Technology, governance and risk: Navigating the evolving challenges of the manufacturing industry
The ever-changing manufacturing industry requires flexibility and an open mind to face both the current challenges and those that the future brings. With the uncertainty of Brexit, this becomes more apparent as companies must reassess their financial management and adoption of digital technologies.
To this end, national and international manufacturers can benefit greatly from premier restructuring, global valuation and corporate finance advisory on disputes and investigations, real estate, regulations and compliance.
Allan Graham, Managing Director at Duff & Phelps’ London office, has been working on the corporate recovery market for over 25 years now. Notably, he worked for one of the ‘Big Four’ accounting firms for 19 years as a Restructuring Partner prior to joining Duff & Phelps, where he acquired a vast knowledge of the manufacturing base in the Midlands.
Currently, he works to assist mid-market corporates and provides advisory support to manufacturing, recruitment, printing and packaging businesses.
“UK manufacturing is thriving, it’s the world’s eighth largest industrial nation,” starts Graham, “some projections indicate that by 2021, we could very well be in the top five, which is staggering. Its contribution to the UK economy is equally impressive, as it makes up 44% of all UK exports, 70% of business R&D investment and directly employs 2.6mn people”.
Graham has good reason to support this belief. “According to the Office for National Statistics (ONS), that means the UK’s industrial sector has grown 1.4% year-on-year since 1948,” he says. “The ONS itself puts that down to a better-skilled workforce, a shift in production from low to high productivity goods, improvements in technology and increased investment in R&D”.
For Graham, this idyllic picture is counterbalanced by the forward-looking and inter-related challenges manufacturers face in today’s market. “The UK manufacturing sector is not as productive as some of our competitors. On every measurement, the UK productivity levels have been a consistent challenge over the past decade, and this is not just in the manufacturing sector, but services too. In recent months, this does appear to be reversing but it remains a major challenge all the same”.
Competitiveness is at the core of this issue, as manufacturing in the UK is “no longer predicated on producing huge sheets of steel at the lowest possible price” but, rather, how to better implement technology and talent to produce better products for the world.
“There is no doubt that there is a skills gap – anyone in the manufacturing sector will say the same. The UK Government Office for Science reported last year that a larger working population with increased skills at the core of the manufacturing industry will increase the talent pool to help drive the sector forward, for the long-term future of the UK manufacturing”.
Technology will be a key player in propelling the industry forward for its survival, for which most manufacturers are realigning their operational strategies through deploying interconnected and intelligent manufacturing systems. Nevertheless, Graham identifies the success of these strategies in a company’s ability to “distinguish between what is new and what is useful”.
The success of operational manufacturing processes is directly linked to how manufacturers deploy their technology-based strategies and implement innovation, which has a great impact on the businesses’ finances. “Manufacturing in the 21st century is no longer about mass-production. Instead, it involves the constant monitoring and modification of the production process to make a company as efficient as possible while delivering a premium service to the consumer,” analyses Graham. “Making solid expenditure decisions based on a combination of historical trends and real-time information is vital, and here technology can play a critical role”.
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For this, Graham identifies cash flow as a mission-critical aspect to forecast and plan carefully. “It never fails to surprise me how many businesses we encounter don’t put enough emphasis on cash flow forecasting, both long term and short term,” he observes. “This basic financial control is too often overlooked until a business is forced into it due to a crisis.”
This is one of Duff & Phelps’ core activities as a consultant, as “many of the assignments we undertake for all types of businesses are to design and implement cash flow procedures for companies experiencing stress or distress,” highlights Graham.
The company certainly has a lot to say on how to turn businesses in crisis around, helping them to recover and become solvent again based on years of experience. “We will always strive to find the most innovative and practical solution to resolve issues affecting business performance – we have worked on some of the most challenging turnaround and crisis management situations. Discrete and determined, we work with underperforming businesses to restructure them and maintain enterprise value,” summarises Graham.
“We are committed to supporting the Rescue Culture adopted by all responsible lenders and corporate recovery professionals. This means that we aim to help our clients implement change early enough to prevent their businesses from having to face insolvency,” assures Graham. “When it’s too late to restructure or rescue a business, we have established relationships with a wide range of banks, asset-based lender and business angels through which we can source rescue funding to either support the troubled business or find a business under new ownership.”
The uncertainty of Brexit and how this will impact the industry will in turn have a huge influence on how Duff & Phelps works with its clients/or companies. “This uncertainty is causing anxiety across multiple sectors, not only in the UK, but across Europe,” states Graham.
“What certainties do we have? Well, I would argue that UK manufacturers will see an increase in demand from the so-called BRIC countries (Brazil, Russia, India and China), that the US and the EU will remain our major export markets, and that our hi-tech and high-value products will continue to be our main export strength.”
For this, it is important to be proactive and take advantage of some of the market trends and opportunities this will bring and how it could change the way goods are manufactured. “With a growing world population and increased demand for materials, water, energy and land, supply chains will become much more volatile and manufacturing closer to home will make the country more resilient to these effects,” explains Graham.
“Reshoring production – manufacturers who had previously moved their production overseas bring it back to this country – is already a reality and it is now much easier for Britain to compete with lower cost locations on quality, delivery speed and customisation”.
With regards to technology and the important role it will play in the Industry, Graham sees individuality as a key characteristic. “Mass personalisation of low-cost products by methods such as 3D printing will enable everyone to become their own manufacturer and, increasingly, manufacturing will become more urbanised and less based around large factories with many workers.”
This will be embedded in a strategy where technology becomes customer-centric: “Companies that do well will be those that make use of ‘big data’ to learn more about their customers and use it to their advantage, to improve their products and enhance their competitiveness”, concludes Graham.