Growth still the fastest way to profitability warns manufacturing chief
The boss of one of the UK’s leading automation specialists believes manufacturers should target ‘growth’ rather than cost-cutting to help them increase profits.
Tony Hague, Managing Director of PP Control & Automation, has seen his firm secure a number of contracts from OEMs looking to boost their capacity through strategic outsourcing and feels this is an approach more of industry needs to adopt.
He points to the overwhelming benefits of being able to offer immediate solutions to capacity issues, reductions in production lead times and achieving greater flexibility in managing costs during periods of fluctuating volumes.
“We are up about 20% over the course of the last twelve months and the majority of that work has been from customers looking to outsource more of their non-core manufacturing activities,” explained Tony Hague.
“The ways in which machinery builders pursue profit growth is vastly different, depending on both their culture and the markets they serve. In essence, there are only two ways to achieve this ‘holy grail’ and the first one typically focuses inwardly on cost cutting.”
He continued: “The alternative is to grow market share and, more times than not, this will deliver you the best outcome. For example, imagine a machine builder that produces 10 machines a month, each machine sells for £200,000 with an average profit of 10%.
“If that company could build and sell 12 machines a month - with the same overheads and direct costs - this would put £40,000 a month on to the bottom line…that’s almost £500,000 per year. You would have to cut a lot of costs to get that level of profit.”
PP Control & Automation, which employ over 200 people, has become one of the world’s largest and most respected suppliers of electrical control systems, cable harnesses and sub-contract manufacturing solutions.
It has recently completed a £1m extension at its Cheslyn Hay facility giving it a further 1000 sq metres of production space and a new dedicated logistics and material department, complete with state-of the-art conveyor systems and barcode scanning.
This additional capacity gives the company a perfect platform to take on more ‘outsourcing’ work for clients supplying into the machine tool, printing, packaging, food processing, scientific, semiconductor and medical equipment markets.
“It’s all about strategic partnerships and firms realising the huge benefits of being able to let someone else take control of non-core manufacturing, leaving them free to concentrate on what they do best,” added Tony.
“We’ve taken it a step further by working with our clients to develop the process, improve design and functionality. This has led to a reduction in future costs and better product performance.”
He concluded: “It’s clear that strategic outsourcing, if done properly, offers an infinite amount of possibilities for machine builders who are prepared to question their own core capabilities and not just accept that because ‘we have always done it this way, it will always be the best way’.”
Reference - Made in the Midlands blog