What doesn’t kill you

Posted on 2 Aug 2010 by The Manufacturer

Accountants PricewaterhouseCooper's say the manufacturing industry is emerging from recession in better shape than when entering it.

Firms surveyed by PwC have reported improvements to working capital of up to 15% and gross margin increases of 1.5% due to the cost saving initiatives and efficiency measures they have taken in response to the downturn.

The accountants say firms have made workforces more flexible by upskilling and have streamlined headcounts by an average of 10%. In addition they have concentrated on the product markets which are the most resilient to cycles and price volatility, increased scenario planning and linked bonuses to performance. Where some have moved manufacture to low cost economies to save money, others have in-sourced extra production to utilise excess capacity.

“Although UK manufacturing has just experienced one of its worst periods of decline and turmoil, the majority of the companies we spoke to used it as an opportunity to carry out radical restructuring, cost reduction, improve agility and flexibility, renegotiate contracts and pension liabilities,” says Clive Penwarden, manufacturing partner at PwC.

“Potential acquisitions or divestitures are actively being evaluated in order to strengthen market position and take advantage of opportunities such as acquisitions of strategically valuable distressed assets in the market.

“Businesses which have shown resilience and stability during the recession and emerged leaner and more efficient may now find themselves as potential takeover targets, in particular by overseas conglomerates looking to benefit from weak sterling and gain from recovery upside opportunities.”

To remain flexible, PwC says companies should offer services like aftercare and installations as well as production and add new products which compliment the existing ones top the portfiolio. It says companies should concentrate only on higher margin lines, increase prices in strong markets and on leading brands, invest in R&D and intellectual property,

“Coming out of the recession, manufacturing businesses are more focussed, cost effective and clear on the markets, products, people and manufacturing strategies, with improved reporting and metrics to help manage the dynamics of the business,” added Penwarden.

“However, with the possibility of a ‘double dip’ recession still looming and continued uncertainty remaining there is a real opportunity for businesses to ensure they have robust detailed plans in place to cope with both upturn and downturn scenarios.”