producers, for example, have been using it to great effect to balance creativity with standardisation. Platforming allows them to fashion similarities in chassis shape between different car models, cutting costs and manufacturing time in the process. 

One preferred approach for rapid implementation of manufacturing processes is to develop and implement early‐stage platform processes that are designed to be suitable for the greater part of a company’s product pipeline.

Manufacturing

Process platforms should, by definition, meet a number of a company’s pre‐determined requirements regarding yield, process operability, product quality and so on for early stage development programs.    

The platform process concept allows the reconciliation of what might, at first pass, appear to be incompatible requirements and outcomes of process and product development.  That is, reduced costs and duration of development programs (a concern for the investors, and the clients waiting for products) can be matched with increased process understanding and increased consistency of quality (a concern for clients, investors and authorities).  The quality of a new product can be assessed much earlier in the development process owing to the availability of standard platform analytical methods which would be evaluated, adapted and optimised on previous projects.

In addition, the knowledge accumulated on previous projects may be leveraged in order to predict process capabilities under a given set of operating conditions.

5. Management accountants

A significant proportion of product costs (many commentators suggest 80%) are determined at the design stage. Therefore manufacturers will benefit from a management accountant modelling costs for the prototypes under development; or revisiting costs when feedback from testing becomes available. Management accountants can also provide non-financial performance measures for research and product development, measuring inputs such as staff time from various experts; processes such as time-to-market estimates and feedback from testing prototypes; and output measures.

Management accounting information is a useful ‘language’ to enable better collaboration between engineers, designers, marketers and other parties involved in product development, including suppliers. Managing suppliers is an important element of controlling production costs, and there are significant benefits to involving them and sharing data and specifications at an early stage of product development.

6.Target costing

One specific thing manufacturers can do to reduce costs during the product design stage is target costing. Working backwards from the required profit margin, and the price for the product determined by the market, a target cost is set within which the product must be manufactured. This approach focuses the development team to concentrate only on those product attributes that the customer values. Having a thorough understanding of target costing can help to initiate other cost-focused strategies. For example cost leadership strategies, stripping out costs from administrative, operational or productive processes whilst effectively meeting customer needs.

Three main elements of the target costing process
7. Time to market

For many products, even in competitive markets, cost is not the most important dimension. Time to market is a particularly important factor for fast moving industries, or those where the majority of sales occur in the Christmas season.Generating cost information which supports rapid decision making about products and improving capacity or production, can contribute to faster product development.

Time to market
8. Profit/growth driven strategy

It is key to break down profit and cost data to identify the contribution of each profit centre, taking account of variable and controllable costs. This can inform strategies such as modularisation or standardisation, in which management seek to reduce the number of parts used by making as many components as possible common to more than one model or variant of the product. Customisation of the product for different markets happens as late as possible in the production process. Both these approaches simplify supply chains and therefore reduce costs and improve time to market. It is also key for companies to analyse their value chain in order to understand better where the most value is created; and where costs arise. Using techniques such as whole of life costing, this analysis can extend beyond point of sale to the customer.

9. Removing waste in the whole chain

Another source of inefficiency is wasted time. With materials, for example, it’s all about making sure the right materials are available at the right time. You have to build good, long-term relationships with suppliers. Another common time waster is moving products or materials around unnecessarily. Streamlining processes is of course a way to make your business more efficient, but it can also be something so simple as improving the layout of the factory floor. It’s not only on the factory floor optimisations can be made. With back office processes it’s all about how information is stored and handled. Nick Brandwood, manufacturing adviser at the Manufacturing Advisory Service North West, says there are some common themes that small manufacturers face. He says inefficiencies derive from a company not having a production schedule.

Manufacturing

However, innovation costs. In order to optimise and innovate manufacturers need to be able to invest in R&D, free up working capital to invest and find suitable financial solutions to enable this.

One of the key challenges outlined in the EEF’s Finance for Growth is “poor access to external finance for SMEs. The availability, cost, terms and conditions on external finance for SMEs remain tight compared with other firms and countries.” Manufacturers were least likely to approach their bank for lending out of all SME sectors. However, manufacturing businesses have responded by being the UK sector with second highest awareness of alternative means of business lending. Furthermore, 21% of small and medium manufacturing companies surveyed in Nesta's 2014 Alternative Finance report had used or were using 'alternative finance' - the highest of any sector. 

Stay tuned for our next article where we highlight the working capital challenges - and solutions - for manufacturers.

Written on in Business Insights