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SME manufacturing 'polarized between trailblazers and underperformers'

27 April 2015

New research suggests there is something of a gulf between our best and least well performing SMEs.

According to a new report by Exact and the Centre for Enterprise and Economic Development Research (CEEDR), the UK’s small and medium-sized manufacturing segment has been polarized into highly efficient, tech-savvy and high-growth companies at one end and firms struggling with sales slumps, low efficiency, and a lack of the latest technology at the other.

The Small Business Efficiency Index (SBEI) finds that SMEs across manufacturing, business services, wholesale and logistics with above average levels of operational efficiency – based on 17 different operational functions – not only have greater productivity levels but are also considerably more successful in terms of sales growth and more optimistic about their future development.

Time management plays a key part in this, as those SMEs that manage their time well are a fifth more likely to clock up higher growth margins than those that don’t.

Manufacturing has the highest proportion (40 percent) of firms that grew their sales turnover by more than 10 percent in the last year, and more firms in manufacturing (54 percent) than in the other sectors stated that they were operating at above average efficiency.

The sector also emerges as the strongest-performing in terms of capacity, with one-fifth at full capacity and over half (54 percent) at above 90 percent capacity. SME manufacturers also made up the highest proportion of any sector surveyed who rated efficient time management as being of ‘considerable' importance to their business capacity performance.

The research suggests that better operational efficiency and capacity usage may be linked to a greater penetration of advanced technology in this industry, in particular cloud technology. More manufacturing businesses (27 percent) than their peers in the other sectors use cloud software to manage financial and business processes (professional services: 19 percent; wholesale and distribution: 13 percent).

What is more, among the manufacturers that achieved the highest growth during the last financial year (over 100 percent or higher), more than half were using cloud-based business and finance software.  

Not surprisingly, more SMEs in manufacturing than elsewhere are expecting to grow ‘considerably’ next year. Nearly a third (32 percent) were positive about their prospects next year, compared to only 23 percent in wholesale and distribution and 20 percent in professional services.

However, manufacturing also has the highest proportion of companies where sales fell (12 percent), and the largest share of firms operating below three-quarters and half capacity.

“These findings come on the back of recent Government statistics showing the vast majority [68 percent] of the UK’s 4.9 million SMEs set out to grow their businesses last year, but only 13 percent succeeded in doing so to any real extent,” says CEEDR principal researcher, Dr Rob Baldock.

“The manufacturing sector, with its polarized distribution, is a case in point. Better time management and automation of business and financial management through technology – in particular Cloud solution - are of considerable importance in increasing performance capacity and growth. But this is easier said than done for the SMEs we surveyed.”

Although fear over the costs involved in introducing change is a barrier among SMEs who are performing less well, the report states that proportionally a far greater barrier lies in the fact that many (36 percent) lack the time to consider improvements and do not know where to find appropriate help and advice to address their problems.

Lucy Fox, general manager, Cloud Solutions at Exact UK, says that what this research shows is that the majority of manufacturing SMEs are focused on growth and many are working at full or near capacity to achieve that, but there is also a significant share of underperforming companies.

“It’s also clear that one quick way for small businesses to make immediate operational efficiencies is to invest in cloud and mobile technologies," she says. "What’s more, these businesses are also experiencing better growth performance. While there is plenty of financial support being offered to SME businesses through growth accelerator funds and government grants, more needs to be done to help support them in other ways, given many are just too busy to do anything about it. Time is one of the most valuable commodities SMEs have, and it needs to be invested wisely.” 

Manufacturing specifics at a glance:
- More businesses in the manufacturing sector are looking to grow ‘considerably’ next year (32 percent) than in businesses in the other sectors questioned (wholesale and distribution 23 percent; professional services 20 percent).
- There is greater cloud-technology software adoption in manufacturing than in other sectors. - More businesses in manufacturing (27 percent) use cloud software to manage financial and business processes (compared to on-premise software, Excel spreadsheets or pen and paper) than businesses surveyed from other sectors (professional services 17 percent; wholesale and distribution 13 percent). 
- What is more, among the manufacturers that achieved the highest growth during the last financial year (over 100 percent or higher), more than half were using cloud-based business and finance software.  
- At 12 percent, manufacturing had the highest proportion of companies where sales fell, compared to 8 percent and 10 percent respectively in professional services and wholesale and distribution. - The sector also had the largest share of firms operating below three-quarters and half capacity (19 percent; professional services 17 percent; wholesale and distribution 12). 
- Manufacturers are least efficient when it comes to finding new customers; just under a tenth (9 percent) rated themselves as poor or very poor in doing so.
- The three things most important to SME manufacturers in terms of running at maximum efficiency are: meeting sales targets, pricing and business planning.  

Automotive supply chain worries
Meanwhile, automotive manufacturers cite the risk of supply chain disruption as being their greatest cause for concern, according to recent research by the Business Continuity Institute (BCI) and the business standards company, BSI. Some 77 percent of companies identify supply chain complexity as their fastest growing business threat, which is intensified in the automotive industry by often complex globalised logistics operations. It is vital, warns emergency logistics specialist Evolution Time Critical, to safeguard processes against potentially turbulent factors to avoid costly financial and reputational penalties.

“Supply chain failure in the automotive industry can cost millions in minutes if production is jeopardised; manufacturers cannot afford to risk unscheduled assembly line stoppages,” says Evolution Time Critical managing director, Brad Brennan. “Efficiently protecting the supply chain from failure does not only provide a safetynet for when things go wrong, but enables the utilisation of higher risk strategies that can help optimise operations and provide vehicle manufacturers with a competitive advantage.”

In the past 18 months Evolution Time Critical has witnessed a growing awareness at senior management level of the importance of supply chain integrity. This has translated in to greater understanding of supplier activity, lead time requirements, and provided knowledge of where potentially fractious supply chain links remain.

“The research by the BCI evidences this growing supply chain visibility at board level, as clearly you cannot fear what you are not aware of. This trend is allowing Evolution Time Critical to work proactively with manufacturers to streamline their logistics while remaining vigilant against failure,” continues Brennan.

Growing awareness of the cost of supply chain failure has led to increased manufacturer investment in analysis of activities, leading to a deeper understanding of supply chain nuances and allowing the adoption of higher risk strategies – while the risk of failure is heightened, protection provided by proactive contingency ensures that the cost of failure is reduced.

Industry trends for intensified production schedules, increasing model and trim variance and the demand for ever-improving component quality all place heightened pressure on suppliers, for whom an emergency logistics safety-net remains invaluable.  

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