The rising service economy has topped British economic policy for years, but small, agile manufacturers could help restart—and rebalance—the economy
The tiny improvement in Britain’s gross domestic product in the final quarter of last year may be raising fears about the strength of the economy in general, but manufacturing appears to be on a roll. Figures just released by the Chartered Institute of Purchasing and Supply show that last month’s growth in the sector was the highest since October 1994. This means that manufacturing production has grown for the last eight consecutive months.
It is a challenge to the familiar picture of large companies moving manufacturing out of the UK or reducing their workforces. So could traditional industry be making a comeback?
For years, the political emphasis has been on service industries, particularly financial services, as the drivers of the economy. Meanwhile, manufacturing’s share of gross domestic product has shrunk to 13 per cent (from more than 20 per cent as recently as 1995) while still accounting for about half of exports and helping to make Britain the world’s sixth largest exporting nation.
There are signs, though, of a change in thinking. Partly prompted by the credit crunch, many are calling for a “rebalancing” of the economy, with manufacturing given greater prominence. Dr David Clark of the ERA Foundation, a think-tank dedicated to encouraging the commercialisation of industrial and academic research and development, says: “The financial crisis of the last 18 months has highlighted the importance of manufacturing to the UK economy.”
Among the smaller companies leading the way are The Versatile Flooring Company in Luton, which had a turnover of £3.8m last year, and British Ceramic Tile, of Devon, with a turnover of £27m. Both have taken advantage of brownfield sites, making significant investments and taking the time, often years, to ensure their manufacturing processes are profitable. Both are making quality products at cost-effective prices. And the common keys to success are balancing automation and people, reducing energy consumption and continuously improving quality.
Finding finance for investment has also been crucial to the ability of each of these companies to develop and achieve the cost reductions and quality improvements vital to successful UK manufacturing. Tom Lawton, the head of manufacturing at the accountants BDO, believes access to finance to invest ahead of growth will be a particularly challenging part of the recovery.
The Versatile Flooring Company is opening a new factory in Luton that will be fully operational this year. It has developed new and advanced techniques to produce its ecotile range of interlocking floor tiles – reducing rejection rates and energy consumption. Two highly specialised injection moulding machines have recently arrived from Demag Hamilton in Germany, a purchase backed by a loan from the Carbon Trust, the Government-supported organisation that helps business to improve energy efficiency. These will enable the company to reduce energy consumption by 30 per cent, which helps to offset the increased labour costs of the UK.
Sales grew by 15 per cent even in 2008-2009, so the company was making enough products to render manufacturing in the UK a viable proposition. Until reaching the point where economies of scale were possible in the UK, ecotiles were manufactured in Belgium and China. “Manufacturing in China was probably one of the most stressful, unsatisfactory experiences of my life,” says James Gedye, owner and chief executive. “There was a very low level of automation. Apart from the injection moulding, everything was done by hand which increased opportunities for errors. The culture was about cutting costs all the time. We would get reject rates of between 25 and 30 per cent of production. In Belgium, the reject rates were 2.5 per cent.”
Founded in 1996, The Versatile Flooring Company started making health and safety flooring in Gedye’s garage, eventually moving to a purpose-built unit in Potters Bar in 2005. “Suregrip [a range of anti-slip safety products] has always been manufactured in the UK. It is a relatively labour-intensive product produced for bespoke solutions with a short lead time, so ideal for UK manufacturing.”
But it is not just about automation. Professor Duncan McFarlane, of the University of Cambridge’s Institute for Manufacturing, notes that “lights-out” factories have never really made it in the UK, because taking the human beings out of the manufacturing process removes the opportunities for continuous improvement.
Dick Sale, the director of manufacturing at British Ceramic Tile, agrees. “An over-reliance on automation and computers can sometimes lead to a very repetitive large mistake. You need human interaction? At the same time, you have to be automated, be of a size where you can compete internationally on cost, and build on the fact that you need design and flexibility in factory to react very quickly to deliver high-end design ideas.”
Energy efficiency matters hugely, too. British Ceramic Tile is using lean manufacturing principles to remove 25 per cent of energy costs over five years. It recently opened a plant in Devon, two miles away from its main source of clay, the fundamental raw material. The facility – a third of a mile long, a quarter of a mile wide – has been designed to reach 100 per cent recycling targets wherever possible, from the rainwater off the roof to the rejected tiles.
“When we were designing the factory, energy was a concern. We started to monitor the kilocalories per kilometre square of tiles produced,” says Sale. Small, quite practical things, such as double insulation around kilns, have driven down heat and energy use in the factory. “When I have owners of big companies tour the factory, their jaws hit the floor – they cannot believe someone has a fully automated factory in Devon ready to do business. Our aim is to make buyers’ choice as simple as possible and for cost not to get in the way.”
With sterling remaining relatively weak, exports of manufactured goods could continue to grow and so help to achieve that much talked-about rebalancing. As Professor Mike Gregory, of the Institute for Manufacturing, says: “Manufacturing is about turning ideas and opportunities into products and services. What could be more satisfying than that?”