The Manufacturer Annual Manufacturing Report 2009

Sponsored by

Contents

Contents 4 5 6-8 9

Foreword by Professor Mike Gregory Executive Summary The Future of Manufacturing Manufacturers’ Opinions: What can the Government do?

10-15

Economy, government & policy – Survey & analysis

16-29

Finance – Survey & analysis

30-37

Purchasing, procurement & logistics – Survey & analysis

38-49

IT – Survey & analysis

50 52-53 54-55 56-58

Barclays: Understanding manufacturing Infor: So what can you do in a downturn?

LERC: From Lean Thinking to ‘Thinking’ Lean Infor case study: Knauf Drywall

Editor - Tim Brown t.brown@sayonemedia.com

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Foreword identified developing international trade as a vital or important concern for their business.

With a research base second Professor Mike Gregory to none, the UK is recognised Head, for its inventiveness. Its high University of Cambridge Institute tech sectors are a rich source for Manufacturing of ideas and technologies for other parts of the economy, not just manufacturing. The country also boasts Manufacturing’s role in the strong entrepreneurial skills, evidenced by the economy is often undersuccess of so many high-tech start-ups. appreciated. While its share But there are still many challenges to be faced – particularly in the short term. As this of GVA is quoted as 12%, the report indicates, many companies have been sector actually accounts for forced to downsize in order to try to weather the recent economic storm. The UK is still officially around half of all UK exports, in recession and has seen the economy shrink 70% of all industrially-funded for the sixth quarter in succession. Although the R&D, and the direct employment news is not all bad – in October figures showed a strong recovery in manufacturing. of three million people.

The most important thing, however, is to plan here are many reasons to be positive for the medium and long term. We need to keep about the future of UK manufacturing. abreast of the rapidly evolving nature of global Years of focus on increasing efficiency levels markets and the growing capabilities of such in operations and management processes, emerging economies as China, India and Brazil have resulted in a manufacturing sector with – and, of course, we must address the urgent productivity levels to be proud of – significantly need to develop more sustainable industrial higher than the economy as a whole, particularly systems. It is heartening to see that so many in the high tech sector. of the businesses surveyed for this report are The country’s international connections are implementing green initiatives. another source of strength, which can be used Meeting these challenges will take clarity to support the growth of global industries and of vision and close collaboration between markets. Companies are growing increasingly industry, academia and government – but UK skilled at making the most of the opportunities manufacturing is well positioned to recover quickly offered by overseas markets – nearly three from the recession and has real potential to provide quarters of the companies surveyed for this report a strong and lasting basis for economic growth.

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Welcome to the Annual Manufacturing Report 2009 sponsored by Barclays Commercial Bank and Infor Enterprise Software Solutions.

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wo years ago, our Annual Manufacturing Report revealed that financial market turbulence was only just beginning to impact on UK manufacturers as the industry struggled with a steep rise in the costs of materials and credit. Twelve months later and the global economic meltdown had struck with drastic consequences. A further year since and manufacturers are still understandably concerned about the state of the UK manufacturing industry. The recent announcement that the UK has experienced its sixth consecutive period of recession demonstrates that these concerns are well-founded.

Much has changed over the last 24 months but the focus for UK manufacturers is not only on survival but on evolution. Challenges such as the environment, increasing energy and transportation costs, skills retention, spending, and right sizing have all become areas of industry focus. Maufacturers have needed to become more inward looking to help facilitate a stronger exit from the recession. The result of this has been a greater consideration of the impact of manufacturing processes.

Many manufacturers are seeking the advice of the industry experts that are able to assist in facilitating such improvements. The emergence of the Carbon Trust, who have experienced the highest level of contact of all the industry bodies surveyed, demonstrates a willingness within the industry to tackle the issue of climate change. Reinforcing that is the fact that the vast majority of manufacturers have introduced green initiatives involving waste and emissions reduction.

Of particular interest is the industry’s approach to its employees. In this recession, more than in any other, manufacturers have shown a loyalty to their workers that needs to be recognised. It is commendable that manufacturers (and their staff) have shown

Executive Summary

Executive Summary inventiveness and flexibility in order to offer better working options that could allow the maintenance of staffing levels and skills.

Other findings from the survey this year reveal:

A focus on new product innovations is being used to alleviate the pressure of the recession.

Manufacturers are now expecting much faster return on investments (ROI) than in previous years.

There has been an increase in manufacturing marketing expenditure, likely as a way to combat a drop in sales.

Many manufacturers consider the integration and streamlining of their IT to be of a high priority.

The majority of the manufacturers are satisfied with the returns from outsourcing overseas.

Alongside the data, you’ll find expert analysis from: Keivan Zokaei, director of MSc in lean operations - Lean Enterprise Research Centre.

Graeme Allinson, head of manufacturing transport and logistics - Barclays Commercial.

Phil Burgess, consulting director for UK, Ireland, Middle-East and Africa - Infor.

David Grosvenor, vice president of UK, Ireland, Middle-East and Africa - Infor.

In addition, with the upcoming federal election next year, we have included input from the major political parties on the future of the manufacturing industry and also have maufacturing specific editorial from our sponsors.

From all at The Manufacturer magazine, we hope you enjoy the Annual Manufacturing Report 2009.

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The Future of Manufacturing Mark Prisk Shadow Business Minister, The Conservative Party

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e need to make more and export more.

Despite still remaining the sixth largest manufacturing nation, the UK has recently slipped behind our main competitors. Part of the problem is the failure of a succession of Labour ministers to provide the stable, long term framework in which manufacturers can plan and invest for the future.

So, despite lots of plans and initiatives, Labour’s tenure has been a missed opportunity. We need to start by being more ambitious. That is why at our Manchester Conference, Conservatives set out our aim to make Britain the leading EU exporter of hightech. This commitment puts high technology and modern manufacturing techniques at the heart of our thinking.

We are working with a wide range of leading industrialists to develop our plans to aid sectors like life sciences, robotics, biotech, low carbon technologies and nanotechnology. One key component has been to involve Sir James Dyson in the development of our ideas around innovation.

Meanwhile, we understand that manufacturing needs help with providing access to finance, reducing the burden of the tax system on businesses and re-skilling the workforce.

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First, to help businesses survive the recession, we believe a £50 billion National Loan Guarantee Scheme would simplify and make it easier for firms to access the finance they need.

It would remove the current complications and bureaucracy that have come about as a result of the Government’s multiple schemes.

Second, a Conservative government would also simplify the taxation system and cut the main rate of corporation tax from 28p to 25p and the small company corporation tax from 22p to 20p. This will help manufacturers retain vital profits for reinvesting.

Third, we must have a skilled workforce for our needs both now and in the future. So we would offer a major boost to the provision of real apprenticeships to all ages by injecting £775 million of government funds, and by focusing on workplace learning. We would also provide an extra 10,000 university places which would boost science and technology.

Modern manufacturing means promoting technology, innovation and exports. This is why Conservatives are working with industry to best understand the sector’s needs, provide the necessary solutions and strengthen the sector; so the UK can, once again, be a market leader.

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he Government believes in an active industrial strategy. We are determined not only to support businesses through the current downturn, but also to help lay foundations so that manufacturing can grow strongly once the upturn comes. The last two years have demonstrated that only progressive solutions, where active governments step in, can support the economy.

We are taking immediate action so that businesses can weather the tough economic conditions we find ourselves in. This is why we have allowed businesses to delay their tax payments on a timetable they can afford.

It is why we doubled the first-year capital allowance to 40 per cent to encourage business investment. We have also – after engagement with the automotive industry – introduced and extended the Government’s car scrappage scheme which has already helped with the sale of almost 300,000 vehicles.

In the years ahead, more countries will be trying to compete in sectors such as green technology, life sciences, advanced manufacturing, biotech and the digital industries. Ensuring that Britain is a world leader in these sectors and other developing industries is a priority for this Labour Government. We need to maximise these opportunities domestically so that we can export our products to the rest of the world.

There is much to be proud of. Our aerospace industry is second only to the US with turnover of around £20 billion and we are a recognised world leader in plastics electronics and in nano-technology. And we outperform every other country in Europe in attracting direct foreign investment in manufacturing.

Despite these successes, we believe that there is a role for Government in making strategic interventions where appropriate, to help shape our economic priorities. This

is what our industrial policy – New Industry, New Jobs – has set out to achieve. For instance, how we transport ourselves, how we heat our homes and workplaces and how we produce our goods will all require new solutions as we move to take advantage of a low carbon economy. Incentivising or facilitating low carbon or other technologies through regulation, taxation or other action will fundamentally shape the nature of consumer and business demand in the economy.

We are moving the focus of UK manufacturing towards technology driven high value added operations, building on the UK’s strong science base. Success in manufacturing will come from building competitiveness, encouraging innovation, enhancing skills, spreading best practice and ensuring a strong and stable economy, which is the approach set out in our Manufacturing Strategy.

We must not do anything to risk delaying Britain’s economic recovery by immediately cutting public spending in the middle of a recession, as the Conservatives have called for.

Specific programmes such as the A400M Aerospace project, the scrappage scheme and support for advanced manufacturing could all be stopped by cutting investment now. On the contrary, action must be taken now to make sure that our recovery is sustained. The Tories would abolish the annual investment allowance as well as general plant and machinery allowances which would penalise manufacturers from investing in their businesses. Only investment now will build recovery tomorrow. And for all the Tories’ talk of a loan guarantee scheme their opposition to borrowing to finance it makes their proposal unworkable.

Investment now will build success for UK manufacturing tomorrow. Only this Labour Government will act to sustain our industrial capacity at this crucial time.

The Future of Manufacturing

Ian Lucas Minister for Business and Regulatory Reform, The Labour Party

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John Thurso Shadow Secretary for Business, Innovation and Skills, The Liberal Democrat Party

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here is a fashionably pessimistic but skilled engineers and we need to take steps wrong view expressed by many that to remedy that now. The third, and perhaps British manufacturing is finished. This view most important, is for government to act as says that the industrial base of this country a strategic enabler by identifying blockages was decimated in the 1980s and has never and taking the strategic steps needed to turn recovered; that we are now witnessing its potential into reality. For example, we are death throes; and that the current recession currently the world leaders in marine renewable and fierce competition technology and from the Far East will have the opportunity finally kill it off. to be the world This apocalyptic view centre of this infant “The question is what is not supported by industry. This plays should the government’s the facts and is not to our strengths in one I share. Not only role be in assisting our engineering and has much of British subsea expertise manufacturing industry manufacturing held but we will lose this to flourish” up in very difficult lead if government economic times does not act to help but there are many create a viable long areas, particularly term market by early specialist engineering, where we are world support for the supply chain. leaders. Now is not the time to write off our I am optimistic for the future because we manufacturing industry which will be crucial have strong entrepreneurial spirit and our to sustainable recovery; now is the time innovators are much in demand. This is to invest in the future, because we are still because we have acknowledged leadership good at manufacturing and history is on our in many high value industries (environmental, side. We have a rich tradition of progressive hi-tech, aerospace) and the opportunities reinvention – moving capital and labour out are there for those entrepreneurs who can of ex-growth areas and into high growth harness their talents to meet the needs of the emerging markets.

21st century and because the UK’s flexible The question is what should the labour markets mean we will recover quicker government’s role be in assisting our than our competitors and react quicker manufacturing industry to flourish. There to opportunities. are three key areas for government. First as We have a long and proud tradition of regulator – government needs to ensure a free manufacturing excellence in Britain but and fair playing field but regulation has to be government has a poor record of support appropriate to the risks and I want to see a and is terrible at picking winners and losers. re-evaluation of regulation on a proper cost Government’s job is to create a clear strategic benefit and risk analysis basis, and get rid of vision, create a stable business environment unnecessary red tape. Second, government with fair regulation and simple taxation, and needs to recognise the growing skills support innovation and enterprise. For the rest shortage. There are a number of industries it should get out of the way and let industry where we will soon be desperately short of do its job.

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What can the Government do, or stop doing, to better help UK manufacturing? A selection of responses...

Aid

Provide additional support to the RDA’s.

Consider suitable investment in all manufacturing and not just high profile (vote catching) sectors.

Assist with financial risk management as it is very difficult to get some of our overseas contracts insured.

Part support of payroll costs to allow retention of skills through recession.

More intervention into struggling major industries.

Provide support funding for training of technicians and engineers.

Law

Repeal many aspects of employment law.

Consider more carefully the full impact of new legislation on all sectors.

Get the Pensions Authority off our backs, they add no value and are just an on cost.

Lessen the legislative burden and take a more realistic approach to employment law.

Less bureaucracy

Reduce red tape to reduce the cost of administration.

Finance and Economy

Bank lending rates are high compared with base rate.

Facility charges have increased dramatically.

Some of our sub suppliers are struggling very much with high interest loans and not availability of cash.

Sadly the weak pound has benefitted us by holding European competition at bay and enabling us to sell into northern Europe.

Taxation and grants

Continue the R & D tax credit scheme.

More aid to support training.

More aid for growing businesses e.g. support for taking on new staff for a period (share the risk).

Simplify access to grant money as it takes too long and is too complicated to get help with new product development.

Reduce regulation burden.

Improve capital allowances.

Reduce Corporation taxes.

Stop passing admin/costs from government to business.

Provide more grant funding opportunities for larger, non-SME size businesses, to attract more international trade and investors. This would better showcase the full capabilities of the UK as SMEs are unlikely to have such a significant impact.

Organisations

Rationalise the number of support agencies.

Training via MAS or LSC that is linked to improvement in company performance (Lean) rather than employees gaining qualifications.

Adopt policies in accordance with other EU industrial companies.

Engineers can deliver innovative, quality products at an acceptable price. What manufacturer’s need particular help with is generating market acceptance and penetration.

Competition

Give support against product dumping from China. No problem with fair competition but Chinese products are being sold at below UK manufacturing costs.

Imports should have the same restrictions as are experienced by UK manufactured exports.

Politics

After 40 years of doing their best to kill off manufacturing, because they were in love with financial services, it is time for the governments of all sides to wake up to where this has left us.

Make sure the current Government is re-elected.

Brown resign as Prime Minister.

Leave office and quietly put the lights out as they leave!

Manufacturers’ Opinions: What can the Government do, or stop doing, to better help UK manufacturing?

Manufacturers’ Opinions:

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Survey results & analysis

Section one The economy, government & policy Analysis by Keivan Zokaei Director of MSc in Lean Operations, Lean Enterprise Research Centre

The Lean Enterprise Research Centre (LERC) is one of the the Cardiff University Business School’s major research centres, with around 20 staff. The Centre was founded by Professor Peter Hines and Daniel T Jones in 1994 and focuses on identifying new sectors which are suitable for pioneering lean thinking research programmes. www.leanenterprise.org.uk

1

How optimistic are you about the UK economy and the effect the general economic situation will have on UK manufacturing over the next 12 months or so?

Very optimistic Quite optimistic Quite pessimitic Very pessimistic Don’t know

2009 0% 40% 52% 2% 6%

2008 0% 18% 64% 14% 4%

2009

2008

The results in this survey in general and this question in particular show a degree of pessimism about the future of UK manufacturing which has clearly been compounded by the economic downturn. While outlook of manufacturers for the future is overtly negative, it has improved markedly compared to the same period last year. While, various economic indicators show a gradual up cycle out of the recession, the following questions arguably reflect the perception of the manufacturing community about the policies of the labour government on UK manufacturing sector.

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2

How well do you feel the Government is managing the economy?

0% 0%

Very well

0% 0%

Moderately well

20%

Moderately poorly

Very poorly

Exceptionally poorly Don’t know

3

40%

27% 30% 24% 30%

8% 20%

1% 0%

Section one The Economy, Government and Policy

Exceptionally well

With regard to the country as a whole With regard to the specific impact on UK manufacturing

Whilst under Gordon Brown, what impact will the Government have on the fortunes of the UK manufacturing industry?

Significant improvement Moderate improvement No Change Moderate deterioration Significant deterioration

0% 8% 28% 46% 18%

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4

How advanced is your company in adopting the following low carbon initiatives?

Unlikely to be implemented May be implemented Currently researching Implementation planned Implentation complete

Waste reduction management Carbon emissions reduction Emerging green technologies Energy efficiency Renewable fuels Carbon trading Water management Rationalising work processes i.e. reduced travelling, home working Greening the supply chain

It is interesting that the majority of respondents in our sample have implemented green initiatives though there is a gap at the supply chain level. This is actually a critical issue given the often disproportinate impact of supply chain. For example Walkers crisps found that 40% of their products carbon footprint was in farming. In such cases it is arguably pointless to focus on greening the non hotspot links in the chain. Walkers crisps, Tesco and Toyota have been successful in measuring carbon as prerequisite of carbon reduction.

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Has your company had contact with any of the following agencies or organisations?

BIS Manufacturing Advisory Service (MAS) UK Trade and Investment (UKTI)

Regional Development Agencies

Business Link

Learning and Skills Councils

The Manufacturing Alliance Carbon Trust

26.2%

EEF (The manufacturers’ organisation)

31.3%

16.9%

Chambers of Commerce

The Confederation of British Industry (CBI)

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32.2% 29.6% 30.5%

10.1%

25.4%

7.6%

40.6%

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For each one contacted, please state how useful you found that agency or organisation?

Not very useful

Quite useful

Very useful

BIS Manufacturing Advisory Service (MAS) UK Trade and Investment (UKTI) Regional Development Agencies Business Link Chambers of Commerce Learning and Skills Councils The Confederation of British Industry (CBI) EEF (The manufacturers’ organisation) The Manufacturing Alliance Carbon Trust

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Thinking now about manufacturing in this region as opposed to nationally, how helpful and supportive do you find your local/regional government?

2009

Not at all helpful/supportive Not very helpful/supportive Quite helpful/supportive Very helpful/supportive

2009 25% 30% 39% 6%

Section one The Economy, Government and Policy

Not at all useful

2007 24% 36% 34% 6%

2007

It is rather disappointing to see the lack of support within local government for manufacturing, a trend that has proven consistent over the last few years. This could be a reflection of the service mentality of local governments and what I often see as a lack familiarity of their management with manufacturing industry. Manufacturing industries can contribute in two major ways to regional development. First and foremost is the unequivocal role of manufacturing in employment as the pillar upon which the service sector can thrive. Service without manufacturing could be false economy. Second is the vital support manufacturing knowledge can provide to other regional industries from public to service. Especially management knowledge has disseminated from manufacturing to these sectors.

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8

Which if any of the following initiatives have been a key business focus for this company? Mark as many as apply.

In the last 12 months Planned for the next 12 months Supply chain integration and partner collaboration Better management of customer relationship and exploitation of sales opportunities Exploitation of e-business and web-based opportunities The application of lean manufacturing principles Change management activity in key business areas New product development and innovation Micro and/or nanotechnology

38% 33%

69% 56%

28% 33%

69% 60% 49% 43%

67% 60%

2% 3%

It is a delight to see the manufacturing industry’s investment in innovation and Lean thinking.

There are still many gaps to be filled especially at the extended value stream level.

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What are the main business drivers for your company? That is to say which of the following do you regard as important performance measures to gauge company success?

Customer satisfaction / retention

Operational efficiencies and cost control

Quality reputation

Profits growth 48%

Market share

34%

Innovation and technology leadership

49%

Market leadership Growth through acquisition Share performance

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14

How do you plan to achieve future growth within your company?

100 percent organic Mainly organic 100 percent acquisition Mainly acquisition A mixture of both

26% 33% 2% 0% 39%

87% 89% 80%

Revenue growth

Application of leading edge IT/comms technology

93%

38% 15% 11% 13%

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How significant is developing international trade for your future growth strategy?

2009

2009 31% 43% 8% 10% 8%

2008 29% 29% 21% 18% 4%

2008

There has been a noticeable increase in manufacturers considering international trade as an important concern within their growth strategy. This is likely a reflection of the companies wishing to diversify and widen their client base in reaction to a decrease in local market sales.

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Please rate the following statements on a scale from 1 to 5 where 5 is strongly agree and 1 is strongly disagree.

Section one The Economy, Government and Policy

Of vital concern It is an important concern It is a secondary concern It is a prospective concern Of no concern

Strongly disagree 1 Disagree 2 Neither agree or disagree 3 Agree 4 Strongly agree 5

All business parts act as an integrated business with one agenda The company is trying to achieve improvements in speed and efficiency Lean manufacturing techniques are being actively applied Too much time is spent reacting to events rather than pursuing plans

This survey shows that the UK manufacturing industry is taking lean and continuous improvement seriously. The last few questions particularly reflect the efforts to reduce lead times, streamline and integrate processes, apply lean principles and improve efficiencies. Nonetheless there also seems to be some frustration with fire fighting and reacting to events. Improvement is a process and not a project. UK manufacturing has learnt to adapt and adopt in the past five decades and it will continue to do so in the wake of a new economic era and mounting pressures from both domestic and overseas competitors.

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Section three Finance Analysis by Graeme Allinson Head of Manufacturing Transport and Logistics, Barclays Commercial Bank

Barclays Commercial Bank provides integrated banking solutions to businesses and organisations with an annual turnover of more than £1m. Customers are served via a UK-wide network of relationship, industry sector and product specialists, which provides tailored solutions constructed from a comprehensive suite of products, services, expertise and support. www.barclays.co.uk/commercial

1

What area of financial management is your company currently most focussed on?

Increasing cash flow Reducing costs generally Coping with inflation Exchange rate fluctuations Raising money for investment Reducing debt Don’t know 2009

2009 29% 45% 0% 10% 4% 4% 8%

2008 44% 22% 8% 11% 0% 15% 0% 2008

As the survey reveals, 74% of UK manufacturers state increasing cash flow and reducing costs as their key priorities, illustrating that cash remains king. Given that GDP has fallen in excess of 4% - the worst annual fall the UK has seen in 60 years – it is unsurprising that manufacturer’s are increasingly focusing on these factors. When faced with such shifts in the global and UK economy getting back to basics and ensuring that costs are minimised becomes essential for companies to survive.

Reducing debt is also a key means of minimising costs. Following discussions with my clients it is clear that many manufacturers are, and have been, making strategic cuts in order to increase cash flow and right-size their businesses. This means that they not only survive through the recession but are also better positioned to thrive when the recovery comes.

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2

3

In broad terms, what is the likely level of capital investment in the following areas during this current financial year?

Computer hardware Computer software and systems Communications infrastructure Machine tools Handling and storage equipment Other capital investment Don’t know

47% 56% 15% 47% 37% 47% 0%

Section two Finance

Which of the following areas will you be investing in within the current financial year?

Under £10,000 £10,000 - £50,000 £50,000 - £100,000 £100,000-£500,000 Over £500,000

Machinery/machine tools (inc new production facilities) IT equipment/computer hardware and software Property/buildings Handling and storage equipment New product development Other (specify) No major expenditure planned

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4

Are your investments levels in the following areas this year more, less or about the same as last year? And do you anticipate to be more, less or about the same in the following areas next year?

This Year: Less

Same

More

Don’t know

Next Year: Less

Same

More

Don’t know

Machinery/machine tools (incl. new production facilities) IT equipment/computer hardware and software Property/buildings

Handling and storage equipment

New product development

Other

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5

Now thinking ahead for the next five years, what do you anticipate being the major areas of capital investment for this company?

Medium

Major

Don’t know

Machinery/machine tools (incl. new production facilities) IT equipment/computer hardware and software Property/buildings

Section two Finance

Minor

Handling and storage equipment New product development Other No major expenditure planned

Given the unprecedented extent of the recent economic crisis, many companies across the manufacturing sector have had to respond quickly to events, looking at day-to-day survival as opposed to longer term planning. However as conditions improve and we embark on the ‘road to recovery’ forward-thinking will become increasingly important. And we can already see a trend towards future planning occurring within the manufacturing community. The fact that 69% of respondents are now spending in excess of £50,000 on new product development highlights their longer-term outlook. Manufacturers are thinking ahead and looking to extend their product portfolio. The idea of looking forward to the future with that level of spend is good news for the long term outlook of UK manufacturing. And manufacturer’s predictions for new product development (NPD) are also positive - more than half of manufacturers predict that NPD will be an area of major expenditure over the next five years.

This positive drive towards NPD reflects the UK’s heritage of innovation and highlights how resilient manufacturers are to changing conditions. However traditionally the commercialisation of such innovations has been a weakness across the sector therefore it is important for manufacturers to drive innovation whilst also developing plans to commercialise such bright ideas.

Understanding customer demand and requirements is also essential to the NPD process. Success in the current market comes down to customising operations to the needs of your customers. Products have to be adapted to meet customers needs now and also in the future as consumptions and behavioural patterns change. You need to have a unique product that adds value to your customer.

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6

How feasible has it been for your company to obtain any necessary funding in 2009, as opposed to previous years?

Funding inaccessible Funding difficult to obtain No change Funding obtained easier Not applicable - no funding sought Don’t know 2009

2009 0% 26% 35% 7% 28% 4%

2008 0% 11% 53% 0% 26% 10% 2008

The survey results illustrate that only 26% of companies reported that funding was more difficult to obtain. This figure is encouraging bearing in mind the unprecedented impact of the global economic change. It suggests that manufacturers continue to have access to lending facilities than maybe first thought. This could be because manufacturers in general are asset backed and underleveraged with identifiable cash flows. In 2008, 44% of companies anticipated accessing a bank loan in the next two years. In reality the number of companies actually accessing bank loans has dropped by nearly a third. Some of that fall is likely due to greater difficulty in obtaining loans and some because of a strategic decision to defer obtaining a loan until the economy has strengthened sufficiently.

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7

Which of the following ways of raising capital has this company used within the past two years, and is likely to use over the next two years?

Bank loan Venture capital Company reserves

30% 36% 4% 7%

Equity scheme

2% 2%

Flotation/sale of stock

2% 2% 13% 17%

Don’t know Other

59% 56%

Section two Finance

20% 21%

Overdraft

Last 2 years Next 2 years

4% 4%

The high proportion of companies relying on company reserves for funding is also interesting. Some of these may include manufacturers accessing funds from a parent company.

We can also see that companies are not willing to sell more equity in the currently depressed market.

This is as a result of the low prices of shares. There has also been a considerable move away from using overdrafts as a means to raise capital. Overdrafts should only be used as a source of temporary funding. If permanent funding is needed then alternative methods are required.

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How do you rate the level of service/ advice provided by your current lender?

Excellent Good Average Poor Not applicable Don’t know

4% 38% 2% 5% 29% 22%

Just over 4% of companies indicated that their level of satisfaction with their current lender was poor. This indicates manufacturers understand the challenges their lenders are facing and realise their providers are doing their best to continue to meet their needs, whilst taking into account the economic backdrop. Manufacturing industry specialism within the banking sector has proven very important in this time of economic change because bankers who specialise in the industry are able to provide a high level of service backed with a high level of industry knowledge.

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9

How satisfied are you with the trade funding options available from your bank?

Very unsatisfied Moderately unsatisfied Indifferent Moderately satisfied Very satisfied

10

3% 3% 55% 33% 6%

To what extent are you typically able to monitor and measure return on major capital investment projects?

Full financial ROI (return on investment) quantification on all investments Most benefits are quantified financially, but not all Some ROI quantification Mainly operate qualitative assessments Don’t know

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34% 31% 22% 11% 2%

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What is the typical required payback period for a return on a major capital investment project?

Section two Finance

No such targets usually set

More than 7 years

4 - 7 years

2 - 4 years

1 - 2 years

12 months or less

2009 2008 2007

Results reveal that 87% of manufacturers are performing some form of financial quantification on their major capital expenditures. 65% of manufacturers are completing financial quantification for the majority of, if not all of, their investments. This has increased significantly compared to 2008 where the focus was on qualitative assessments. While this shift towards quantification of expenditure is a reflection of the tough economic period, it is also a step in the right direction for manufacturers. The continuation of such measures ensures intelligent spending in the future. Indeed completing major capital investments without understanding the returns would be short sighted. Exceptions to this could be when the investment has to be made for health and safety or functionality requirements (e.g. repairing structural damage). In such cases there is no need to quantify the return on investment.

In terms of the time period within which manufacturers are looking to see evidence of the return on investment, we can see that now more than 50% of companies want a return on investment within 2 years.

In 2007 and 2008, the majority of respondents reported a desired return on investment within 4 years. In 2007, no companies reported a required payback period of less than 12 months. However, in this survey, 7% of respondents reported a required payback of under one year. These trends are understandable given the challenges UK manufacturing is facing and the short term outlook many manufacturers have adapted to survive. However this current outlook is not sustainable and we hope this is only a temporary change in manufacturers’ investment horizons. To be able to generate the necessary return on investment in such a short period of time is difficult and may cause problems if investment projects are contingent on being able to meet these strict hurdles. As a consequence good investment decisions may not be sanctioned.

Obtaining a payback on investment in four to five years means a 20% per annum compound return - in today’s environment this represents a substantial return. Manufacturers need to ensure the long term gains are not sacrificed for short term financials.

23

12

In broad terms what percentage of capital investment is strategic as opposed to replacement? (Strategic being investment to support the forward vision of the company)

2009 100 percent 0% 75-99 percent 16% 50-74 percent 51% 25-49 percent 11% 1-24 percent 18% None 4%

2009

24

2008 0% 18% 18% 36% 22% 6%

2008

13

Very significant Quite significant Not significant Don’t know

14

11% 57% 27% 5%

Section two Finance

How concerned are you about the cost of insurance (eg. employee liability) incurred at your facility? Please answer in terms of the impact you feel the costs will have on your profitability.

Have you undergone any downsizing/right sizing in the last 12 months?

Yes 78% No 22%

The figures relating to downsizing and rightsizing are statistically very significant and clearly support conversations with manufacturers I have had over the last 12 months. Manufacturers have been rightsizing their businesses to take account of their considerable falls in demand – this can be anywhere between 10-30% depending on what sector they are in. 72% of companies have experienced some level of downsizing or rightsizing. The average level of rightsizing is approximately 15% which is aligned to the known reduction in manufacturing output.

25

15

0-10 percent 10-20 percent 20-30 percent 30-40 percent More than 40 percent

16

26

If Yes, by what percentage have you downsized/right sized?

40% 37% 11% 9% 3%

What percentage of your business is conducted offshore?

0-10 percent 10-20 percent 20-30 percent 30-40 percent More than 40 percent Don’t know

51% 16% 4% 0% 18% 11%

17

Increase 35% Decrease 0% Stay the same 51% Don’t know 14%

18

Section two Finance

Is your level of offshore activity likely to increase or decrease over the next 12 months?

Is your level of offshore activity likely to increase or decrease over the next 12 months?

0-10 percent 10-20 percent 20-30 percent 30-40 percent More than 40 percent

61% 18% 14% 2% 5%

While the numbers of companies conducting sizeable amounts of their business offshore is relatively low, quite a large number of companies are looking to increase their overseas activities. While localising the supply chain to minimise environmental and transport costs is important, the attraction of China and Eastern Europe is increasing. This seems to be due to the availability of a skilled workforce (a high volume of graduates) plus reduced operating costs.

27

19

Over the last 12 months, how has your spending changed in the following areas?

Increase

Stay the same

Decrease

Marketing Advertising Travel Conferences Social HR Perks Employee Bonuses

There has been a relatively large increase in marketing expenditure, indeed 33% of the companies surveyed have actually increased their budget. Only 21% of companies report that they have decreased their marketing budget. This again highlights the fact that manufacturers are developing a longer-term perspective and are not cutting areas that have traditionally (in previous recessions) been the first to go. Holding firm on marketing expenditure in difficult times is a bold but often very successful move. It shows confidence in the future and it supports the new product development that companies are undertaking. Areas where spend is primarily being cut includes human resources perks, social spend and travel.

28

20

Increase 16% Decrease 9% Stay the same 71% Don’t know 4%

Section two Finance

Is your level of outsourcing likely to increase or decrease over the next 12 months?

The commentary provided by Barclays Bank PLC is intended to be used as information only.

Whilst Barclays and its employees take every care to ensure that the content is accurate, Barclays will accept no responsibility or liability in respect of any errors, inaccuracies or losses which may arise from its use.

29

Section three Purchasing, procurement & logistics Analysis by Keivan Zokaei Director of MSc in Lean Operations, Lean Enterprise Research Centre

The Lean Enterprise Research Centre (LERC) is one of the the Cardiff University Business School’s major research centres, with around 20 staff. The Centre was founded by Professor Peter Hines and Daniel T Jones in 1994 and focuses on identifying new sectors which are suitable for pioneering lean thinking research programmes. www.leanenterprise.org.uk/

1

What proportion of the raw materials used in your company’s UK based manufacturing production sites are imported?

95-100 percent 75-95 percent 50-74 percent 25-49 percent 1-24 percent None Don’t know

2% 13% 28% 20% 33% 0% 4%

The survey shows more than 50% of the UK manufacturers have more than half of their supply imported.

Moreover, a high percentage of bought-in components and sub-assemblies used by UK manufacturers are imported. Together these figures show UK manufacturers continued reliance on imported supplies.

2

What proportion of bought-in components or sub-assemblies used in your UK production sites are imported?

30

95-100 percent 75-95 percent 50-74 percent 25-49 percent 1-24 percent None Don’t know

0% 7% 9% 17% 50% 10% 7%

3

Significant increase Small increase Stay the same Small decrease Significant decrease Don’t know

4% 20% 54% 11% 2% 9%

Over three quarters of UK manufacturers report that the proportions of imported reliance are going to remain unchanged or even increase over the next 12 months, a reflection of an actual increased reliance on overseas goods.

4

Section three Purchasing, procurement and logistics

How, if at all, do you anticipate these proportions changing over the next 12 months?

Right now, from which of the following regions do you source any materials or components? Mark as many as apply

Non-EU western Europe 26%

Non-EU eastern Europe 14% North America 40%

Asia incl. Japan and China 70%

EU 100%

North Africa 2%

India/sub continent 30%

Australasia 2%

It is an interesting finding that 70% of respondents have a supplier in Asia including Japan and China and 30% in India/sub continent which is an indicator of how globalised manufacturing supply chains have become.

31

5

Come 2010, from which of the following regions do you think you will be sourcing any materials or components? Mark as many as apply

Non-EU western Europe 26%

Non-EU eastern Europe 26% North America 40%

EU 98%

Asia incl. Japan and China 70%

North Africa 0%

India/sub continent 44%

Don’t know 0%

Australasia 5%

Given the Euro exchange rate, one expects a sharper reduction in supply from the Euro zone. But EU supply stays almost constant which could be a sign that EU suppliers are learning to become more competitive. It could also be a sign of the continuing struggle of North American suppliers to gain back market share across Europe. The only projected significant change relates to India/ sub-continent share of manufacturing supply which could be attributed to both macro and micro economic factors.

32

6

When choosing to outsource offshore, what are the most important criteria affecting that decision? Rank from 1 to 10.

Least important

1

2

3

4

5

6

7

8

9

10

Product quality

48%

27%

0%

2%

2%

0%

0%

0%

9%

11%

Cost savings

27%

41%

2%

7%

2%

0%

0%

5%

7%

9%

Environmental management/ being green

5%

0%

9%

7%

9%

18%

7%

14%

11%

20%

Identifying/locating an appropriate supplier

5%

2%

25%

25%

16%

5%

9%

7%

5%

2%

Speed of response

0%

11%

18%

20%

16%

11%

7%

11%

2%

2%

Ease of partner/ relationship management

2%

0%

23%

9%

32%

18%

7%

5%

2%

2%

Design capability

2%

9%

5%

7%

16%

18%

16%

11%

9%

7%

Language issues

2%

5%

2%

9%

2%

11%

25%

16%

20%

7%

Cultural issues

7%

2%

7%

7%

0%

7%

7%

20%

18%

25%

Distance of supplier from your plant

2%

2%

9%

7%

5%

11%

23%

11%

16%

14%

Section three Purchasing, procurement and logistics

Most important

This question was asked last year where approximately one third of responses selected “product quality” and one third “cost savings” as the most important criterion when choosing an offshore supplier. The question is asked in a different way this year requiring suppliers to rank the importance of each criteria out of 10. Again, not surprisingly, the most important criteria are product quality and cost. Ironically UK manufacturers give low importance to speed of response, distance, ease of partnering, design capabilities and language & cultural issues, while expecting very good quality and low cost. More conscientious customers such EATON in the utilities business have learnt to place greater emphasis on the long term capabilities of their suppliers to minimise risks associated with offshoring. A purely cost driven approach will hardly deliver the best quality or even the lowest cost.

33

7

Where are your main export markets?

Mark as many as apply

Non-EU western Europe 15%

Non-EU eastern Europe 20% North America 33%

Asia incl. Japan and China 37%

EU 89%

North Africa 7%

India/sub continent 15%

Don’t know 2%

8

9

34

What proportion of your manufactured end product is currently exported?

95-100 percent 75-95 percent 50-74 percent 25-49 percent 1-24 percent None Don’t know

2% 13% 17% 17% 44% 7% 0%

How, if at all, do you anticipate this proportion changing over the next 12 months?

Significant increase Small increase Stay the same Small decrease Significant decrease Don’t know

0% 54% 38% 4% 0% 4%

Australasia 15%

10

Do you perceive any threats arising from manufacturing facilities in places like China and India?

While a large percentage of UK manufacturers import supplies from India and China, it is not surprising that a majority perceive the growth of Chinese and Indian suppliers as a potential threat while at the same time about 40% see potential opportunities for expanding business.

11

Do you anticipate positive opportunities arising from ‘new’ consumer markets like China and India?

Yes No Don’t know

12

39% 54% 7%

Section three Purchasing, procurement and logistics

Yes 62% No 38%

What is the likelihood of part of your manufacturing production moving to a low cost economy over the next 12 or 24 months?

Very likely 15% Quite likely 9% Not very likely 22% Not at all likely 54%

This may be one of the most interesting finding of the survey. 65% of UK manufacturers in our sample, are satisfied or very satisfied with their overseas outsourcing decision. In the same survey last year 47% were satisfied or very satisfied. This means a 40% increase from last year, although both this year’s and last year’s figures were much higher than my expectations. We can now verify that offshore suppliers are doing a good job. A rather alarming sign for the future of manufacturing in the UK and an indication of increasing competence of overseas manufacturers.

35

13

If you outsource any of your processes overseas, how would you rate your level of satisfaction with your outsourcing decision?

Very satisfied Satisfied Indifferent Unsatisfied Very unsatisfied

4% 61% 28% 4% 3%

This may be one of the most interesting finding of the survey. 65% of UK manufacturers in our sample, are satisfied or very satisfied with their overseas outsourcing decision. In the same survey last year 47% were satisfied or very satisfied. This means a 40% increase from last year while both this year and last year figure were much higher than my expectations. We can now verify that offshore suppliers are doing a good job. A rather alarming sign for the future of manufacturing in the UK and an indication of increasing competence of overseas manufacturers.

14

36

How much information do you currently receive from your channel partners?

Very detailed Quite detailed Not very detailed Minimal/none Don’t know

5% 42% 33% 10% 10%

Overall, which of the following phrases best describes the current degree of supply chain integration within this company?

Highly sophisticated, based on real time sharing of detailed information including production schedules, design collaboration and detailed customer and supplier channel data A degree of electronic transactional communication including sales and purchase orders but no real collaboration Functional systems and processes in place but not really working effectively No supply chain integration and minimal data exchange Don’t know

16

10%

51% 21% 13% 5%

Section three Purchasing, Procurement and Logistics

15

How will your level of investment in supply chain integration change over the next 12 months.

Significantly increase Slightly increase Stay the same Slightly decrease Significantly decrease Don’t know

10% 32% 43% 0% 0% 15%

The results in this question and the previous one are almost self explanatory alluding to the great scope for better supply chain integration. Again, these are very similar to last year results.

37

Section four IT Analysis by Phil Burgess Consulting Director for UK, Ireland, Middle-East and Africa, Infor

and David Grosvenor Vice President of UK, Ireland, Middle-East and Africa, Infor

Infor offers a full range of enterprise business software including customer relationship management, enterprise asset management, enterprise resource planning, financial management, human capital management, performance management, product lifecycle management, supplier relationship management, and supply chain management, including business specific inventory management, transportation logistics and warehouse management software. www.infor.co.uk

1

Comparing to this year, was your expenditure from last financial year less, more or the same?

Less

14%

14%

Last 12 months Next 12 months

More

29%

32%

The Same

57%

54%

0%

Don’t Know

0% 0

10

20

30

40

50

60%

The investment in IT this time last year definitely took a major dip and all the software houses will confirm that. Many companies are likely to have under spent their proposed budgets in 2008. It stands to reason that, while the economy is still weak, company expenditure mirrors that of last year. When the financial crisis hit, many IT contracts were postponed or cancelled and some are still on hold. That had a major impact on the IT industry in the second half of last year and company expenditure on IT is only just starting to normalise. That is reflected in the slow increase in proposed expenditure for next year.

38

2

Section four IT

There is certainly still a nervousness which is affecting company spending and many companies are displaying a due diligence in their IT expenditure decisions with a need for increased return on investment (ROI) and an increase in risk averse behaviour. Since August there has been a noticeable re-engagement of companies with IT and the figures for proposed expenditure next year demonstrate this.

What do you believe are the current major barriers to investment and implementation of IT within your organisation? Mark as many as apply.

Lack of skills required to implement and maintain IT solutions Insufficient management buy-in Lack of confidence / understanding in the potential return on investment Employee attitudes/resistance to change Cost of investment Overall risk of such a project in current economic times

32%

18%

46%

21%

Technology not sufficiently matched to business needs and exiting manufacturing

Previous experiences of IT projects

18% 10%

No barriers experienced / envisaged

10% 3%

Other

3%

25% 14%

Pace at which technology becomes obsolete

Don’t know

50%

A lack of internal skills and resources have, as a general rule, commonly been the biggest barriers to ICT implementation within most organisations. Cost has always been an issue but generally it was not considered to be the most serious barrier. Now cost and ultimately risk is definitely the number one barrier with ROI also an associated preventative factor. This displays a lack of confidence and cautiousness within the manufacturing industry due to the economic period. An increase in more variable payment options have been introduced across the IT industry including interest free finance options which are designed to alleviate the current economic strain and encourage investment.

39

3

Which of the following IT and technology-based initiatives are currently high priority strategies within the company, in the sense that there is a current project or that one is planned to start in the next 12 months? Mark as many as apply.

2009

Upgrading IT infrastructures Financial or accounting software Manufacturing Execution System (MES) or Management Information System (MIS) Use of internet for sales and marketing Systems integration

Enterprise resource planning (ERP)

21% 18%

25%

10%

Warehouse management systems

14% 10%

Business analytics and reporting software

7%

Wireless technology E-business

10% 7%

Use of public or private web exchange(s)

3% 10%

Product lifecycle management (PLM)

40

42%

25%

Intranet development

Enterprise application integration (EAI)

50%

Supply chain management and integration (SCM) Product engineering data management (PDM) Customer relationship management (CRM)

39%

Introduce RFID/wireless technology to any part of your operations

Application service provision (ASP)

0%

Don’t know

0%

75%

39%

60%

3

2008

Upgrading IT infrastructures Financial or accounting software Manufacturing Execution System (MES) or Management Information System (MIS)

N/A

Use of internet for sales and marketing

Systems integration

Introduce RFID/wireless technology to any part of your operations

Enterprise resource planning (ERP)

33%

33%

20%

13%

Intranet development

27% 33%

Warehouse management systems

33% N/A 13%

E-business Use of public or private web exchange(s)

7%

Enterprise application integration (EAI)

7%

Product lifecycle management (PLM) Application service provision (ASP)

67%

27%

Customer relationship management (CRM)

Business analytics and reporting software

27%

Supply chain management and integration (SCM) Product engineering data management (PDM)

73%

Section four IT

Which of the following IT and technology-based initiatives are currently high priority strategies within the company, in the sense that there is a current project or that one is planned to start in the next 12 months? Mark as many as apply.

20% 0%

AMR 2008 results

41

3

Which of the following IT and technology-based initiatives are currently high priority strategies within the company, in the sense that there is a current project or that one is planned to start in the next 12 months? Mark as many as apply.

2007 Upgrading IT infrastructures Financial or accounting software

N/A

Manufacturing Execution System (MES) or Management Information System (MIS)

Use of internet for sales and marketing

Systems integration

Enterprise resource planning (ERP)

26%

40% 26%

31%

Customer relationship management (CRM)

Intranet development

Warehouse management systems

Enterprise application integration (EAI)

36%

N/A 19% 5% 2%

Product lifecycle management (PLM) Application service provision (ASP)

44%

21%

E-business Use of public or private web exchange(s)

44% 39%

Supply chain management and integration (SCM)

Business analytics and reporting software

48%

Introduce RFID/wireless technology to any part of your operations

Product engineering data management (PDM)

71%

9% 3%

AMR 2007 results The overwhelming figure here is that 75% of companies consider upgrading IT infrastructure to be a current high priority or will do within the next 12 months. However, when compared to the figures from the last two years, this figure is fairly standard and can likely be attributed to regular budgeting expenditure on hardware, software and communications which occurs every year. While this might be the case, it is still a positive sign and is actually a trend that is firming up rather than diminishing with an increase of 4% since 2007. Companies can certainly defer basic infrastructure spend by a year if needed so the fact that they are not means that there is still confidence in the market.

The use of the Internet for sales and marketing has experienced a considerable increase. In 2007 the use of the Internet for sales and marketing sat at 44% and in 2008 that dropped to 27%.

42

The trend towards a decreased level of priority for Enterprise Resource Planning (ERP), which has decreased by 19% over the last 24 months from 40% to 21%, is a reflection of this economic period.

When times get tough, companies tend to pay close attention to their ROI. Improving an existing ERP system with focused investments in certain areas such as demand planning and forecasting is far easier to justify with a compelling argument for internal investment. This definitely marries up with the financial findings that companies are placing a far greater priority on ROI and needing a more rapid ROI. Mitigating that concept however is that improving a business’s ERP allows you to be more competitive within the market place. It is proven that companies with current integrated flexible solutions outperform those that don’t. Within the market place there has been a decrease in the active opportunities for ERP but forward thinking companies are still actively engaged in this area.

Section four IT

Currently it is at 60%. While this reflects an increased interest in cost effective marketing, there are other factors at play here. Many companies now are moving elements of their sales to the online format which gives improved customer service both from availability (24 x 7) and also reducing the cost of back office order entry and queries. Customers are also increasingly expecting this capability as standard.

Integration is also a high priority among many companies which is a reflection that many businesses want to slim down their utility packages to be more streamlined. However it is also a reflection of the decrease in staff numbers and therefore skills. When this happens there is a necessity to integrate various elements so that they can be operated by fewer personnel and remove any duplication of roles and reporting. The reasoning for an increased requirement for systems integration comes from sound decision making on behalf of manufacturers. Those companies in this position should also consider an ERP as this can also address the issues.

The low priority for business analytics and supply chain are surprising figures. The senior directors at many companies are now spending a lot more time looking at their strategy. When that occurs, there are typically a lot more requests for analytics software. Similarly with the impact of globalisation and indeed de-globalisation the low figures for supply chain software is surprising. For this period when it is difficult to increase profits by increasing product margins, reducing costs internally is the only available solution and can be greatly assisted with supply chain and analytic software, the popularity of which is likely to increase. This concept of a more close focus on internal expenditure is reflected by a considerable focus on MES but perhaps manufacturers need to consider broader analytic measurements and streamlined supply chains to maximise savings.

43

4

Over the past 12 months, have you made any new IT investments to improve your company’s performance in any of the following business processes?

Mark as many as apply.

Product design and development

To manage the Supply chain

Improving energy/resource efficiency

Planning and scheduling operational processes Analytics and reporting (for example to monitor sales and other financial and non-financial information) Forecasting demand

14% 17%

Managing customer relationships

Developing new business models

0%

Plant and asset maintenance

43%

14% 7% 29%

21% 7%

None of these Other

32%

Customising offers and services to customers

Financial management

32%

21% 0%

Manufacturers have been investing in far more integrated design and development process with far more collaboration between the two. There has been a trend for Product Lifecycle Management (PLM) systems and Product Data Management (PDM) systems to be incorporated into manufacturing ERP processes. In the past, design would run on a standalone Computer Aided Design (CAD) system and the rest of a business would run on ERP causing both data and cost issues. This has now changed with increased demand for a more collaborative mechanism and more holistic approach to fully integrated business processes.

Planning and scheduling is another area that has proven to be a considerable focus for manufacturers over last 12 months. The key thing for any business to maintain strong customer relationships is making sure to maintain obligations that have been made. A business can have excellent productivity but appalling customer service levels. A machine can be performing at 100% productivity but if it is producing the incorrect product, it’s real performance is poor. Planning and scheduling drives better customer service levels by assuring that the plant is producing what the customer wants, when they want it. This inevitably reduces lead times by improving throughput. The focus on this area means that manufacturers realise that they can look after their existing customers more effectively with such a system and improve their reputation and attract more customers by doing so.

The fact that 21% of companies have not made any expenditure in any of these areas over the last twelve months is a reflection of the economic times. However it also means that there are a large number of manufacturers who are ignorant of the benefits that can be gleaned from IT. It is not unheard of for a company to improve productivity in areas such as order processing (this is elapsed time to order promise) from one week to two minutes with the application of the correct IT. Those kinds of improvements in productivity are essential for a business to remain competitive and profitable.

44

5

Improving existing processes and ways of working Meeting new challenges and requirements Don’t know

72% 22%

Section four IT

Have your new ICT initiatives been focused primarily on improving existing processes and ways of working or have they focused on meeting new challenges and requirements faced by the company?

4%

The majority of manufacturers are employing ICT to improve existing ways of operation rather than to meet new challenges. Over the last 12 months companies have been focusing on streamlining and improving existing practices while trying to improve operations using fewer resources. This focus reflects a drop in companies making full system ERP purchases. The implementation of new software to meet new challenges is still reasonably high however.

Globalisation is one of the challenges that has affected UK manufacturers. In years gone by, a UK manufacturer would simply have a manufacturing plant in the UK. Now a company may mix that with plants or associates in the Far-East or Eastern Europe. That is a challenge that manufacturers would use IT to help in supply chain visibility.

45

6

What challenges that have resulted in the introduction of new ICT initiatives? Mark as many as apply

Offshoring manufacturing functions (inc - relocation; outsourcing and new investment abroad)

4%

Heightened competition from low cost competitors

18%

Innovation / product development

42%

Service

42%

More geographically dispersed customer base

4%

Regulatory and compliance issues

Reducing environmental impact of business

Increasing price competitiveness Customer pressure to adopt new processes Raising innovation performance i.e. development of new products or processes

21% 18%

39%

18%

Don’t know

7%

Other

7%

29%

Understanding the new economy is another considerable challenge that manufacturers need ICT to overcome. For many manufacturers, the economic changes that occurred last year have greatly altered the way they can do business. The companies that are more agile and can adapt to change are the ones that will emerge strongest from the recession. How to diversify and reduce risk is a considerable challenge for manufacturers as a whole industry. For example an agile company can quickly make the most of a reduced currency and increase exporting competitiveness and increase overseas sales. The 22% of companies making IT purchases to meet new challenges are likely to be the more forward thinking companies that are looking for opportunities in this current market place rather than simply trying to survive. It would be fair to expect the ratio of companies spending to meet new challenges will increase over the coming years as confidence increases and companies accept they need to introduce long-term initiatives to improve productivity, efficiency and profitability.

The introduction of the low carbon economy is another challenge which is likely to increase the level of IT expenditure on new challenges. There are plenty of IT solutions that are focused on assisting manufacturers to make environmental improvements to assist in greening the supply chain, resource efficiency and monitoring of resource usage. There is an expectation of heavy demand in this sector which has currently not eventuated and has been buoyed by considerable rhetoric. There is also still a lack of awareness in the available IT solutions for this issue. Interest is likely to increase significantly in the near future as the upcoming legislation is fully introduced and education in this area becomes more comprehensive. Large companies across all industries are likely to be the catalyst for the uptake of this issue. As they implement changes to their operations they are likely to assist their network of associated businesses and suppliers to do the same. For the macro organisations, environmental concerns have become a paramount issue. For smaller operations, cost savings are still the paramount concern but this is likely to change with a combination of top down pressure and legal requirements.

46

7

To what extent did the introduction of ICT lead to an improvement in the following?

Productivity Profitability

Section four IT

A significant improvement A moderate improvement No improvement

Energy/resource efficiency Competitiveness/efficiency Inventory/stock levels Manufacturing costs Required downtime Customer satisfaction

Clearly IT can offer improvements within many different categories for business. The majority of companies are experiencing some level of improvement to their productivity and profitability due to the IT investments and initiatives. There are only a moderate number of companies purporting to be experiencing significant improvements through their ICT initiatives. This is likely to be a reflection that linking tangible returns to ICT investments is often a complicated issue. Secondly, the proper implementation and operation of software greatly impacts on the potential level of improvements available and companies need to make sure that their IT initiatives are being operated correctly and improvements are measured effectively.

The severe decrease in perceived improvement due to IT in energy and resource efficiency is not reflective of the level of improvement in productivity. This may be partly due to a lack of awareness of what IT systems provide in this area and may also be due to the high level of difficulty in quantifying what are often greatly interrelated improvements. It is also feasible that many manufacturers regard having to have a policy on the environment and measuring energy consumption as an obligation and overhead rather than a business improvement. A similar trend occurred when the quantification of quality became a necessity some years ago. Many businesses are also not measuring improvement levels in the environmental area yet which reflects a level of apathy that is sure to change in the near future.

47

8

Which of the following phrases best describes the nature of your IT deployment at this company?

Company-wide strategy Departmental strategy Tactical rather than strategic

67% 3% 30%

Generally companies do employ a company-wide strategy but it is not necessarily always adhered to. While saying this, a lot of businesses have a tactical requirement as well which fits in to the overall strategy. However, often if there is a problem in a particular business, a solution may be sourced that works within that department but is not compatible with the company-wide strategy. In fact what should happen is if an issue is discovered, to which there is an IT solution, companies should ensure that it works across the whole enterprise. Tactical conflicts do still occur quite frequently.

Very few companies now employ a departmental strategy especially in the mid markets partly due to staff multitasking across different department. There are now very few department led strategies. A decade ago it was much more common. Integrated IT deployment across an entire entity is now the most common strategy.

48

9

Improved marketing of new products and services Drive development of new products and services

32%

21%

Deliver higher levels of customer service Improve/maintain customer loyalty

Target new market segments / increase market share

Deliver service support to customers

Improve distribution/delivery times

Increase sales productivity Don’t know Other

39%

25% 39%

21% 18%

Section four IT

Thinking about your company’s customer relations management, have you (or will you) implemented new software solutions to achieve any of the following? Mark as many as apply.

32%

18%

0%

The deployment of elements of a Customer Relations Management (CRM) strategy such as improved marketing, improved customer service, increasing market share, and increasing sales productivity are all sensible areas of investment. Those are the typical choices for manufacturers as they have ‘soft’ ROI potentials that are simple to justify. A typical IT system includes invoicing, ordering and shipment tracking. CRM by its very nature requires all the information from the IT system to be collated and accessible for each individual customer. Any CRM system needs to be integrated with the back office information so as to provide a complete view of a customer. Therefore, CRM needs to integrated with ERP to provide an accurate impression. The popularity of CRM has declined due to frustration caused by poor implementation and a lack of integration with the core enterprise solution. If a CRM system was correctly integrated, the level of customer satisfaction and benefit would likely improve dramatically.

49

Understanding manufacturing A

Market conditions are always changing - indeed over the past year we have all been subject to, and will continue to experience, unprecedented market conditions.

dapting to such challenges has been, and These highly specialised products and will continue to be tough and as such it services are supported by Barclays’ is important to ensure everyone is focused relationship banking approach, where on the goals and has a clear line of sight on dedicated relationship and industry specialist the Key Performance Metrics needed to drive managers can provide local access to an the business. It is this focus which will help extensive range of products and services, manufacturers get through the recession and as well as offering business information and onto the road to recovery. support. Indeed Barclays Commercial provides Now more than ever Barclays Commercial such relationship banking to 81,000 business Bank is committed customers in the UK (£1m to using its financial to £1bn turnover). expertise to help its Within the manufacturing customers – whether sector Barclays has over “Relationship Directors that’s so they can 100 dedicated Relationship truly understand the maximise cash flows Directors across the UK and protect against who have an immense market and therefore future financial risks, or knowledge of the issues the challenges that their by simply sharing the facing UK manufacturing. customers face” knowledge Barclays This manufacturing has developed over specialist knowledge and the years through dedicated support means working with thousands our Relationship Directors of businesses. Barclays Commercial wants truly understand the market and therefore the to ensure businesses in the UK maintain challenges their customers face, both today momentum - making sure they understand the and in the future. It is this combination of key determinants of performance alongside financial and sector expertise which allows the solutions, ideas and strategies that us to offer bespoke solutions with a will help them navigate the competitive edge. anticipated upturn.

Barclays Commercial customers are also offered access to the products and expertise of other businesses in the Group, particularly Barclays Capital and Barclaycard. Barclays For further information about Barclays, please Asset & Sales Finance – a specialist business visit our websites: within Barclays Commercial – provides customers with asset based lending and www.barclays.co.uk/commercial leasing solutions. www.barclayscommercial.com/turningthecorner

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So what can you do in a downturn?

Given the difficult conditions that have prevailed in UK manufacturing over the past year you may think that the only course of action is to hunker down and wait for it all to blow over. But there are plenty of actions that manufacturers can take to ready themselves for the recovery and some that are best tackled in a downturn.

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ain is a forceful driver of change, claims Andrew Kinder of global ERP software provider Infor. “People and organisations find it easier to accept meaningful change when the pain of it is less than the pain of staying the same.

The last 12 months have been incredibly difficult for UK manufacturers and this has created the best possible opportunities to make the tough decisions, innovate at speed and re-engineer business processes in ways which might have been unthinkable at other times”.

Infor’s largest customer base is represented by the manufacturing sector and Infor have been quick to respond to the difficulties manufacturers are facing, with technology solutions that address the current climate and future expectations. They offer five strategic actions that organisations can sundertake today. Not only do these actions not cost a fortune but each can help manufacturers now and put them in a better position to take advantage of the recovery when it comes.

Smart Move #1

Protect cash. Businesses recognise the critical importance of cash management, particularly at times when capital and credit are difficult to come by. One way in which manufacturers can release cash is through reducing inventory and work-inprocess levels. Infor has observed an uptake in

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technology solutions around demand and inventory optimization in the past year and resurgence in interest in ‘Sales and Operations Planning’ (S&OP).

“S&OP leaders report 15% lower inventories on average and up to 30% shortening of cash-to-cash cycle time,” reports Kinder.

Smart Move #2

Pursuit of productivity. One measure that is consistent among manufacturing leaders is their relentless focus on productivity – whether this be their production assets, people, warehousing or transport. It makes sense to make the optimum use of existing resources before investing in new products – especially in current times. Technology solutions that help you achieve this are in vogue.

An example is production scheduling which, through intelligent sequencing through a plant, can reduce lost time due to changeovers by 30% and reduce costs through the reduction of overtime or other shift premiums. Warehouse management is another area where productivity gains flow through to cost savings, often leading to a deferment or elimination of the need to invest capital in expensive new warehouse space.

Smart Move #3

Go green. Whatever your beliefs on the causes of climate change, it is is certain to impact

Infor So what can you do in a downturn?

manufacturers over the next decade is their and support fee entitling customers to the latest need to adapt to operating in an increasingly versions. And yet research across the industry carbon constrained economy. Government shows that the majority of organisations are legislation will demand it. Your largest not on the latest release of their software, with customers will select their suppliers based many on versions several years old and facing an on it. And having a sustainability strategy for uphill effort and high cost to update to the latest manufacturers is not just good environmental version. In effect, this means companies are not stewardship, it makes good business sense too. getting the full value of a software investment and Reducing energy use, reducing waste and reare missing out on newer capabilities that could cycling materials saves help improve efficiencies money. One way in and innovate processes. which manufacturers Infor has responded “Infor Flex gives customers can profit from this is to this with Infor Flex, compelling low-risk through Infor’s EAM a unique approach in options to upgrade to Asset Sustainability the market place that solution. Unique in the gives customers on the latest version of their market, the solution maintenance a clear, fast existing products ” tracks energy use from and cost effective path those high energy to adopt Infor’s latest consuming assets in the product innovations. manufacturing plant and advises immediately Through a package of software, services and when a piece of equipment is operating below financing, Infor Flex gives customers compelling peak performance and consuming excess low-risk options to upgrade to the latest version energy which is otherwise unseen – only paid of their existing products or even to exchange to for. “Since 80% of the total cost of operating another Infor product on a like-for-like basis. an asset can be in the energy it consumes Despite the difficult conditions, Kinder remains over its lifecycle, it makes sense to monitor this optimistic about the future of UK manufacturing. intently., By maintaining equipment at its peak “Whilst the UK is not yet out of recession, recent performance energy bills can be cut by 8-20%,” figures released by the EEF (Manufacturers says Kinder.

Association) show that manufacturing output over the past quarter is on an upwards trend back Smart Move #4 to levels last seen in 2006. Contrary to popular Rent instead of buying. You may want to adopt belief, UK manufacturing is not in terminal decline new technology to help you to a stronger, faster – but it is changing – with our manufacturing recovery but huge upfront costs are a tough sell base comprising of a larger number of smaller in a tight-money environment, no matter how manufacturers compared to the larger enterprises big the future payoff might be. An alternative of the past. Smaller manufacturers have the might be to subscribe to business software benefit of agility and rapid innovation. They also rather than buy it outright. This preserves cash have different technology needs to support their and without the upfront payment associated businesses and manage their supply chains. with purchased software, has the financial effect Infor’s componentised approach, known as of shortening the time to benefit. Software as a System Orientated Architecture, allows tailor Service (SaaS) or Application Managed Services made software deployment to meet the specific (AMS) are both alternative deployment options industry needs and culture of a business..” offered by Infor to help companies address cost Kinder concludes, “Waiting for the recession to or resource concerns. end is like guessing the bottom of a market — you won’t know when the downturn is over until Smart Move #5 the upswing is evident. By then you’ve missed Upgrade your business software. Almost all the major opportunities. Now is the time to be manufacturers have some form of enterprise preparing for the upswing with cost effective resource planning (ERP) system and the normal actions that can position your company for agreement includes an annual maintenance growth in the long term.”

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From Lean Thinking to ‘Thinking’ Lean

Dr. Keivan Zokaei Director of MSc in Lean Operations, Lean Enterprise Research Centre

2009 marks the 20th anniversary of the term ‘lean’ being coined by John Krafcik – now Acting President and CEO of Hyundai Motor America. In his Masters dissertation at the Massachusetts Institute of Technology where Krafcik was researching the comparative performance of automotive assembly in Japan vs. West, he used the term to describe Toyota’s ability to do more with less.

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uring the past two decades, much effort has gone into imitating Toyota Production System in manufacturing as well as translating its roots and principles for other sectors such as retail and service. While billions have been saved through just-in-time processes and total quality management, engaging people and sustaining improvements remain an enormous challenge for lean managers.

Managers are faced with the dilemma that by implementing new and more efficient systems, employees can become disengaged with their individual involvement in further work process improvements. Some managers attempt to communicate or to ‘explain’ the need for the new system, for example, by sending middle managers and supervisors on training programmes. However plausible, this hardly solves the problem since explanation is barely synonymous with understanding which comes from a far deeper and more hands-on engagement with work. At the same time, it is no wonder that change doesn’t stick where workers do not appreciate the necessity of the new way of working. Organisations and managers, who clearly see the benefits of the new system, often respond by forcing change

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through with an iron fist. The result is the creation of ‘dumb down’ systems within which the role of the worker is reduced to a powerless doer. As such we simply eliminate ‘thinking’ from working and from lean improvement! This is clearly in stark contradiction to the very core of lean thinking which aims to put thinking back into the frontline.

Customers and employees are victims of ‘dumb down’ systemisation alike. How many times have you dialled up to a call centre or walked into a customer service centre to find out that the front line staff are no more able to help you than reading from a computer page and referring you to another department? A job that surely makes them feel as a mere adjuncts to the machine.

According to Taiichi Ohno, the father of Toyota Production System, the two pillars of lean are JIT (which in a broader context can be interpreted as continuous flow) and Jidoka.

Jidoka is translated as automation with a human touch, intelligent automation or ‘autonomation’.

Yet this aspect of TPS is mostly ignored in the West where most of the lean literature (including the best selling ‘Lean Thinking’ by Womack and Jones) focus on the JIT pillar of TPS. Whereas

LERC From Lean Thinking to ‘Thinking’ Lean

simple automation is concerned with efficiency and labour reduction, autonomation focuses on effectiveness, on quality improvement, and the independence of the worker from the system.

In Taiichi Ohno’s language, automation applies to any sort of systemisation – any situation that involves replacing human activities and decisions with a process. Far from turning the worker into the adjunct of the machine, TPS insists on frontline employees’ ability to make decisions, to absorb variety and to react to quality issues as much as possible, e.g. stopping the line to fix the problem which on the surface appears to be even disruptive to continuous flow. Simply put, Jidoka is about putting thinking back into working. In truth, TPS standardisation is a way of workers helping themselves to improve the process, rather than a method of control. Compare this to any average manufacturing process or even a call centre where frontline staff have very little authority to address variations in work outside the imposed controls, let alone to stop the line and ask for (pull) help.

Dumb down systemisation is ubiquitous in both manufacturing and service. I recently visited a local authority that have saved millions of pounds by simply sending several social workers and expert staff to visit customers at the same time and at the first point of contact,

rather than allowing unnecessary hand offs between less experienced frontline employees to back office expert staff and amongst various expertise within the back offices. By putting expert staff at the front who are enabled to think and absorb the requirements of the customers, this local authority have not only saved staggering sums of money but also improved service waiting times five fold.

In another example I recently spent time with one of the UK’s leading retailers which had spent huge amounts on implementation of a new supply chain IT system. Our investigation revealed that the users were not briefed about the way the system worked as an integrated whole and did not understand it outside their own immediate function leading to conflicting behaviour and demand distortion between stores, regional distribution centre, the central distribution centre and suppliers.

A simple simulation showed that if the system was switched off demand amplification would also come under control. In this case the behaviour of agents was driven by the IT system while their ability to think was severely dampened. One employee told me that the “old manual system worked much better”! My hope is that in the third decade of lean, and following the principle of Jidoka, we move towards a more ‘thinking’ lean.

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Infor case study

Knauf Drywall T

he building construction industry demands next day delivery service due to the justin-time nature of the building process itself.

As Knauf’s Operations Manager Eric Dancer explains it, “The ‘dryliners’ who put the board up on the wall rarely know what they want tomorrow until lunchtime today. They’re relying on the ability of a supplier to be able to do that.”

If Knauf fails to supply its customers with the required materials within one day, the contractor pays for unused labour and Knauf risks liability for non-performance. On the other hand, if Knauf declines an order, that sale could be switched to a competitor and Knauf loses the revenue for good.

Setting the strategy

Every manufacturer dreams of having limitless demand for their products, but that dream can become a nightmare when you can’t supply that demand. The UK building surge that culminated in 2007 was such period for Knauf and its competitors. “The construction market was booming,” says Dancer “all three UK manufacturers couldn’t meet demand.”

But even though Knauf could literally sell everything it could deliver, the strains of keeping up with that demand exposed the company’s operational limitations. Without a framework for an effective Sales and Operational Planning (S&OP) process, Knauf encountered costly logistic challenges.

For years, Knauf Drywall’s Operations Manager Eric Dancer and two planners administered the company’s planning process as well as they could with whatever tools they could find “None of us had any formal training

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About the company: Knauf Drywall, a top supplier to the construction industry in the UK, manufactures a broad assortment of building materials including drywall, plaster, laminates, flooring, and accessories. The company sells over 300 different products, under more than 2,000 different SKUs. With revenues exceeding 200 million annually, the company operates two sites in Great Britain, one at Sittingbourne and the other at Immingham. As part of the Knauf group of companies with headquarters in Germany, the British operation manufactures products for its own customers, but also sources from its network of European affiliates. in production planning,” says Dancer, “we all fell into it by accident. We used very basic production planning tools.

We had a report writing tool that pulled data from our operating system and provided us with a report of a five week average sale by article code. It was only looking at sales, it wasn’t looking at demand.” This informal arrangement left them without comprehensive

Facts at a glance

company: Knauf Drywall UK solution: Infor SCM product: Demand Planning industry: Building materials revenue: £200 million (GBP) country: UK

Getting business specific

At that point, the company knew it needed a formal framework for creating an effective Sales & Operations Planning (SO&P) process.

“I needed to bring the business together more to match line capacity to demand in a more planned way,” says Dancer. “By bringing the planning functions and the factory functions and the sales functions together all together, we could agree on a single plan.” The benefits they sought included better demand planning, improved customer service, and increased revenues by being able to fulfill more customer orders on time.

They settled on Infor™ SCM Demand Planning because they needed a system that would be easily useable for non-technical personnel. That would not only cut down training time, it would reduce the risk that came with storing most of the company’s critical planning information inside the heads of the two planners. “If either of one of them left the business, our performance would drop,” Dancer says, “and the factory’s efficiency would suffer.”

In addition, they needed a system that could work with a variety of different ERP systems; the system that the UK operation uses will be replaced by SAP to conform to the requirements of the headquarters in Germany, so the new application needed to work seamlessly with either system.

They also felt comfortable with the fact that Infor SCM Demand Planning has a long-term track record of proven value to the building supplies industry. Another important feature was Infor SCM Demand Planning’s rough cut capacity planning capability, which helps Knauf optimise the mix of raw materials it orders to allow the company to make the correct combination of products for sale.

Infor case study: Knauf Drywall

tools to anticipate upcoming requirements.

The manufacturing operation also suffered from frequent mix-ups due to the inability to optimize the utilization of the company’s manufacturing capacity. In one telling incident, the company was unable to fulfill orders for bagged plaster due to a lack of bags. “It was like McDonald’s running out of hamburgers,” says Dancer. “There was no kind of forward planning, our plaster plants were responsible for ordering bags, but we had little visibility into future demand.” The company was also running up excessive shipping bills to import materials from Europe that it could have potentially manufactured in the UK.

Seeing results

The dramatic turnaround that Knauf achieved by implementing Infor SCM Demand Planning was striking, even while the building boom lasted: The company’s stock fulfilment rate increased from 94.6% to 99.2%.

Fines for late and failed deliveries nearly disappeared, dropping from 110,000 in 2004 to 6,500 in the first half of 2009, a reduction of 95%.

Most importantly, Knauf eliminated out of stock situations that had cut into revenue. In 2003, the company failed to fill 10,500 order lines by being out of stock. More than 7,000 of those foregone order lines were for plasterboard, the company’s principal product. In the first half of 2009, there were only 124 such out of stock orders, a reduction of 98%.

The new level of operational excellence that Knauf Drywall achieved through its Sales & Operational Planning initiative resulted from combining the implementation of Infor SCM Demand Planning with some specific training in sales forecasting. The benefits of the company’s new approach have extended far beyond anyone’s expectations.

Doing business better

The company’s new responsiveness paid off handsomely even after the building boom went bust. Knauf Drywall’s enviable reputation as a newly responsive, utterly reliable partner made it the preferred supplier to most

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commercial builders. “Our customers are under increasing pressure to reduce inventory to take working capital out of their business,” Dancer says. “Having a next day delivery supplier that they can rely on is very important to them because, effectively, they don’t need to hold any stock.”

As evidence of the power of Knauf’s improved standing, in eight recent tenders to supply materials for new hospitals in the UK, Knauf won all eight contracts. “Our ability to service”, Dancer says, “plays a major part in getting those projects.”

The next phase of the project will be to implement SCM Advanced Scheduler to streamline the process even further. Where the planning team once served as both forecasters and planners, they’ll be able to concentrate on forecasting and have Advanced Scheduler generate plans from those forecasts automatically.

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About Infor Infor acquires and develops functionally rich software backed by thousands of domain experts and then makes it better through continuous innovation, faster implementation options, global enablement, and flexible buying options. In a few short years, Infor has become one of the largest providers of business software in the world. For additional information, visit: www.infor.com

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