UK Manufacturers see bottom line benefit from focusing on niche manufacturing and service provision

UK manufacturers have entered this recession in a stronger position than in the past, having made innovative adaptations in response to the threat from emerging economies, according to a report published today by EEF, the manufacturers’ organisation and business advisers BDO LLP. ‘Manufacturing Advantage: Changing the ground rules of global competition’ identifies two key strategies that UK manufacturers are implementing to enhance their competitive position: service provision and supply to niche markets. 

Service provision reaps rewards

The report reveals that more than two thirds (68 per cent) of UK manufacturers now offer services on the back of production activities compared to only 50 per cent in 2007, blurring the lines between the traditionally distinct manufacturing and service sectors.  This shows how manufacturers are using service offerings to increase revenue, offer greater value to customers and differentiate from competitors at a time when the sector is under threat from emerging economies and the economic downturn.

The report identified that services are now boosting the bottom line, contributing an average of 14 per cent to total annual turnover in UK manufacturing.  In addition, one in eight manufacturers now generate more than a quarter of revenue from services. 

Results also suggest that certain sectors are more experienced at pricing services than others. For example, sectors such as transport, which offers an average number of services, reported a much larger proportion of revenue from them. On the other hand, sectors such as machinery (the largest service provider) gains less revenue from its service activities as a proportion of turnover.

The report shows that manufacturers are broadening their range of service offerings in response to customer demand; including maintenance contracts, functionality upgrades and design services. Around one third of companies now offer functional upgrades, mainly within technology-intensive sectors such as machinery and electrical and optical equipment.

Yet the report reveals that one in six companies have not yet considered offering any services to customers and are currently missing out on these opportunities.

EEF spokesperson Stephen Radley, Chief Economist commented:
“This move into services continues to highlight the versatility and responsiveness of UK manufacturing.  Increasingly firms are exploring new ways to add value, but with production remaining at the heart of company strategies.  The upfront investments that firms have made in order to adapt to the changing competitive landscape and to offer greater value to customers suggest that companies are in this for the long haul.  What may have started as a survival tactic in the face of emerging economies is now helping manufacturers fight the next challenge, that of economic turmoil.”  

Small and large manufacturers go niche

Over three-fifths (61 per cent) of companies now manufacture for niche markets, compared to just 45 per cent in 2004.  The definition of niche is no longer confined to ‘small’ or ‘unique’; niche manufacturing now includes a variety of activities incorporating the development of more sophisticated goods and technology, unique product design, flexible production and customisation. 

A good example of this is London based Brompton Bicycles, who design all 1200 components of their bikes themselves, which means each component is unique to them. They maintain their niche position by outsourcing the manufacture of non-core components and only manufacturing core products themselves, therefore keeping their knowledge and expertise close to home. By focusing their innovation on product evolution, improvement and refinement, customers can also continuously benefit from new advances, which gives Brompton Bicycles its competitive advantage.

Tom Lawton, Head of Manufacturing at BDO, commented:
“To take the lead in niche markets, manufacturers should develop or reposition products and services in a way that adds value to a distinct customer base. Manufacturers may be able to create these positions more often than they realise. Positioning a business in a key part of an important supply chain and offering just in time delivery from a location that is near the end manufacturer could be more important components to bottom line success than traditionally thought. Creating a niche position also means that UK manufacturers consider value to the customer in a different way, which benefits the lean manufacturing process.

Lawton continues: “For many manufacturers managing through the current economic turbulence is now the prime concern, but they should not be blind sighted to the long and short term benefits of offering services or developing a niche positioning.  The return on investment can be much faster than expected.  Companies that have established or can quickly develop the service and niche positions outlined in this report will be in a better place to maintain a competitive global position.”

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Notes to editors
To set up interviews or for more information, please contact Jan Singleton or Laura Gainsford at Blue Rubicon, 020 7260 2700, or Stuart Ritchie at EEF on 0121 456 2222.

Background on Manufacturing Advantage
Manufacturing Advantage: Changing the ground rules of global competition’ is the last in a series of reports published in partnership by EEF, the manufacturers’ organisation and business advisers BDO.  The report uses two surveys to investigate specific strategies used by manufacturers and to monitor the trends in companies engaged in higher value added activities.  The report also addresses insights into the range of services that manufacturers are offering customers, and the activities they regard as niche.   The report is available to download from EEF’s website.  Please visit: http://www.eef.org.uk/UK/default.htm

Case studies
• Brompton Bicycles, London
• M Wright and Sons, Loughborough
• SPP Pumps, Coleford, Gloucestershire

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