Recession Strategy - Manufacturing Emerges Leaner and Fitter

Here is a really useful new report from accountants PwC focuses on how the UK manufacturing sector has weathered the recent recession in the UK. Lots of great insights in there about how manufacturing firms have attempted to remain competitive during the downturn.

Manufacturing employment and productivity in the UK

Data from Timetric.

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Labour Market, UK from Timetric

According to PwC, the UK manufacturing sector is emerging from the recession stronger and leaner than ever. PwC found that leading manufacturing businesses were not only able to improve working capital (i.e. reduce it) by up to 15% in the recession, but also to improve gross margins by 1.5% through cost saving initiatives.

Clive Penwarden. manufacturing partner at PwC, said:

“Although UK manufacturing has just experienced one of its worst periods of decline and turmoil, the majority of the companies we spoke to used it as an opportunity to carry out radical restructuring, cost reduction, improve agility and flexibility, renegotiate contracts and pension liabilities.

“Potential acquisitions or divestitures are actively being evaluated in order to strengthen market position and take advantage of opportunities such as acquisitions of strategically valuable distressed assets in the market.

“Businesses which have shown resilience and stability during the recession and emerged leaner and more efficient may now find themselves as potential takeover targets, in particular by overseas conglomerates looking to benefit from weak sterling and gain from recovery upside opportunities.”

Specifically the PwC survey finds that companies have become more efficient by:

• Preparing for a range of potential outcomes through robust scenario planning for up to 10%, 20% and 30% declines in revenue;

• Aligning incentives to cash and working capital performance to ensure they were ‘top-of-the-mind’ within management teams;

• Realigning their manufacturing base including accelerating the shift of either manufacturing plants and/or commodity products to Lower Cost Countries (LCCs) or temporarily in-sourcing product to fill excess capacity and retain skilled workforce;

• Reducing headcount, averaging 10% across companies reviewed;

• Directing the product mix towards markets more resilient to cycle and downturn (and increasing prices in these markets);

• Multi-skilling the workforce to increase flexibility, improve utilisation and avoid losing skilled resources.