Cost saving 'key to survival'

Manufacturers continued to face exceptionally weak market conditions in December with companies reporting that a broad-based collapse in global demand, exacerbated by the ongoing difficulties in the financial and credit markets, had depressed client confidence and severely restricted the flow of new orders. Although the downturn in total order books was predominantly centred on the domestic market, overseas demand was also substantially lower. Part of the reductions in domestic and export orders was linked to the precarious states of the UK, the US and the European autos sectors. The contractions in new orders and production had an adverse affect on levels of employment, purchasing and inventories during December. Rates of reduction in staffing and input buying were the strongest in the survey history, while both pre- and post-production inventories were reduced further. Companies reported that stock holdings were being depleted to reflect current conditions and to consolidate cash flow. December data pointed to reductions in output charges and input prices. The main factors driving down purchasing costs were lower oil, metals, transportation and energy prices, which some companies passed on to clients. Where an increase in input costs was recorded, this generally reflected higher import prices resulting from the weak sterling exchange rate. In a further sign that supply-side pressures are easing, average vendor performance improved for the third month running in December. Rob Dobson, senior economist at Markit Economics said: “The second half of 2008 has been a nightmare for UK manufacturers, and December PMI data confirm that the sector will enter the New Year on its weakest footing since at least the early-90s recession. Production, new orders and employment are still dropping at, or near to, survey-record rates as the ongoing crises in the autos, construction, financial and retail markets are all draining demand. Export orders fell at a series-record rate, as manufacturers were unable to benefit from the drop in sterling during a global market downturn.” Roy Ayliffe (pictured), CIPS director of professional practice said there was little to celebrate at the end of 2008 as manufacturers continued to face unremitting global economic challenges. Tom Lawton, head of manufacturing, at BDO Stoy Hayward said: “For many months now most manufacturers have seen a consistent fall in new orders and have been either reducing working hours or staffing to try and keep their heads above water. “However, for many the next few months will be sink or swim. The key to survival in these tough economic conditions will be optimising cash reserves through all possible means, including cost saving exercises and working capital management, particularly inventory reduction.”