Lean thinking and collaborative supply chains essential to stop the slide

Lean thinking beyond the production floor and serious effort to link efficiently with supply chains are essential if UK industry is to stop the haemorrhage of manufacturing to low cost economies. 38% of UK manufacturers increased the proportion of their total output produced overseas during 2002, motivated by the need to cut costs and deal with worsening economic conditions. These are chief among findings of the latest Business Outlook survey, published by Cap Gemini Ernst & Young and CIPS (the chartered Institute of Purchasing and Supply) and Reuters. Lower wage costs and a favourable exchange rate are cited as the main attractions to moving production abroad. The survey, which reflects the view of a panel of 750 manufacturing companies and is closely watched by the Bank of England’s Monetary Policy Committee, predicts a tough 2003, with cost-cutting continuing to be “a strong area of focus” for the next twelve months. It suggests jobs in the manufacturing sector in the UK will continue to be lost, with almost a third of companies surveyed expecting to reduce employment this year. It also finds that one in three companies expect to reduce capital expenditure in 2003. John Crampton, vice president, Cap Gemini Ernst & Young, says: “Adaptability is vital to competitiveness, particularly given the existing current exchange rates.” And he adds that throughout there are two linked core themes: margins and efficiency. “It is the desire to increase both of these that is shaping manufacturing over the last six months, with a continued trend towards ‘lean’ processes.” But ‘lean’ alone is not enough, he opines. “In recent years, many manufacturers have done all they can to drive margins and efficiency within their organisations. Now, the challenge is to look outside, where a focus on the extended supply chain and a drive towards re-sourcing products and components from areas of low cost production will bring more benefits.” It’s not all black. Almost two thirds of companies surveyed anticipate an increase in business volumes, driven by hopes of stronger economic growth and new product launches. However, business optimism has fallen since last summer, the chief threat to business growth being the nagging possibility of a downturn in economic growth, both at home and abroad as global uncertainty worsens. CIPS director Roy Ayliffe adds: “Although the manufacturing sector is expecting to see an expansion of business revenues and profits over the coming year, the intensity of competition means that this is only going to be achieved through purchasing managers cutting inbound costs, reducing labour costs and lowering capital investment. “The more radical step of reducing costs through the transfer of production overseas is also becoming increasingly popular. Inflation is not a risk, but the reduction in investment and shift in production overseas are both worrying for the longer term success of the UK manufacturing sector.”