Manufacturers benefit from adding services

The survey report, ‘Manufacturing Advantage: Changing the ground rules of global competition’, from the manufacturers’ organisation EEF and business advisers BDO Stoy Hayward LLP reveals that more than two thirds (68 per cent) of UK manufacturers now offer services on the back of production activities compared to only 50 per cent in 2007, blurring the lines between the traditionally distinct manufacturing and service sectors. The report identified that services are now boosting the bottom line, contributing an average of 14 per cent to total annual turnover in UK manufacturing. In addition, one in eight manufacturers now generates more than a quarter of revenue from services. Results also suggest that certain sectors are more experienced at pricing services than others. For example, sectors such as transport, which offers an average number of services, reported a much larger proportion of revenue from them. On the other hand, sectors such as machinery (the largest service provider) gains less revenue from its service activities as a proportion of turnover. The report shows that manufacturers are broadening their range of service offerings in response to customer demand; including maintenance contracts, functionality upgrades and design services. Around one third of companies now offer functional upgrades, mainly within technology-intensive sectors such as machinery and electrical and optical equipment. Yet the report reveals that one in six companies have not yet considered offering any services to customers and are currently missing out on these opportunities. EEF chief economist Stephen Radley said the move into services continued to highlight the versatility and responsiveness of UK manufacturing. He went on: “Increasingly firms are exploring new ways to add value, but with production remaining at the heart of company strategies. The upfront investments that firms have made in order to adapt to the changing competitive landscape and to offer greater value to customers suggest that companies are in this for the long haul. What may have started as a survival tactic in the face of emerging economies is now helping manufacturers fight the next challenge, that of economic turmoil.” Separate findings showed that over three-fifths (61 per cent) of companies now manufacture for niche markets, compared to just 45 per cent in 2004. The definition of niche was no longer confined to ‘small’ or ‘unique’ and now included a variety of activities incorporating the development of more sophisticated goods and technology, unique product design, flexible production and customisation, the report said. As an example, the report points to London based Brompton Bicycles (pictured), which designs all 1200 components of its bikes in-house, meaning each component is unique to the company’s product. It maintained its niche position by outsourcing the manufacture of non-core components and only manufacturing core products itself, therefore keeping its knowledge and expertise close to home. Tom Lawton, head of manufacturing at BDO Stoy Hayward, commented: “To take the lead in niche markets, manufacturers should develop or reposition products and services in a way that adds value to a distinct customer base. Manufacturers may be able to create these positions more often than they realise. Positioning a business in a key part of an important supply chain and offering just in time delivery from a location that is near the end manufacturer could be more important components to bottom line success than traditionally thought. Creating a niche position also means that UK manufacturers consider value to the customer in a different way, which benefits the lean manufacturing process.”