South West manufacturers have productivity improvements in their sights

As manufacturers and sub-contract suppliers of bespoke metal products, we take a keen interest in the latest regional trends within our industry.

In this article we share the latest findings from the SWMAS Winter 2017 (Q3) Manufacturing Barometer report, a regular survey that outlines the latest trends, current views and confidence of manufacturers across the South West of England.  The information has been gathered from over 120 senior decision makers working across a variety of South West manufacturing SME’s.  Their views provide invaluable insights into how businesses in this sector are performing and give some indication of what is possibly just around the corner.

Exploring the productivity question

Last quarter’s Barometer reported manufacturers’ intention to improve productivity through focusing on existing people and processes.  So it’s not surprising that this latest quarter’s Special Focus takes a longer and harder look at exactly how businesses are managing their productivity improvement efforts. ‘Productivity and Culture’ explored how they manage productivity at each level – strategic, leadership and delivery of change.

The big story

The main message coming out of this latest quarterly report is the fact that three quarters of the region’s SME Manufacturers are expecting that their sales will increase over the next six months.  This represents the highest figure recorded since Quarter 3 2013 (when the figure was 78%) and higher than the national figure of 72% and is a reflection of the confidence of business leaders in the South West. Only 6% of respondents expect their sales to fall – the lowest figure recorded since 5% in Q1 2014.

This upbeat assessment is underlined by the fact 65% of manufacturers in the South West region anticipate an increase in profits over the same period.  On the other hand only 46%of those who took part in the survey reported a growth in profits over the last half of 2017. The gap between predicted sales increases and actual increase in profits over the last six months continues to raise questions about productivity.

Greater investment may be the answer

Encouragingly, 58% of those interviewed stated that they aim to deliver against their growth targets by investing in machinery and premises. This is a rise of 15% compared to the last quarter’s Barometer report, again suggesting that there has been a slight surge in confidence.

The Quarter 2 2017 Manufacturing Barometer also revealed that many manufacturers were prioritising development of existing people and processes.  Moving forward to this quarter, 53% of contributors to the report say they plan to recruit new staff. Although this figure is a big 12% up on the previous quarter it may not be quite in step with anticipated growth – this finding one more raises questions around the ability to find suitably qualified staff to feed business growth.  That’s something which came through in the Barometer feedback last quarter and the conversations SWMAS Productivity Specialists say they are having with business leaders. Whilst some manufacturers are achieving growth by investing in new machinery and premises the need to improve productivity through developing existing staff and facilities remains an important focus. 

Aligning Productivity & Culture is a key priority

This quarter the SWMAS team behind the Manufacturing Barometer asked manufacturers to evaluate the extent to which productivity good practice is being integrated into the culture of UK SME manufacturing businesses.

At a strategic level respondents revealed that they are making efforts to achieve their productivity goals. Around 70% said they were confident that they have mostly or completely defined productivity improvement as a key strategic objective, and that productivity improvement is championed by the board and senior managers. Having said that there is a slight softening of that confidence (63%) when it came to identifying budgets and resources specifically targeted at driving productivity improvement.  None the less overall the manufacturers mostly take the view that a focus and drive for productivity improvement is integrated at a Strategy and Vision level within their organisation.

Measurement & communication also play an important role

When the SWMAS consultants explored the subject of productivity improvement at the Leadership and Management level the data strongly indicated that most manufacturers were keen to achieve better results.

What’s more, it was apparent that department leaders measure and communicate current and targeted performance in very different ways.  This indicates that the effective measurement and communication results could be a factor in how successfully businesses manage to deliver and achieve their productivity improvement goals.

Delivering improvements and sustaining them

The final phase of the report considered how best to deliver and sustain productivity improvement. This highlighted that fact that whilst most manufacturers recognised the importance of effective implementation, and of sustaining the improvements, many admitted that they did not do not always perform well in this area and accepted they achieved results which were often disappointing.  Over 40% of South West manufacturers identified that they would like to improve performance across all three activities at the level: having resource in place, enhancing the engagement of their existing people in identifying and improving productivity, and their ability to sustain and share learning about the changes made.

Conclusions of the report

In general terms the manufacturers covered by the barometer report were confident that they would grow their business and make a profit.  However, as recent history demonstrates, the progress might be rather less impressive than they hoped, particularly if underlying barriers to improving productivity are not addressed. As far as capacity to grow was concerned, the responses recorded this quarter show that this is unlikely to come from new staff or investment alone (just over 50% of respondents intended to recruit and 58% intended to purchase new machinery and premises), so there’s still a strong focus on enhancing productivity by getting more out of existing people and processes.

The Special Focus this quarter underlines how difficult it is to engage staff in the process of increasing productivity and highlights that this is one of the biggest challenges when it comes to delivering and sustaining the improvements required by businesses.  Following this conclusion, the findings of the Winter 2017 (Q3) Manufacturing Barometer suggest that workplace culture at this change level has to evolve. It suggests there is an urgent need for manufacturers to look harder at how they involve their leaders and their people to unlock their own hidden potential and achieve their productivity ambitions.

Point taken

We have taken this on board at Dymond Engineering – not just to boost our growth but to give customers even more competitive prices and shorter lead times.  So if you are looking for bespoke metalwork, metal component parts, fixtures and fittings or even high quality game bird feeders, give us a call.

Please read Dymond Engineerings’ privacy policy and terms and conditions for business terms

For most of last year our blog posts all had a similar theme – the fact that British manufacturing output, despite the doom-mongers, continued to defy gravity.  Happily the New Year has kicked off with more of the same – and we hope for you too!  As manufacturers and sub-contract suppliers of metal products, it’s great to see the industry as a whole thriving.

Onwards and upwards

In November of last year we saw the seventh consecutive month of growth in UK manufacturing output.  Official figures show industrial output rose by 0.4% in November.  This amounts to the fastest rate of expansion since early 2008 and the sector is enjoying its strongest run of growth since 1997.

It also represents the longest spell of rising output from Britain’s factories in 23 years.  Leading think tank, The National Institute of Economic and Social Research, forecasts that this puts the economy as a whole on course to record its fastest rate of growth since late 2016.  They are pencilling in expansion in gross domestic product of 0.6% in the final quarter of 2017, up from 0.4% in the previous three months and above the latest City estimates.

Renewable energy projects, fabrication of machinery and equipment, boats, aeroplanes and cars for export helped make output 3.9% higher in the three months to November than in 2016.  The biggest contribution come from energy supply, which increased by 3.2% – mainly because the temperature was warmer than average in October, but colder than average in November.

This is in marked contrast to the construction sector, where output in the three months to November fell by 2%, compared with the previous three months. That was the industry’s biggest quarterly fall since August 2012, with the only bright spot for the sector being a 1.2% increase in new housing.

What’s behind the success story?

British manufacturing is riding high on two big trends – a weaker pound and healthy global economic growth.  Sterling’s fall in value following the Brexit vote has made UK exports more competitive.  And for the first time since the financial crisis the three main engines of global growth, the USA, China and Europe, are performing strongly at the same time.

For example, car production increased in October as rising exports more than made up for falling demand in the UK.  Just over 157,000 cars rolled off production lines in October, 3.5% more than the same month last year, according to the Society of Motor Manufacturers and Traders (SMMT).  Exports were up by 5%, with more than 1.1m cars built for overseas markets so far this year, compared with a 2.9% fall in domestic demand.

Looking ahead…

Lee Hopley, chief economist at manufacturers’ organisation EEF, said: “UK manufacturers were, in the main, in good shape as 2017 came to a close, with the majority of sub-sectors enjoying growth.  Manufacturers’ expectations for the year ahead point to output and export growth being maintained through this year on the back of continuing support from a burgeoning global economy.  This, together with an ongoing commitment from government to deliver on its industrial strategy, will be crucial in helping to propel the sector forward,” she said.

EEF’s seventh annual Executive Survey, in partnership with global insurer AIG, reports on UK manufacturers’ expectations for the year ahead – and the outlook is very positive.  On every firm level indicator in the survey (productivity, profit margins, export sales, domestic sales, temporary employment and permanent employment) more manufacturers are expecting growth than decline, and in every case responses are more upbeat than they were going into 2017.

Happy to help you

So, the industry has enjoyed a terrific 2017 and things are looking pretty good for the months ahead.  We’re certainly upbeat about 2018 and expect to be busy producing for our high-quality light-weight metal products.  These include a wide range of componentsoffice furniturebespoke metal shopfittings and game bird feeders.  Please don’t hesitate to get in touch if you’d like to discuss your requirements – you are assured of expert advice and a keenly competitive quote as you benefit from our value engineering experience.

While the media have been busy painting a bleak picture of the UK’s economic prospects, given the uncertainty surrounding Brexit, the nation’s manufacturers have ploughed on regardless – and produced a performance that confounds the naysayers.  At Dymond Engineering we’ve certainly been busy producing a variety of custom metal products including desksshelvesgame bird feedersretail display equipment and metal component parts, but it’s obvious that others have also been hard at work.  In this post we bring you up to speed with the buoyant state of Britain’s manufacturing sector.

Order books are strong

Order books are a key indicator of the health of the UK manufacturing industry and in the three months to November the CBI reported that total orders were running at a level not seen since 1988.  At the same time export order books were at the joint highest for more than 20 years.

Anna Leach, the CBI’s head of economic intelligence, commented that: “UK manufacturers are once more performing strongly as global growth and the lower level of sterling continue to support demand.”

Overall sentiment among manufacturers is, not surprisingly, running high.   Predictions are that output will continue its upward trajectory and expand further in the three months to February, albeit at a more moderate pace.

The food & drink sector accounted for some of the most dramatic improvements in the order books, along with chemicals. Exports of electronics and transport goods also showed a rise.  Around one in five companies included in the survey expect prices to increase over the coming three months, with only two per cent anticipating a decline. This was somewhat higher than the long-run average, but was in line with the level of expectation for price inflation from the previous quarter.  Stock levels of finished goods fell below the average long-run rate, with only 12 per cent saying they had more than adequate stock.

PMI figures tell a similar success story

Another survey, The Purchasing Managers’ Index compiled by IHS/Markit, showed UK manufacturing activity grew at its fastest pace in more than four years in November – it hit 58.2 in November, the best level in 51 months.

The compilers of this closely watched report said the results indicated UK manufacturing had “shifted up a gear” last month.  58.2 level suggests strong growth as any reading above 50 indicates expansion.

“The domestic market remained strong but new export orders primarily from the US and Europe were a big part of this overall picture of success,” said Duncan Brock, who contributed to the report.

EEF and BDO produce positive report

EEF, the manufacturers’ organisation, in conjunction with business advisory firm BDO, recently published their manufacturing outlook survey for the final quarter of 2017.  This is also very upbeat, showing positive balances across all their main output and orders indicators across all four quarters in 2017.

According to the EEF/BDO Manufacturing Outlook Q4 survey, manufacturers are continuing to ignore the ongoing political uncertainty at home as improved global demand, from European markets in particular, and the increase in commodity prices is feeding growth across the manufacturing supply chain. This is compensating for weaker UK demand as the squeeze on living standards and Brexit uncertainty continues to take its toll domestically.

This strong performance, across all sectors and regions, has led EEF to upgrade growth forecasts for manufacturing for this year and next, meaning the sector will outperform the economy overall. Furthermore, the positive conditions in the fourth quarter mean that 2017 will be the first since the financial crisis when both output and order balances have been positive in every quarter throughout the year.

The bounce in business conditions seen over the course of this year is driving the need for investment in more capacity to fulfil increasing customer demands.  This has led to the second successive improvement in investment intentions, with the balance of companies planning more capital expenditure hitting a three and a half year high.

Lee Hopley, EEF chief economist, said: “Stronger global growth has cemented the foundations for growth in manufacturing this year, but the sector’s contribution to the UK economy has been greater than most expected. Not only have we seen consistently positive survey responses in each quarter this year, but growth has been evident across all industry segments and UK regions in 2017.”

Tom Lawton, partner and head of BDO Manufacturing, added that: “Manufacturers have continued their strong performance into the final quarter of 2017, ending the year with plenty of festive cheer. The sector’s performance is being driven by increasing demand from around the world, in particular Europe. The task of government is very clear: it needs to deliver a Brexit that minimises disruption to manufacturers – they are the economic engine of the UK economy.

A bright picture painted by numbers

Here are nine headline facts in the EEF/BDO survey worth noting:

34% – the balance of manufacturers reporting increased output in the past three months

This level is unchanged from the previous quarter and better than survey respondents had anticipated three months ago. This marks a substantial turnaround from industry’s performance a year ago, when the average output balance across the year was -3%.  Positive output responses were also broad-based across the sectors covered by our survey – a trend that has again been consistent throughout 2017.

21 percentage points – the gap between exports and UK orders balances

Global manufacturing activity as a whole has been on the rebound and this partly explains why an increasing number of manufacturers have recorded rising sales this year – particularly to overseas customers.  33% of manufacturers saw another quarter of increasing sales to export customers, unchanged from last quarter, but increasing the lead over UK sales.

3.6% – global growth forecast in 2017

With eurozone growth turning a corner this year, together with resilience in the US, an acceleration in growth in China and a return to growth in commodity exporting countries, organisations such as the IMF have been more optimistic about prospects. The EEF shares that optimism and expect global growth of 3.6% this year.

81% – proportion of companies identifying at least one export market supporting growth

The survey shows that over four-fifths of manufacturers have seen improving demand conditions in at least one major export market in the past three months.

Europe has consistently been the stand-out export market, with around 60% of survey respondents noting good demand from European customers in each quarter this year.

10 years – the last time output and all orders balances were positive

The survey has tracked the domestic and international ups and downs experienced my manufacturers since the financial crisis.  The clean sweep of positive responses across all the output and order (total, UK and export) indicators this year is a rarity and one not seen since 2007.

Five consecutive quarters – the recent run of positive price balances

The Manufacturing Outlook survey has reported five consecutive quarters of positive balances on UK and export prices. The move into positive territory was initially a response to the rising input cost pressure which started to build after sterling collapsed last summer. However, a new round of pressures is emerging as oil and other commodity prices stage a recovery, and these are passed on to customers as manufacturers seek to protect margins.

20% – the balance of companies planning to increase investment

The market upturn in demand prospects is, inevitably, creating some capacity challenges. There has been some caution in investment plans, in part a consequence of uncertainty following the EU referendum.  However, more manufacturers are now pushing ahead with additional capital expenditure to meet current customer requirements. The investment intentions balance hit 20% – the highest level in more than three years, with all sectors positive about their investment plans in the next 12 months.

11 quarters – the last time the business confidence indicator was higher

Given the positive outlook for sales, rising production levels and stronger global prospects, it is unsurprising that confidence levels have strengthened further. Looking to the next 12 months, confidence edged to a score of 6.7 out of 10; the highest level seen since the beginning of 2015 and a massive increase on the 5.3 score recorded immediately after the referendum.

2.1% – growth expectations for manufacturing this year

Following a very strong outturn for production growth in official statistics for 2017q3, the EEF predicts output will expand by 2.1% this year and 1.4% in 2018. This would make 2017 the strongest year of growth since 2014 and in both years that would see manufacturing growing faster than the whole economy –  their forecasts for which are unchanged at 1.5% and 1.3% in 2017 and 2018 respectively.

High hopes

So, British manufacturers have put in an excellent performance and the indications are that this successful run will continue for some time.  We’re certainly optimistic about 2018 and anticipate continued strong demand for our high-quality light-weight metal products including components, office furniture, bespoke metal shopfittings and game bird feeders.  If you have a requirement in any of these areas don’t hesitate to get in touch – we’d be delighted to share our value engineering experience with you and give you a highly competitive quote.

 

To read Dymond Engineering’s Terms and Conditions, please click here. Privacy policy is also available here.

According to the very latest official figures UK industrial output grew at its fastest pace so far this year in September, continuing a trend that has been sustained for six consecutive months.  As manufacturers of custom metal products including desks, shelvesgame bird feedersretail display equipment and metal component parts we’re delighted by this news.  However, British manufacturing faces a few challenges and we welcome the fact that EEF, the manufacturers’ organisation, has been meeting with the Chancellor Philip Hammond MP and Shadow Chancellor John McDonnell MP to outline what help the sector needs.  In this post we celebrate the success but consider some of the less positive aspects of our current economic situation that the government could help to address.

On the up and up

In September 2017 production rose by 0.7% compared with the month before according to figures just released by the Office for National Statistics (ONS), boosted by machinery and equipment output.  Manufacturing output, a subset of industrial output, also rose by 0.7% in September.  Separate data also showed the UK’s trade deficit in goods and services narrowed by more than expected in September.

https://www.ons.gov.uk/economy/economicoutputandproductivity/output/bulletins/indexofproduction/september2017#what-is-contributing-to-the-month-on-month-increase

https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/september2017#decreases-in-exports-to-non-eu-countries-more-than-offset-increases-in-exports-to-eu-countries-in-the-three-months-to-september-2017

This result is even more impressive when you consider that it is no flash in the pan.  Samuel Tombs, chief UK economist at Pantheon Macroeconomics, comments that “Industrial production has risen for six consecutive months, a feat last achieved 23 years ago”.

Momentum to slacken?

Whilst this steady growth and the recent acceleration are both cause for celebration there are signs that headwinds are gathering.  The weak pound, which has helped spur the growth by making British goods more attractive to foreign buyers, is a mixed blessing.   Sterling’s depreciation has benefitted manufacturers as their goods become more competitively priced for foreign buyers but the downside is that the cost of imported materials used in the production process has also risen.

The cost of imported materials hit a six-month high last month, according to a closely watched barometer of factory sentiment.  The Markit/Cips UK manufacturing PMI index showed activity fell to 55.9 last month from 56.7 in August, as firms were hit by the rising cost of commodities. There was also a shortage of some materials such as plastics and steel.

https://www.markiteconomics.com/Survey/PressRelease.mvc/ed7a5218709a47c4b613d069d0c196cf

This has led many commentators to describe the outlook for manufacturing as “mixed”.  Howard Archer, chief economic adviser to the EY Item Club, quoted on the BBC News website, warns that “Increased prices for capital goods and big-ticket consumer durable goods, weakened consumer purchasing power, and economic and political uncertainty threaten to hamper manufacturers.”  He adds, however, that “On the export side, a very competitive pound and healthy global demand are helping UK manufacturers competing in foreign markets. The weakened pound also appears to be encouraging some companies to switch to domestic sources for supplies.”

http://www.bbc.co.uk/news/business-41939068

Putting pressure on the politicians

Given this slightly confused picture the EEF, the manufacturers organisation, is anxious to ensure the government does all it can to create favourable conditions for the country’s engineers and manufacturers in the months ahead.

Representatives of the EEF recently met with both the Chancellor Philip Hammond MP and Shadow Chancellor John McDonnell MP to outline what action they’d like to see.  In both meetings the EEF emphasised the importance of using the budget to lay the groundwork for government’s industrial strategy agenda ahead of the white paper that is due shortly.

They also took the opportunity to remind both politicians that EEF’s recent investment monitor survey indicated that firms were holding back on investment due to the uncertain domestic environment, discussing at length with Mr Hammond ways that he could use the budget to turn this situation around.  The EEF intends to keep up this pressure and will be publishing their budget submission very soon.  You will be able to view this shortly on their media page .

https://www.eef.org.uk/about-eef/media-news-and-insights

We’re here to help

So, well done to the nation’s engineers and manufacturers for increasing output for a sixth successive month, despite awkward economic conditions and uncertain times.  And thank you to the EEF for lobbying the powers that be for a clearer sense of direction – something that has been sadly lacking over recent months.  As for our colleagues in the industry – keep doing what you are doing!  We’re busy applying our design-engineering, value-engineering and metal fabricating skills to a range of different projects, producing everything from metal components to office furniture and retail display systems to galvanised bird feeders.  Get in touch if you have any jobs where our experience and capabilities can help you get excellent results at a keen price.

 

Earlier in the year we reported on the quarter 2 figures in the regular survey by manufacturing lobby group EEF in partnership with leading accountancy firm BDO.  It was interesting to note that UK manufacturing did surprisingly well in April, May and June, despite three months of unhelpful political upheavals and economic uncertainty.  As part of that industry sector, designing and making a wide variety of custom metal desks, shelves, birdfeeders, shopfittings and component parts, we’re delighted that that this strong performance has continued – despite an escalation of the turbulence and hot air coming from Westminster and Brussels.

While the politicians flounder manufacturing businesses thrive

Uncertainty is not good for business – it makes it hard to plan, invest and operate with confidence.  In quarter 2 UK manufacturers had plenty to contend with, thanks to the early rounds of the Brexit negotiations and six weeks of electioneering following Theresa May’s ill-judged decision to go to the country in search of a stronger mandate and bigger majority.

In quarter 3 the uncertainty, if anything, ramped up.  The election result has had many alarming consequences for the business community.  We now have a clipped government with a very slender majority and a Prime Minister struggling to assert their authority. Many are now bracing themselves for the possibility of Jeremy Corbyn at number 10 Downing Street, with John McDonnell at number 11 – which will not be a welcome prospect for many British business owners and managers.  What’s more, the slow progress of the negotiations between David Davis and his EU counterparts have increased the likelihood of a “no-deal” outcome on trade, another scenario that is very bad news for our economy, especially the manufacturing sector.

Despite all the external challenges facing British manufacturers over July, August and September we have proved remarkably unfazed by these distractions.  This is testament to the resilience of the sector and the quality of the products.  The EEF/BDO manufacturing survey shows that over half the companies surveyed over the quarter reported increased levels of output.  Equally encouraging, this positive performance was evident across almost all the sub-sectors, including base metals, metal products, mechanical, electrical, electronics, rubber & plastics, transport and other miscellaneous sectors.  The overall outturn this quarter exceeded most expectations at the start of the period.

Exports, exports, exports

What explains this excellent performance?  The answer, it appears, lies overseas. Political upheavals at home have had much less bearing on matters than the economic activity in foreign markets.  The number of businesses reporting an increase in export orders has mounted an impressive recovery over the first nine months of 2017, rising from -2% in the last quarter of the previous year to +33% in the last three months.  Most sectors covered by the survey were pretty bullish about the export prospects, with basic metals, mechanical and electrical sub-sectors riding particularly high on this export wave.

In terms of financial performance the report highlights a number of positives.  Some manufacturers are rebuilding margins if they are able to take advantage of the lower value of the pound to boost profits.  On top of this, improved cashflow, solid demand prospects and another uptick in company-level confidence has contributed to a strengthening of investment intentions.  Companies’ capital expenditure plans have been positive since the end of 2016 and investment plans have gained added momentum over the last quarter to achieve a level that is now at a ten quarter high.

In terms of our own business, Dymond Engineering anticipates continued strong demand for our design-engineering, value-engineering and metal fabricating services.

What does the future hold?

Will this strong performance by British manufacturers continue?  There are so many imponderables that making any kind of prediction with confidence is almost impossible.  On the downside there are understandable worries about the outlook for the UK economy in 2018 – firms may be upbeat about their own performance prospects the same cannot be said for the country as a whole.  The EEF/BDO report notes that confidence in the UK economy has slipped for the second consecutive quarter.  Weak official growth statistics, subdued forecasts from the Bank of England and the ongoing worries about the Brexit negotiations and the likelihood of getting a trade deal with the EU are all cause for caution.

Having said that, it’s all too easy to give more credence to the doomsayers.  One positive, of particular relevance to UK manufacturers, is the steadily rising wages in emerging economies.  A recent report by Steve Johnson in the Financial Times, and quoted in an article by Forbes Magazine, reveals that that China’s average wage level has tripled between 2005 and 2016.

https://www.forbes.com/sites/douglasbulloch/2017/03/03/china-is-running-out-of-cheap-rural-labor-and-its-because-of-failed-reforms/#29789c1b25c6

This may gradually make it less attractive for companies to outsource their manufacturing to the likes of Asia and South America, something that can only be good for manufacturing companies in the UK.  This trend also creates a hugely expanded middle class with the disposable income to buy consumer goods, thereby creating greater demand and boosting the world economy as a whole – a trend that is sure to create exciting opportunities for our domestic producers who are willing to export their goods to the BRICs and beyond.

Keep calm and carry on

Whatever happens, the British manufacturers who can avoid the wider political and economic distractions to concentrate on producing great products and do a great job of meeting customer needs, will continue to thrive.  That’s certainly where our focus lies – so if you need high-quality light-weight metal products including components, office furniture and retail display systems just get in touch.

Please read Dymond Engineering’s terms and conditions for details of our modus operandi.