Wednesday June 30, 2021

Restructuring Advisory Partners, Allan Kelly and Steven Ross, explore how the manufacturing industry can navigate the challenges facing the sector

While the impact of the pandemic has created a mixed-playing field for UK manufacturing, with some sub-sectors being more adversely impacted than others, the complexities of Brexit and global supply chain issues continue to weigh heavily on the sector as a whole.

Brexit trade barriers have hampered UK manufacturing exports and their ability to secure raw materials and components from overseas. Excessive paperwork, shipping and port delays along with considerable logistical disruptions have also meant that supply chain delays have increased, at times to unsustainable limits.

But despite this disruption and uncertainty, the resilience of the UK manufacturing industry continues to shine through.

Time and time again, the sector has shown innovation and flexibility that has proved to be a key driver of the economic recovery. What manufacturers need is the certainty to allow them to invest and expand – and by managing financial stresses and putting robust plans in place now, they will have a better chance of achieving future growth.

According to the latest IHS Markit/CIPS Purchasing Managers’ Index, April saw UK manufacturing achieve its highest growth since 1994. Business optimism also increased as the CBI quarterly Industrial Trends survey signalled that manufacturers intend to hire staff at the fastest rate since 1974 over the next three months. Evidently, the green shoots of the UK’s recovery from the pandemic, an accelerated vaccine roll-out and the gradual reopening of the global economy are paying dividends for UK manufacturing.

However, in light of this rebound and as the manufacturing sector’s recovery gathers pace, businesses need to make sure they plan carefully to ensure they don’t accelerate too quickly without having the necessary finance and support in place in order to build long-term resilience. Here, we examine what can manufacturers do to maximise their future growth potential.

Examine the supply chain

Manufacturers should know who their critical suppliers are and understand the reach of supply chains to create greater transparency and visibility. This can enable businesses to reduce costs by achieving greater operational excellence and reducing risk. Where possible, they should look at widening their supply options to reduce risk and, in the interim, they may also need to consider developing buffer stock. Some suppliers are willing to keep stock on a consignment basis in case of future emergencies, whereas manufacturers don’t always like carrying stock due to the costs involved, however the cost of not having the additional stock available could be more problematic in the long run.

Dual sourcing is also commonly used by manufacturers to help decrease the risk of disruption to the supply chain, reduce costs and allow greater agility when firms are looking to scale production.

Keep a tight rein on cash management

After such a tumultuous 18 months, many manufacturers have taken on higher levels of debt, which may constrain business activity and investment and ultimately stifle their future recovery. Mismanaged cashflow can be one of the main factors in adding to these problems.

A short-term cashflow forecast is key to managing immediate liquidity in uncertain times and especially as manufacturers start gearing up for growth. Despite longer-term forecasting being more difficult at present, by creating a 13-week cashflow management strategy, businesses can manage cash more effectively, predict short-term issues, and build a valuable cash runway.

Review, adapt and evolve

Manufacturers today have access to more mission-critical data than ever before, allowing them to be more flexible, agile, and better informed. The effective use of data can increase collaboration between a manufacturer and its supply chain, which in turn can bring about improved efficiencies, product quality and ultimately, financial performance.

Savvy manufacturers are applying data across their operations to better optimise their supply chains and reduce costs, developing new ways of working, improving sales forecasting and ensuring they achieve the most efficient usage of machinery. Robust data analysis can also help manufacturers to make more accurate predictions about consumer behaviour, affording greater agility to pivot their processes and production lines to meet this demand.

Digital transformation is also coming through strongly, with technology acting as a critical tool in aiding this level of planning, as well as enabling manufacturers to identify and address issues as they arise.

All this can help manufacturers to optimise profitability, improve forecasting, prevent overinvestment in stock and ultimately implement a more efficient working practice that is driven by data.

Looking to the future

Clearly for some manufacturers, their short-term future will need to focus on rebuilding lost revenue streams. Conversely, others may be facing more opportunistic challenges that will require them to adjust supply networks in order to capitalise on new opportunities presented by changing market demands.

The challenges of the last year mean that many manufacturers have borrowed heavily and increased debt levels to such an extent that this could impede their future growth. But now’s the time to make robust plans to best manage this debt, to alleviate financial pressures and allow the business to maximise its growth potential going forward.

Whatever the immediate outlook for manufacturers, a commitment to increasing agility in operations to ensure that they’re fit to embrace future growth opportunities will enable them to maxmise their growth potential.

Click below to read our manufacturing sector publication.

Restructuring in the manufacturing sector publication

In case you missed it, we recently published our Restructuring in the manufacturing sector publication, in which we explore the emerging trends in the sector and outline the risks and opportunities the future holds.