It’s the products, stupid, argues John Dwyer
The fragrant and now, thankfully, largely forgotten Patricia Hewitt launched Labour’smanufacturing strategy in 2002 with the ringing cry that the strategy would, “help more manufacturers to move up the value chain… highskilled… knowledge-intensive…” – you get the drift.
Some manufacturing-steeped official (there used to be such creatures at the old DTI) had no doubt told Hewitt that only manufacturers whose products carried a printed circuit board running some awful Windows relative could hope to compete in the global marketplace.
As long as there are companies like Gripple exporting fastening devices to China, I’ll stay unsure about that. Gripple, you may recall, was The Manufacturer’s Manufacturer of the Year in 2006. You think Gripple’s an exception? Philidas makes locking nuts in Pontefract for Ford, Honda, Renault, Bosch, Delphi, Visteon and plenty of others.
It exports them to China. And there must be dozens of other commodity suppliers doing the same.
You’ll argue, I suppose, that Gripple and Philidas survive because they don’t just sell commodities, they provide a service. They talk to their customers about what they need and how best to deliver it… just as we did in Electric Avenue, Witton, when I was a lad.
I suspect, however, that too many production people have allowed themselves to be brow-beaten by accounting nonentities hypnotised by the next quarter’s figures. And you have to admit that some of the figures are impressive. A recent Cambridge University Institute for Manufacturing paper, noted that producers of paper machines, for example, made a one to three per cent margin on hardware, but 10 to 15 per cent on services. In rail vehicles or machine tools the ‘services’ difference was a smaller but still-respectable doubling of the hardware margin, and so on.
So Swedish bearings maker SKF offers, not bearings, but ‘trouble free operations’ and ‘total service solutions’ – that means asset management, condition monitoring, related training and logistics.
Photocopier maker Xerox rebranded itself as ‘The Document Company’ and now offers document management and other consultancy services. Telecomms hardware supplier Ericsson now offers network management, support and training. And services accounted for 53 per cent of Rolls-Royce’s £7.4 billion revenue in 2006.
Call me old-fashioned, as is the beginning of this sentence, but I think this services bollocks can be overdone. Services are important, but successful manufacturers have always known that. The only reason for the success of Rolls Royce, Xerox and the rest is that their services are built around superb, world-leading products.
The determination to supply services carries huge risks or, before you know it, the business is wandering off into the wild. Some manufacturers seem determined to supply services to customers while off loading the building and other nonproduction services. Johnson Controls has its 19th century roots in temperature control, so it seems natural for it to go into heating and ventilating systems. Now, however, it’s operating huge facilities management (FM) contracts that extend into cleaning toilets and landscaping to IBM.
That contract seems to have worked because, at root, JC is still a manufacturing company and knows what IBM’s factories need. Other manufacturers – BMW at Hams Hall, for example – seem determined to let FM contracts to companies who have no experience of running their own factories.
Away from FM, a more encouraging services example is Tetra Pak, which last year sold 138 billion cartons to customers making milk and juices all over the world. Now it is helping those customers drive up their overall equipment effectiveness (OEE) so they can reduce costs and preserve their margins against the predations of supermarkets.
The Tetra Pak rationale is simple, says customer operations manager Ian Hughes. “If we are to survive, we have to have healthy customers who invest.” If Tetra Pak’s customers worldwide improved OEE by 12 per cent to world class levels, they could make total savings worth £1.7 billion.
Tetra Pak can’t hope to make a success of this unless it has customers for its products, so those have to be the best available. That’s not about services. It’s about product innovation and best in- class production.
