Take raw materials or components, process and assemble them and sell the resultant products at a profit – done! What could be easier? Ask any manufacturer and they will tell you how many hurdles and pitfalls can stop you in your tracks.
No matter what sector, whether they make large chunky things on a big scale or a small cottage industry, there are so many things that can interrupt this type of business. As a result, an extra cash buffer combined with good management are essential for success.
And the sector is massively important to the UK economy with manufacturing making up 44% of total exports. It also employs 2.6 million people across the country according to the EEF.
Manufacturers potentially face greater cash flow interruptions than most other businesses – yet the rewards of getting it right can be great.
But what are the specifics of those challenges and how do manufacturers look out for them?
The manufacturing sector is ever changing, that is a fact. Anyone setting out in this sector or established businesses scrutinising their operations need to keep this at the forefront of their processes. They will need to change, evolve, maintain a cutting edge, break into new markets and match competition.
There is also a constant need for investment. Technology is king for many manufacturers and it rarely comes cheaply. The latest software systems and equipment may require substantial investment and this should be scheduled into a business plan. If this is done correctly it will enable better productivity and maintain a cost effective operation, without any shock expenses. Better productivity results in better margins and enables a business to trade competitively.
But investment is not limited to equipment and vehicles – staff training is another area where investment is key. Manufacturers often face a skills gaps to fill, shortages of skilled staff and problems of an ageing workforce. Failure to pre-empt these requirements can result in a stop-start scenario. The fight to resolve them can catch up with productivity.
Plant and equipment require ongoing maintenance and this is always a balance. Periods of maintenance temporarily reduce productivity but ignoring it can result in more costly repairs. That can be as well as prolonged downtime and potential safety issues.
Materials stocks need maintaining and efficiencies must be pursued to combat energy and staffing costs. These factors can place a heavy strain on cash-flow.
And the increase in government accountability means that businesses must be increasingly up-to-date with compliance on issues such as health and safety and environmental responsibilities. Ignoring these fundamental requirements can see businesses pick up hefty financial penalties or damaging court actions.
The basics of manufacture also mean that the products made need to remain relevant to the market. Keeping on the pulse of what is in demand is essential to stimulate sales and to maintain cash flow and throughput.
A factor which can quite quickly put a company into administration is its inability to flex according to market demand and productivity. Is the business scalable? If the market expands exponentially, can it increase productivity to cope before someone else steps in and takes the business? Does it have the cash to fund expansion? Equally, can it trim back and maintain cash-flow in leaner times?
And for many manufacturers, the impact of global markets can change the game overnight.
International trade is fraught with challenges and these must be monitored fastidiously to prevent the business being caught out. Currency fluctuations can completely alter the value of goods in a transaction, leaving the manufacturer with little profit margin. And supply and demand in every country will be affected by domestic economics, so a recession in an export market may affect trade, even if the UK remains economically stable.
These points are the tip of the iceberg, but companies which are prepared will fare well.
If you are a manufacturer there is plenty of advice available on the best way to manage the complexities of manufacture to keep your business competitive, but if things do start to go “pear-shaped” Wilson Field can advise you how to plan a recovery strategy.
Don’t get caught out – speak to us for guidance and keep Britain at the forefront of manufacture!