The combined challenges of COVID and BREXIT have shown just how complex supply chains have become. Low labour cost countries are becoming increasingly expensive when the cost of logistics and stock are considered so how should companies shape their manufacturing strategy? Resource in the UK is finite so how do UK Manufacturers make the right decisions and build capability for the future?
Think Big and Be Strategic
What will your customers value.
Manufacturing in the UK offers the opportunity to add more value for your customers. Gaining more control of the innovation cycle, providing greater flexibility, and being able to customise products are all benefits that come with manufacturing locally, but will your customers value them? Take time to understand why your customers buy and what they really value. Do they want a new model every 3 months, delivery on short lead times, or products that are specifically tailored to their needs? These are all features that local manufacturing can provide but will you extract sufficient value by offering them? Where you can capitalise, you will start to create some fresh competitive space, setting yourself apart from imports which will inevitably be less flexible.
What will drive your business performance.
How will changing your manufacturing strategy impact on your business performance? If the increased flexibility of local supply creates more value, then how does that translate into increased volumes and higher margins? When lead times are shorter the working capital cycle can be very different, can you operate with less stock and release cash into the business and will local suppliers offer longer credit terms than overseas suppliers. Building local capacity in either your own business, or through external suppliers will require investment and its vitally important to understand the impact of these changes on the Profit and Loss and cashflow of the company.
The devils in the detail.
As you go from sourcing to inhouse manufacture, or the other way round, take time to understand your overheads, how they will change, and how your accountants will apportion them. Greater volumes will allow you to improve overhead recovery, spread your costs over a greater volume of products, and improve your margins. Make sure that comparisons in piece part prices from suppliers are done properly taking account what will really happen to the overheads in the business. Make or buy analysis is often riddled with flawed assumptions about overheads that if done properly would result in very different outcomes.
Do things differently.
As you come to manufacture things locally take the opportunity to challenge the status quo and engineer the optimum process. Access to labour and skills in the UK is finite so investing in automation, improved processes, and new designs that are easier to manufacture should all be considered. In their Model Y, Tesla have demonstrated this to dramatic effect, replacing hundreds of individually stamped and welded parts with single piece castings. Not content with that improvement, they wanted to eliminate the number of heat treatment and machining processes and so developed an entirely new aluminium alloy. The new material doesn’t need any heat treatment which in turn eliminates buckling and the requirement for final machining dramatically reducing product cost.
Adapting your Supply Chain can have a huge impact on your business, the service you provide to your customers, the level of cash you need to invest, and the profits you deliver. The world is changing, and we need to constantly adapt to the challenges that brings.
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