The Midlands is confident in its resilience, but what can manufacturers do to position for growth?

Business Insights
21/10/2020

Jon Gilpin, partner and head of manufacturing in the Midlands at BDO LLP, comments:


There’s little doubt that Midlands manufacturers have been hit hard by COVID-19. The fall-out from the global pandemic has been longer and more far-reaching than we could ever have imagined. Coronavirus, combined with worries about a no deal Brexit, have seen Midlands manufacturers holding back on investments - a cause of real concern. Our Q3 Manufacturing Outlook report in partnership with Make UK, which was published last month, suggests companies have continued to hold back spending over the last three months – though not quite to the extent they did during peak lockdown.


Clearly, production for many has been severely impacted, operations disrupted, demand in downstream industries has fallen, and the factory floor transformed, as workforces adapt to new ways of working. Despite a sub-section of manufacturing seizing the opportunity to meet the demand for PPE and other much-needed products, COVID-19 has left a scar on the region’s economy and, in particular, on manufacturers.


However, the latest statistics from our monthly Rethinking the Economy survey of 500 mid-sized businesses indicated that 58% of Midlands companies have confidence in the resilience of the region’s economy over the next 12 months. This compares to 48% that have confidence in their own business’ resilience, with nearly a third saying they are succeeding in the ‘new reality’. There’s no avoiding that the challenges and impact of the pandemic are still very real and far from over. What is reassuring at this time, is those that have maintained or experienced a rise in revenues. This better places companies to bounce back from the impacts of COVID-19 and reduces the potential for large-scale job losses and declines in revenue.


It’s clear from this data that there is a foundation of optimism in the region, but there is still a significant amount of work to be done as we adapt and establish a stronger footing moving forward. So, what should manufacturers be doing now, not only to protect their businesses in the short term, but to ensure they are positioned for growth when the recovery hits its stride? There are several core areas that need to be addressed.


Management and leadership – management needs to ensure collaboration across all business streams as business and financial plans are developed and revised in response to changing circumstances. The focus must be on scenario-planning, constant monitoring and communications.


Financial – taking steps to maximise cashflow and financial headroom is essential as companies review their activities and plan for a range of outcomes. These include understanding your market, preparing for several ‘what if’ scenarios, and introducing measures to identify, control and review spending.


Suppliers – supply chains are likely to face ongoing pressure and flux as disruption to global supply arrangements and the repurposing of manufacturing capacity around the world becomes more evident. Preparing contingency plans, outsourcing or re-shoring operations, relocating production and reducing cash tied up in supply chains will remain key to future success. Detailed analysis is likely to be required to understand the layers of supply chain and key inputs to your business that deliver revenue and business continuity.


Customers – face-to-face engagement may take some time to re-kindle, but there are other ways to keep in front of customers, such as picking up the telephone, as well as a myriad of online and digital options. It will be essential to engage with customers, establish demand and focus on the most important business streams. Not only will there need to be a focus on retaining key customers but also development of a new customer acquisition strategy to drive future growth and demand.


Employees – as the Coronavirus Job Retention Scheme comes to an end, a core focus for many manufacturers will be rightsizing the workforce to meet expected demand while retaining the right people and skills.


Operations and infrastructure – core to developing intelligent operations and to support productivity and efficiency gains, businesses need to be embracing digitalisation and adopting new technologies. Digital transformation will not only provide greater insights through data analytics but also visibility through the supply chains and connectivity with customers.


The increase in confidence amongst Midlands manufacturers in Q3, with the East Midlands demonstrating the highest level of all UK regions in particular, has followed the tangible increase in production and orders seen over the past quarter generally in the UK. While the manufacturing business environment is still a far cry from what it was prior to the pandemic, this slow-but-steady increase in manufacturing activity will have a demonstrably positive impact on the region’s outlook in the short term – and possibly beyond.