Greater than the sum of its parts

Collaboration is nothing new – companies are, after all, a collaboration of people working together. Big manufacturing companies nearly all trace their roots back to mergers of several smaller firms.

(Pictured: L-R, Steve Gaston, FW Cables; Bill Henderson, SMT Developments; and Andy Morris, Wrekin Circuits)

UK manufacturing is particularly characterised by smaller companies seeking competitive advantage by forming groups, without giving up equity to a dominant partner.

Recent evidence shows that, for little individual investment, even small collaborative groups can generate big benefits from simple activities.

Take the Midland Assembly Network, or MAN, for example. This 10-strong group of companies in the West Midlands offers a range of compatible, mostly non-competitive, production disciplines. Formed in 2006 with two tranches of £25,000 funding from Accelerate, a closed government agency linked to MASWest Midlands that funded projects in the automotive sector, MAN was set up to improve service to OEMs in the automotive industry through sharing best practice.

Today MAN has diversified into aerospace, medical equipment, renewable energy applications and more. Its chairman Gerry Dunne, managing director of founder member Westley Engineering, says that bottom line benefits amount to about £10 million of orders secured directly from MAN activities.

Giving a presentation at Subcon 2011, Mr Dunne, who in January took over from ex-chair David Spears of Brandauer, is convinced that the consortium benefits both member and customer. “A customer has access to a single source service of multiple manufacturing disciplines,” he says. “Working together, there is better security of supply. Also production costs are down. Companies within MAN who purchase from each other do not markup goods.” Design – designer and IT – resources are shared and the group shares best practice knowledge. Networking activity and monthly Friday meetings convey business leads and also helped the members get through the recession, says Mr Dunne.

Group behavior pays off
Advantages: “It is still mainly a marketing tool,” says Mr Dunne. “We have stronger first-up recognition as “MAN” now, but each member company tends to introduce MAN to their own customers. It’s not strong enough to stand alone as a true brand yet.” Group members exhibit at more events now than they used to, visiting eight exhibitions since 2010, which is far higher than the members would visit individually, Mr Dunne says.

The litmus test, however, is tapping new markets and increasing sales. Because subcontract manufacturers are constantly winning and losing orders, attributing sales growth before and after MAN is not an exact science. Customer requirements change, as their assemblies might need fewer subcomponents – the business is still large but volumes of specific parts can fall. While it is impossible to disseminate how members’ sales are directly attributable, Dunne estimates between 10%-20% of Westley’s sales are as a result of being part of MAN.

While the recession took its toll on business, sales across MAN are mostly back up to pre-2009 levels and two members have reported that orders are up between 30% and 40%.

In June, two members – PP Electrical Systems and Brandauer – landed a contract that is likely to increase to £5 million, supplying parts to companies in LED lighting, wind and solar power and alternative fuels.

More than 50 new jobs, 45 jobs at PPES and five at Brandauer, have been created from these contracts, a figure that could treble over the next year if the pipeline translates into firm orders.

Examples of how the MAN network is working include:

● Nearly one third of the work for an alternative fuel specialist won by MAN was originally produced outside the UK.

● The development of solar panel products, where PPES is benefiting from techniques to print special photovoltaic inks onto semiconductor substrates used in solar cell manufacture.

● A small volume, high value tooling project for a tier 1 automotive customer.

● A high volume pressings contract for an aerospace customer, secured from two main rivals with the help of MAN.

Best practice is better to share
Collaboration has helped facilitate best practice.

One member uses slow and medium-speed presses while another’s are high-speed and teams shadowed each other at each site to find optimising techniques. In another example; founding member PPES has a renowned, superlean manufacturing system. While third party companies can find it difficult to witness the company’s system in practice, MAN members get the full tour.

Is there much cross-pollination where one new enquiry benefits all? “With 10 members, there are lots of separate sectors where we can offer services,” says Dunne. “We have plastic moulding, sheet metal work, pressings, electrical assemblies, cabling – within this you get natural clusters within the group of two to four companies working together.” The whole group may benefit from a big contract that is waiting to drop from an existing customer.

This could be worth £1m-£2m per company per year.

The group is not a free-for-all. Its newest member, Lightning Aerospace, joined in June following a three-month vetting process. It is democratic and all members must be convinced the recruit can offer something new and is satisfactorily accredited.

Costs and marketing
The cost of being in MAN is mainly the contribution to marketing and branding activities, and exhibitions.

“The group spent between £115,000-£120,000 in the last 12-months, divided equally. Most of this is on exhibitions, so a show costs one tenth of doing it alone.” The managing director of one member acts as the pro bono group finance director and other administration is shared, although Dunne and predecessor David Spears will tell you the chairman’s job is busy.

MAN says it gets genuine enquiries at every exhibition. “Subcon [in June] was the first time when [Westley] got an enquiry within two weeks of the show that led to a large order. The chap, who watched my presentation, said if the order wasn’t placed this week that he will definitely order next time. It’s the first time in 15 years that’s happened.”

Inflation and challenges
Keeping the idea on track in the early years seems to have been the biggest challenge, but natural momentum now keeps it going. Other than rising input prices – which collaboration can barely mitigate – the complexion of business is changing, with some winners and losers.

While automotive still makes up 65% of all Westley’s business, most of the new enquiries are coming from outside this sector. “OEMs like to deal directly with one company or one activity, like pressings or mouldings, not a consortium. They like to see [your] complete exposure to products and how you make it.” There are signs, however, that inflation is being accepted more readily. “In previous years we’ve fought tooth and nail, but this year it was easier to get customers to swallow small price increases. Perhaps customers are more informed about raw material inflation, but it is easier.” While independent of MAN, one problem that has arisen in the recovery cycle is product recall, Gerry says.

Generally, there is evidence that OEMs are looking to pass on the blame to subcontractors, as product recall events become more costly and the world follows the US-inspired claim culture.“The insurance implication is big – we are looking at a sizeable premium of many thousand pounds on top of our existing insurance, to cover adequately against the additional liability.” The biggest problem for collaborative clusters is if members compete. “We are non-competing, that’s the secret,” Dunne says. “We hand-pick members.

A group of us visited our newest member more than once and vetted the application over three months.”