Thomas Eggar: Can we compete with emerging economies?

Posted on 5 Mar 2012

The UK manufacturing sector’s ability, or lack thereof, to compete with rapidly developing, low cost economies like India, Korea and China has been an increasingly sensitive topic for debate in recent years.

Matthew Bridger - Associate, Thomas Eggar LLP
Matthew Bridger - Associate, Thomas Eggar LLP

Innovation, particularly around value-add service has been hailed as an answer to the competitive challenge, not only for the UK but for all advanced economies. But for truly innovative products and services manufacturers must begin looking beyond the confines of their own organisations on a far wider scale and in a more formalised manner.

Innovation

Despite it being bandied about as the latest buzz word and seen as the key to our future manufacturing success, ‘innovation’ in manufacturing is, of course, not a new concept.

There has always been a need to continually evaluate and re-assess products, operational processes and the application of existing technologies in new and novel ways in order to expand and create new market opportunities.

In times of economic challenge however, the role and relevance of innovation does become more acutely defined. It is tempting, and often essential for cost cutting measures to assume a degree of priority, but there are limits to this, and a practical realisation that for some products, no amount of cost cutting will enable UK firms to compete with those operating in low wage economies.

Instead, manufacturers need to balance cost reduction strategies with a focused and well planned innovation programme to maintain market position and plan for future growth.

The difficulty is that innovation programmes require investment which many firms are finding a challenge to secure. Accordingly, large scale innovation programmes which focus on expanded R&D, new manufacturing equipment, revised management processes and new marketing programmes may be limited.

But investment need not always be inwardly sourced. Indeed, more and more attention is being given to the crucial role that supply chains can play in delivering innovation.

“More and more attention is being given to the crucial role that supply chains can play in delivering innovation” – Matthew Bridger, Associate, Thomas Eggar LLP

Innovation and the supply chain

Creating a supply chain that successfully supports and delivers innovation has become essential to the survival and success of manufacturers. No longer are suppliers being seen as stand alone entities in a production process, where the focus is on obtaining the most cost effective bottom line supply price.

Rather the emphasis is moving onto how prepared they are to forge a more collaborative relationship with manufacturers. Doing this will help to build supply chain capabilities, improve existing products and processes and develop new market opportunities.

So how can manufacturers establish a successful, innovative supply chain? There are a number of ways in which this can be achieved and success will depend on a management programme that looks to implement not just one, but key components of a number of models.

The first step is to source and secure suppliers who have a history and appetite for introducing innovation through the development of new technologies or the application of existing technologies in new and novel ways.

The second step involves implementing a contractual model that fosters and promotes value adding. This may mean moving away from (but not completely abandoning) traditional contract models which are heavily reliant on obligations for single product delivery and replacing them with contracts that promote the continual review of existing processes and the forging of collaborative relationships.

What should you be doing?

The means of promoting supplier led innovation are numerous though not all will be applicable to every manufacturer. A good basis to start with any supply relationship is to demand that any organisation that is tendering for a position in your supply chain is required to demonstrate how they will promote and practise both collaborative and innovative behaviours.

Contracts which seek to promote and reward innovative thinking are becoming key to maintaining market position. It is therefore never too late to review your contracts to ensure that the innovative practices you demand of your own organisation are reflected throughout your supply chain.

For more details contact: Matthew Bridger, Associate, Thomas Eggar LLP matthew.bridger@thomaseggar.com or 023 8083 1214