How manufacturers can make the most out of the Covid-19 recovery

3 mins read

By Guy Hodgkinson, partner at MHA MacIntyre Hudson

Covid-19 has been a fascinating catalyst of change for many firms in the manufacturing sector. Although the pandemic pushed people across the industry far outside of their comfort zones, for many it also resulted in improved leadership and strategy, and proved just what we are capable of when put in a deal-breaker situation. It has not been uncommon for order books to see improvements, cash flow to prove less problematic than anticipated and for productivity of staff to increase.

Much of this has been down to the speed of adjustment of manufacturing businesses. Common strategies have included changing product portfolios to capitalise on market demand, such as with PPE, slimming down product ranges to focus on volumes of key products, and adjustments to the supply chain, where for example components from overseas couldn’t be obtained.

Changing staff contracts to embrace either core hour contracts or annualised hours has helped cope with peaks and troughs of orders. This was particularly key for workplaces with fluctuation in work demands, such as some manufacturers, warehouses, retail and highly seasonal work such as tourism.

Businesses have also been working in a far more streamlined, efficient and structured way with fingers firmly back on pulses and decisions made more swiftly and aggressively. Many have been surprised at how well they have coped with people on furlough. This has and will have ongoing repercussions, but in some cases it has forced the hand of managers in improving processes to cope.

There has also been a significant shift in e-commerce with regard to B2B v B2C selling; many firms have successfully shifted to B2C with the benefit of increasing margins this brings from previous B2B sales. Many report a 300% increase in sales via their websites, representing a new and effective route to market and a gateway to some new audiences.

The role of the accountant throughout the pandemic has been wider than the traditional forecasting and cashflow management role. The value in your advisor is spotting opportunities for the business and having someone who can provide cross referrals, putting people in contact with each other to enable quick adjustment to business operations. Examples of this have been with supply chain, web development, and contract terms and conditions review. This has contributed a new interesting dynamic to the manufacturing world with regard to collaboration. Collaboration has proved key to both keeping businesses running, but also successful digital transformation. It has begun the breaking down of traditional silos within organisations and the external supplier ecosystem more widely, which is likely going to be a critical factor of success going forward.

So where does this leave the manufacturing sector as the recovery kicks in? The big long-term challenge and opportunity facing the sector remains adapting to the Fourth Industrial Revolution. This is the automation of traditional manufacturing with modern digital technology. Adapting your business for the Industrial Revolution 4.0 is far more important than it ever was before and needs to be part of every business’s strategy as we head towards Brexit. As we come out of the recovery phase of this crisis back to a new ‘business as usual state’ smarter technology and digital approaches will be a vital component of successful progress.

The road to making the most out of the recovery and taking Industrial Revolution 4.0 fully on board can be summarized by the following six points.

  • Product Portfolio - focus on your top sellers, keep cost basis low. Being bold, brave and honest. Understanding weaknesses in the business is fundamental to success.
  • Adapt to Survive - many technologies and solutions were seen as a nice to have, and set aside for future consideration. But embracing Industry 4.0 has never been more important to the development of a resilient and robust business that can deal with disruption. Invest in machinery and technology that can make areas of your business faster, more secure and more efficient. Use R&D benefits to support the development of new products. Don’t stand still!
  • Supply chain scrutiny – spread yourself across countries not just companies. Do your research, understand the market and politics and get suitable advice where you need it.
  • Collaboration – collaboration is key to successful digital transformation, both within organisations and in the external supplier ecosystem.
  • Utilisation of staff - this is one of your biggest costs, so using flexible furlough and then moving to core hour contracts and annualised contracts should be integral to your strategy.
  • New business - where are new sales going to come from in the future – what’s on the government’s agenda that you can capitalise on, what trends are forming? Ask yourselves these questions and consider whether your current systems and processes are fit for purpose; does your real-time visibility across the business allow you to forecast accurately, see glitches in operations and make business critical decisions quickly?

Many areas of manufacturing have seen the possibility of using the pandemic as a way of revitalising their business, and it is those who embrace the opportunity to breathe new life into processes, plans and mind-sets who will benefit most. Inevitably there have been businesses that have suffered greatly, but with the right advice and a new approach to their core strategy, there is an opportunity to recover and strengthen for the future.