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Product category: Manufacturing industry news
News Release from: The Manufacturer
Edited by the Manufacturingtalk Editorial Team on 06 August 2002

Manufacturers say UK government
performance 'poor'

The Annual Manufacturing Report, a comprehensive survey of manufacturers, will show that 90% of manufacturing establishments rate government performance as "poor".

90% of manufacturers say UK government performance 'poor' The Annual Manufacturing Report, a comprehensive survey of manufacturers, to be released on Friday, 9th August, will show that 90% of manufacturing establishments rate government performance as poor in terms of Government impact on the manufacturing sector - a clear signal that Gordon Brown is thought to have taken his eye off at least one ball in the Nation's economic mix However, 66% of UK manufacturers believe that he is managing the overall economy well

Rt Hon Patricia Hewitt, Secretary of State for Trade and Industry, who provides the introduction to the report from The Manufacturer magazine, responds to its findings by saying: "Quite inadvertently, we let the impression build up in our first four years (in office) that we were interested in something called 'the new economy', and we weren't interested in traditional manufacturing." "We have to think of manufacturing as an integral part of the future of our economy, not part of a past that we're either saying goodbye to or desperately trying to protect.

Your survey response does suggest that perhaps not enough manufacturers realise that managing the macro economy is chapter one, paragraph one of the Manufacturing Strategy, because without that manufacturing dies and that's what we saw happen in the two big recessions in the early 1980s and the early 1990s." "What we have to do now is make the support that we can offer manufacturers much simpler because the very clear message we got last year was that the DTI has got far too many schemes." The main findings of the report, sponsored by Microsoft and Cap Gemini Ernst and Young, in association with Oliver Wight, Plaut, SAP and xaman, are: * 90% think the Government's 'manufacturing performance' poor * 66% say the Government's 'overall performance' good * Only just over 33% of manufacturers are optimistic about the economy * Most support agencies are well known but 60% of manufacturers reckon Government's support 'poor', 25% reckon 'extremely poor' * 60% of UK manufacturers feel that investment in web-based technology and capability will remain a low priority over the next five years * 80% of UK manufacturers are actively trying to improve speed and efficiency * 75% import raw materials to some degree.

Less than 33% import more than 50% of their raw materials and only 10% import more than 75 per cent.

On average, approx.

40% per cent of raw materials are imported.

75% import components or sub-assemblies.

On average, 32% of components are imported.

* 42% of manufactured product is exported.

* 40% feel threatened by foreign competition.

60% of larger companies (250 employees +) feel under most pressure from abroad.

* Issues that concern them most are exchange rate movements, cheaper competitor prices and, impact of cheaper overseas infrastructure and labour costs Executive summary.

The economy and government policy: * Just over one third of UK manufacturing establishments are optimistic about the general economic situation, but very few are very optimistic.

One in 10 are very pessimistic.

* Two thirds of UK manufacturing establishments believe the government is managing the overall economy well, although few say very well.

Conversely, nine out of 10 rate the government's performance poor in terms of its impact on the manufacturing sector and nearly half say very or exceptionally poor.

* In general, the various support agencies and organisations are well known and relatively widely used, especially Business Links, DTI and Chambers of Commerce.

The exceptions to this are Regional Centres of Manufacturing Excellence (RCME) and especially the Engineering Employers' Federation (EEF).

* The vast majority of companies that have used a support agency or similar organisation have benefited from it.

But still nearly six out of 10 UK manufacturing companies rate the overall level of government support as poor and over one quarter say extremely poor.

* Local government is rated no more helpful than central government in terms of its support for and assistance to manufacturing industry.

Growth plans and strategic business drivers: * More than nine out of 10 UK manufacturing establishments now have some form of formal written plan for the future.

But for one quarter the plan is more tactical than strategic.

Half have a detailed company wide strategic plan.

* Eight out of 10 manufacturing companies have been focussing on better management of customer relationships and exploitation of sales opportunities over the last 12 months and the same proportion state this as a new or continuing priority next year.

Seven out of 10 state new product development (NPD) and innovation as a key driver this year and the same proportion will pursue this initiative during the next 12 months.

* Overall, the proportion of companies claiming to pursue each of the prompted initiatives, both this year and last, is very high.

Given this, we probably have to question the extent to which, for some companies, these represent really serious priorities and commitment as opposed to a wish list.

This said, there can be no doubting the ambition of UK manufacturing industry to continue to embrace change and improvement in key processes and activities during the next 12 months.

* Nearly all UK manufacturing establishments now treat customer satisfaction and retention as an important performance measure to gauge company success.

Nine out of 10 are also driven by operational efficiency and cost control.

* Eight out of every 10 UK manufacturing companies are actively trying to improve speed and efficiency throughout all business processes and six out of 10 claim that all parts of the business act as a single integrated business with one single agenda.

Over half believe that lean manufacturing techniques are being actively applied to the business.

Some of this is almost certainly 'rose coloured glasses' and, of course, just to be focussed on improvement does not in itself bring success.

But, again, UK manufacturing industry, so often criticised for being set in its ways and slow to embrace change, does appear more receptive to new ideas, new processes and new ways of working than ever before.

* Not surprisingly the factors important in supporting NPD are very consistent with the overall business drivers already mentioned.

Most important - by a sizeable margin - is customer retention and satisfaction, which is very important to eight out of 10 companies.

Cost control is an important consideration in NPD, as is maintaining or gaining a competitive edge.

Eight out of 10 companies now say that customer and supplier collaboration is an important driver for NPD, and one third of companies consider it very important.

However, the use of the web is currently not a favoured option.

Finance and capital expenditure: * Machine tools record by far the highest level of expenditure of any single capital investment category.

This is true across companies of all sizes.

Computer software and systems in particular, but IT in general, is the second single largest area of capital expenditure.

* In broad terms approximately one half of companies have invested about the same in each category of spending this year, compared with last year.

The exception to this is computer software and systems where stability in expenditure levels appears slightly less likely.

Encouragingly, significantly more of the remaining companies felt they had spent more rather than less.

This is notably the case for communications infrastructure and machine tools with fully one third of companies recording increased expenditure in these categories.

* By far the most widespread expectation in each investment category is to spend the same next year as was spent this year.

* It is perhaps surprising that six out of 10 UK manufacturing sites feel that investment in web-based technology and capability will remain a low priority over the next five years.

One third of companies think that such investment will be at least quite high during this period but only one in 14 say very high.

* Nearly six out of 10 UK manufacturing companies have invested in technology to support NPD within the last 12 months and this level will be maintained during the next 12 months.

The likelihood of such investment is greater among larger companies - about seven out of 10 employing 250 or more staff.

* The most common source of finance, and the most preferred, is use of company reserves.

Bank facilities are also popular with half of all manufacturing companies making use of an overdraft and nearly one third taking out bank loans.

* One quarter of companies undertake a fully quantified return on investment (ROI) calculation when measuring return on major capital investments and a further four out of 10 companies are able to quantify most benefits in financial terms.

One third of companies mostly use guesswork! Larger companies are much more likely than smaller companies to attempt significant financial quantification when measuring ROI - fully eight out of 10 companies with more than 250 employees said this.

* Half of UK manufacturing companies look for payback on a major capital investment project within three years.

The average required payback period is three and a half years.

* Nearly half of all UK manufacturing companies devote at least 50 per cent of their overall capital investment to strategic development; company size appears to make little difference.

Imports, exports and overseas: * Approximately three quarters of manufacturing sites in the UK are importing raw materials to some degree.

Less than one third are importing more than 50 per cent of their raw materials and only one in 10 more than 75 per cent.

On average, approximately 40 per cent of raw materials are imported.

* About the same proportion of UK manufacturing sites (three quarters) import components or sub-assemblies, but to a slightly lesser extent than raw materials.

On average, 32 per cent of components are imported.

* The majority of UK manufacturing companies (six out of 10) expect their level of imports to remain unchanged during the next 12 months.

However, the vast majority of the remainder anticipate an increase, mostly small.

Very few expect to see imports decline.

* Nearly nine out of 10 UK manufacturing sites supply at least some element of their end product to export markets.

About half export less than 50 per cent and approximately one in seven companies export more than 75 per cent of their end product.

On average, 42 per cent of manufactured end product is supplied to export markets.

* As with imports, the majority anticipate no change in export levels over the next 12 months, with most of the remainder expecting a small increase and very few predicting a decrease.

* The UK's main export markets are other EEC countries and North America.

But the growing influence of the Far East is also apparent.

* While the majority of UK manufacturing companies do not feel threatened by overseas competition, as many as four out of 10 do.

On balance it is larger companies that feel under most pressure from abroad with six out of 10 sites employing more than 250 employees saying this.* * The overseas factors that most concern UK manufacturing industry are exchange rate movements, cheaper competitor prices and, linked closely to this, the impact of cheaper overseas infrastructure and labour costs.

UK companies are much less worried about overseas skills levels and the impact of state-imposed restrictions.

UK industry is also confident of its ability to exploit technology as well as, or better than, its foreign competitors.

Supply chain and channel partner issues: * Although happy with the quality of their own data, very few manufacturing sites (about one in eight) appear willing or able to share their information and knowledge with channel partners at a very detailed level.

A further three out of 10 pass quite detailed data up and down the channel but still overall, nearly six out of 10 companies admit to releasing poor quality data to channel partners, or even none at all! * Companies claim to receive from their channel partners slightly better quality data than they are prepared to share but the levels still indicate massive room for improvement.

* It is surprising that only one quarter of UK manufacturing sites anticipate a significant or major improvement in the quantity and quality of information received from and shared with channel partners, while fully six out of 10 seek no improvement.

* Overall it is clear that large proportions of UK manufacturing industry continue to work in semi-isolation, making do with poor quality information and knowledge, and that real potential for improvement in efficiency, product quality and levels of customer service and satisfaction exists.

This said, there appears to be an unhealthy level of satisfaction with the status quo and a lack of appreciation of the benefits that improvement in this area would bring.

* Only one in five establishments judge their current level of supply chain integration to be highly sophisticated based on real time sharing of detailed supplier and customer information.

Half of all UK manufacturing companies say there is a degree of electronic transactional communication but no collaboration.

One quarter have the systems and processes in place but are not using them effectively at the moment, supporting the earlier conclusion that there is no real drive to achieve improvement.

* Eighty five per cent of all manufacturing establishments view the supply chain as a source of value rather than a cost.

With such a high proportion of companies of all sizes saying this, UK industry should be increasingly receptive to positive messages about improvements in supply chain integration.

This said, companies wishing to promote this message appear to have a significant level of initial apathy to overcome.

IT issues: * The majority of IT functions and departments within UK manufacturing are still tactical rather than strategic.

About one in five organisations have a company-wide, written, detailed plan.

Not surprisingly, such a strategic approach backed up by written documentation is more likely to exist in larger companies.

* Use of the web for NPD and major investment in web capability and technology may not be high on UK manufacturing's agenda but use of the internet for sales and marketing clearly is.

Two thirds of companies have been focussed on this during the last 12 months and one third have marked it as a priority for the next 12 months.

* Two thirds of companies have been busy upgrading IT infrastructures this year and four out of 10 will continue or start to do so next year.

Linked to this, there has been a high level of systems integration and intranet development activity during the last 12 months, and one quarter of companies have identified these initiatives as priorities for next year.

* Management information systems (MIS) are another key priority area for this year and next.

* After all the hype, application service provision (ASP - that is, the outsourcing of IT functions) has not emerged as a popular option for the vast majority of manufacturing establishments, nor will it over the next 12 months.

Background - the Industry White Paper programme (an initiative from the publisher of "The Manufacturer" magazine, Conquest Business Media) is a series of high-level publications targeted at decision markers throughout UK industry.

It comprises original research findings and editorial analysis of key developments in manufacturing processes, information technology and communications.

Each publication aims to inform and assist senior management to help them to make the most appropriate strategic decisions for their companies and so maximise the benefits of emerging technology services and applications.

As an extension to its Industry White Paper programme, Conquest has launched this annual manufacturing report (AMR).

The initiative is designed to measure and monitor changes in key criteria affecting the UK's manufacturing sector.

It covers a very broad range of subject matter, including manufacturers' views on overall economic conditions, the role of government and its various support agencies, and overseas influences and threats.

The report identifies key areas of capital expenditure, and gauges change in major capital investment categories.

It considers how well focused manufacturing managers are on change and improvement in key business processes and techniques.

And it identifies the extent to which initiatives such as customer relationship management (CRM), supply chain management (SCM), lean manufacturing and change management are being embraced and planned for the future, and the degree of focus on new product development (NPD).

This first AMR is illuminating and thought provoking.

And, because it will be repeated annually, the information from the AMR will create a unique database that plots historic trends and forecasts future activity.

In effect, Conquest's AMR will quickly become an important barometer of change in UK manufacturing.

Methodology - because of the very detailed and complex nature of this project, interviews were conducted by telephone.

Four key functions/departments in a typical UK manufacturing establishment were targeted and the survey addressed to senior management: * Topic Interviewee.

* Economy and strategy managing director.

* Finance finance director.

* Procurement operations director.

* IT IT director/manager.

A separate tailored questionnaire was designed for each function; copies are available on request.

Every questionnaire covering each of the four functions/departments lasted between 10 and 15 minutes, making an average total interview time of up to one hour per notional establishment.

The sample was drawn at random from Conquest's circulation database, which also identified named targets within each function.

No quotas were set by company size and no weights were applied so the final sample was a pure representative sample of UK manufacturing industry - engineering and process, as represented by Conquest's database, including major blue chip manufacturers and small to medium-sized enterprises (SMEs).

A total of 418 questionnaires were completed in June 2002, split as follows: Function Strategy Finance Procurement IT Total: Number of employees: * Up to 100 58 57 53 51 219.

* 101 - 249 31 28 38 31 128.

* 250 - 499 10 13 8 9 40.

* More than 500 8 11 5 4 28.

* Unspecified 1 1 - 1 3.

* Total: 108 110 104 96 418.

All questionnaires were carefully checked, edited and coded for computer analysis.

The questionnaires were designed by Coleman Parkes Research, following a detailed brief from Conquest and significant input from its sponsors Microsoft and Cap Gemini Ernst and Young, in association with Oliver Wight, Plaut, SAP and xaman.

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