Expediency wins over excitement

Given the overwhelmingly positive response to our Outlook 2014 survey examining business prospects for the coming year, you might have expected a discussion of the results to elicit a cheery reaction from WM's Manufacturing Outlook roundtable participants. But, although several of them reported markedly better business performance this year than last, the good news was tempered by fears over the possible impact of inflation as we emerge from recession, whether a lack of skills might hold us back, and a perceived scarcity of finance for investment. It started well. David Fox, CEO and chairman of Power Panels Electrical Systems, set the tone: "We are doing extremely well. What we are seeing at the moment is typically a 15% improvement in performance – revenue, turnover, etc – from just about all our customers and that gives us great confidence that we are on the right track as a company and as a country." Indeed, for Fox, the economic recovery is well underway: "I am absolutely delighted with a return to good sensible profitability in the last three months and it's all looking really good for us." So far so good. Peter Bennet, managing director of Groveley Precision Engineering, confirmed the trend: "For me business has been good and the figures bear out what you have found [in the Outlook Survey]." Bennet's company has seen year-on-year growth for the last three years: "What we have noted is that, as people bring products back onshore, lead times and batch sizes are dropping. So we are doing more than we were, but we are having to become faster and deal with smaller quantities." Nonetheless, he added: "Each month there has been a small improvement. Overall, that represents a 10 to 15% increase per year." This, however, was the point in the roundtable discussion that the celebrations ended and the hard-headed analysis began. Emerging from recession could be a dangerous time, cautioned Bennet: "As the recession recedes I can see there will be a lot more inflationary pressure which will then start to push my margin." Companies that have failed to invest in their people over the last five years are also likely to be in the firing line, he warned: "In my company we made sure that, during the recession, we gave our employees pay rises and kept them on board because we realised it was going to end at some stage. "If you've got good people you don't want to lose them; trying to attract them back again later once they've left is really difficult. So we took the decision to keep people on just to keep ticking over." Colin Reardon, managing director of software supplier Tricorn, emphasised the dangers of failing to invest in people: "Many of our customers let their operations staff go. Their business has now picked up, but those staff have gone off doing landscaping jobs and they can't find them anymore. They are discovering that they can't hire quickly enough to meet customer demand." Fox has focused on planning for the future as his company gears up for growth: "We have put an enormous amount of work into training the staff for tomorrow and not just for today. We have the best part of 200 people and we are intending to grow the business from about £20 million to about £40 million in the next four years. We can do that, but it depends on training our people effectively." Fox reckons he gets a 6 to 1 return on the cost of training: "Everybody asks me 'how can you afford to train?' My question is 'How can we afford not to train?'" Although he acknowledges that there is a fear among some that their skilled staff will be 'poached' by competitors, Fox has no time for it:?"You get this nonsense about the dangers of training people only to see them leave. But what happens if we don't train them? My view is you've got to take the risk. What we find is that the more we train, the better our retention rates." Everybody agrees that skilled employees are critical to post-recession success. But, according to Bennet, so is finance: "More companies go out of business after a recession than during a because of a lack of capital." Many manufacturers have learned this lesson the hard way and therefore have financial plans in place. Bennet again: "The majority of manufacturers are quite conservative in the way they approach business and I think they are the ones that will continue to survive. Those that have survived so far have learnt over the years and I don't think we'll have a bigger fall out this time." Richard Holden, head of franchising at Lloyds Bank, confirms the conservative nature of many manufacturers: "There are three times more credit balances than negative accounts to manufacturing SMEs so a lot of manufacturers out there are holding onto cash." However, it is vital that manufacturers to re-invest in their businesses. Holden again:?"You cannot forever manage with old machinery or outdated tooling and fail to invest in R&D or look at new and emerging markets." For Holden, to remain – or become – competitive in a global market, we must raise our sights beyond Europe. "There are so many emerging markets out there that we could tap into... Businesses really need to start looking at these markets if they are to grow and deliver what the government is looking for – an export-led recovery." Martin McKervey, partner at Nabarro, believes the way the German manufacturing sector operates provides excellent an example of good practice: "Part of Germany's economic drive is their education system. It starts in primary schools. Spend time with German companies, as I have, and you find the directors of the Mittelstand (German SMEs) spending two or three days a month in primary schools. They are laying the seed for the next generation of engineers." The Germans are also particularly strong at procurement. McKervey concluded: "They drive procurement by focusing on maximum economic benefit. In the UK, we drive procurement by cheapest is best and we need to change this culture because cheapest, as we know, isn't always best."