Restructuring in the manufacturing sector publication


Restructuring in the manufacturing sector: what does the future hold?

Restructuring in the manufacturing sector

What issues do manufacturers need to overcome in the next 12 months?

With insolvencies expected to increase, what does this mean for the future of the industry?

Investing time in understanding the terms and conditions (T&Cs) manufacturers have in place with their customers, will help them plan for the future, particularly those who operate a ‘just in time’ model. There can be significant consequences where obligations are not fulfilled, the automotive sector for example carries huge penalties for businesses that interrupt supply chains. Directors need to have a firm understanding of what T&Cs they hold with their customers to ensure any breaches to these contracts are not invoked. Most companies already have business continuity plans in place, but they are unlikely to fully address the fast-moving and unpredictable variables of a disease like COVID-19. Technology will be a critical tool in aiding this level of planning, as well as identifying and addressing issues as they arise. By digitising the supply chain, manufacturers can better understand their access to materials, helping increase their flexibility in times of adversity. In addition, technology can aid efficiencies in the workforce, should disruption occur. Robotics were already emerging prior to the pandemic but those in a position to invest will no doubt see it as a reason to accelerate the transition towards redeploying resources and upskilling workers.

A lot of UK manufacturing depends on a global supply chain and many businesses have struggled to maintain production due to the delay in raw materials coming from other countries like China. Manufacturers have been forced to review the whole of their supply chain and, in some instances, pay more to reduce risk in the long-term. Manufacturers have had to look at how they can adapt and change some of their products to make the most of what’s coming through and improve productivity. Should we see further border issues relating to the pandemic, firms will need to understand how they can use less to deliver more. Dual-sourcing is also an issue – this is the supply chain management practice of using two suppliers for a given component, raw material, product or service. Those who saw a sharp upturn in the DIY market during lockdown were faced with overwhelming demand. Businesses can get into real trouble if they can’t source their raw materials and find themselves unable to maintain their contractual obligations to retailers. As such, dual-sourcing will undoubtedly be on the increase and, while businesses may have been able to rely on one or two suppliers from the same region in the past, they should avoid doing so now, given the logistical risk associated with localised lockdowns.

We are likely to see more manufacturers facing challenges than other sectors, as a consequence of certain sub- sectors experiencing lower levels of demand from end users in addition to increased levels of competition. To avoid extreme competition on price, manufacturers can improve efficiencies or consolidate through mergers and acquisitions (M&A). Those in a position of strength may explore opportunities to combine businesses, or take on customer bases, rather than new entities. In terms of larger restructuring work, large plants are likely to be consolidated to optimise production, with manufacturers also investing heavily in technology to aid the process. This will give them the opportunity to explore buy and build strategies, while making acquisitions out of insolvency. Many businesses that struggle to remain viable will have intellectual and physical assets, client relationships and expertise that can be preserved to aid the future of the industry and the economy. The biggest danger is that firms don’t continue to invest having weathered the initial storm. R&D investment and making improvements across production and operations will all stand firms in better stead for future challenge, build their long-term resilience and aid their chances of growth.

191 Billion pounds of economic output

generated fromUK’s manufacturers in 2018 2.7 Million jobs are supported by the UK’s manufacturing sector The UK is the ninth largestmanufacturing nation in theworld 9

Manufacturers have been forced to review the whole of their supply chain and, in some instances, pay more to reduce risk in the long-term. Steven Ross Restructuring Advisory

What steps can firms take to reduce risk?

Above all else, manufacturers need to know who their critical suppliers are; the ones that they are dependent upon to function. It’s also imperative to understand the reach of supply chains to create greater transparency and visibility. How resilient is the supplier and who are they depending on further down the chain? As discussed previously, they should be looking to widen their supply options to reduce risk. In the interim, they may need to consider developing buffer stock. Some suppliers are willing to keep stock on a consignment basis in case of future emergencies. Manufacturers don’t always like carrying stock due to the costs involved, but the cost of not having the additional stock available can be more problematic in the long run. i .



Made with FlippingBook - professional solution for displaying marketing and sales documents online