Richard Hill looks at how innovative business models could boost business for UK manufacturers.
The era of pure-play manufacturing is fading, and the leaders of the UK medium-sized manufacturers know it – as revealed in our research report, Future Fit: the road ahead for UK manufacturing, published earlier this year.
Recognising the international threat to non-value-added manufacturing, the report highlights their keen awareness that to thrive in the future, their companies will have to function as full-service providers.
Of the manufacturers surveyed, nearly half (46%) believe that in the near future their customers will want to design their own products to be manufactured automatically. More than half (58%) say their customers will expect more flexibility, and 53% say they must find more proactive solutions to meet their customers’ demands.
Almost half (48%) believe they must offer faster timeframes for customers with more complex needs and requirements, and 42% feel customers will need and want much more collaborative partnerships.
While servitization to meet these new customer demands will place pressure on manufacturers, providing extra value and reaping the benefits of high-skilled, knowledge-intensive operations will result in a range of financial, strategic and socially competitive advantages for UK manufacturing.
According to the Future Fit report, opportunities to move into high-value manufacturing (HVM) include:
- Updating business models to include full service provision
- Recognising customers’ demands to design their own products to manufacture automatically
- Shifting from high-volume to high-value manufacturing
- Smarter production techniques including big data
- Considering new materials
- Innovation in employee-owned business models
To read NatWest’s report Future Fit: the road ahead for UK manufacturing, download it at: natwest.contentlive.co.uk/futurefit
This need to move from low-cost volume production to high-value products marks a shift from ‘pile ’em high’ to mass customisation and niche manufacturing.
The skillset of the typical factory worker will need to adapt to accommodate this change, and mid-sized manufacturers will have to work hard to retain or recruit technically trained staff across all levels.
The textiles sector offers a microcosm of how the changing customer trends identified in our report are creating new challenges for UK manufacturers – and new opportunities for those with the agility and foresight to respond to them.
Rupert Greenhalgh is head of research for the Manchester-based Alliance Project, which is helping to raise public and private investment to support the repatriation of UK textiles.
Greenhalgh notes how fast-changing fashions and the need for faster turnaround times of one to two weeks has made retailers appreciate the benefits of on-shoring their supply chain “rather than doing a six-month forecast, ordering oodles from China, finding out it doesn’t quite match what the customer wants, and then having to discount it at half price”.
This need for greater responsiveness to customer desires is a key reason the Alliance Project believes 20,000 new jobs can be created in the sector by 2020, but it is not the only driver of growth, according to Greenhalgh.
‘Made in Britain’ on a garment’s label taps into our heritage of making high-quality clothes that can allow retailers to charge a premium. “So a lot of factories that used to be commissioned contract producers are converting to become high-value factory brands using the best garment technology, fabrics and designs,” he says.
This high-value manufacturing approach helps to overcome the advantages other countries may have with lower energy or labour costs. To compete on quality instead will require a new generation of skilled workers.
“We receive regular phone calls each week from manufacturers desperate for workers, because they’re all retiring in textiles, and from retailers desperate to find a manufacturer or the right quality of products,” admits Greenhalgh.
“We’ve held a couple of workshops around Greater Manchester in recent months, attended by 100-200 people interested in the opportunities in the sector. The nice thing about those workshops are the employers there – people can leave their CV, which leads to hiring.”
Meanwhile, in London, knitwear fashion start-up UNMADE is utilising the latest technology to meet a growing demand for more personalised clothing. The vertically integrated company aims to disrupt the knitwear market by opening up the concept of mass customisation.
UNMADE enables consumers to participate in the design of their next purchase, logging into industrial knitting machines to create a different, personalised design every time. The company only holds digital stock, reducing the risk of unsold items at the end of the season, and with a minimum order of one, there’s no risk of penalties for short production runs.
In summary, it’s clear that with the use of smart production techniques, mid-sized manufacturers in all sectors could take advantage of a future in which businesses rely on information rather than inventory, reducing the need to hold large amounts of stock or wrestle with lead times.
New materials bring multiple benefits to these manufacturers, too, and other new business models, like changes to ownership structures, should also be considered to keep UK manufacturing on the front foot – taking full advantage of new opportunities.
This constantly evolving business landscape has implications for finance providers, too, as Lee Hopley, chief economist for EEF, explains: “Companies’ business models are more complicated. They have to continually invest in innovation, new equipment, the skills of their workforce and management – the investment cycle is much faster than it’s been in the past.
“That does put pressure on company’s internal resources, but also for the finance providers that deal with them. They need to understand how interconnected these investments are, and what that means for the viability of a particular business, and their investment plans.
“Risk models are going to have to look a bit more broadly than simply payback periods on a machine, because that’s not going to be the only thing that determines the success of a company’s business plan.”
By commissioning the Future Fit report – which draws together the knowledge of academics, industry experts and 300 manufacturing leaders – and examining its findings, NatWest aims to deliver a similarly full service to UK manufacturers as they are now expected to offer their customers.