Tony Hague, CEO of PP Control & Automation, explains why strategic outsourcing offers the perfect antidote to risk and the uncertain times manufacturers are increasingly facing.
We are currently living in what many media commentators are calling ‘unprecedented times’ and it’s difficult to argue with that notion, especially when it feels like uncertainty is growing by the passing day.
In fact, if you look at the global economic landscape there is a toxic cocktail of events clearly developing. Trump’s well publicised US trade war with China promises to suck the rest of us into a potential slowdown whilst, closer to home, we have the shambles that goes by the name of Brexit.
Just when you think politicians couldn’t cause further issues along comes another bill or another amendment. Even staunch ‘Remainers’ from the business community are sick of the limbo we currently find ourselves in.
This uncertainty is certainly transmitting itself into the world of manufacturing, with recent PMI figures of 47.4 the lowest in seven years. And it’s not just automotive that is struggling. We have seen small signs across many of the sectors we supply that confidence isn’t what it used to be and that new projects and associated investment are being put on hold.
With all this in mind, it is no surprise that an increasing number of companies are looking to mitigate their risk and choosing to use strategic outsourcing as a way of achieving that.
Manufacturers are looking carefully at how they balance short-term term pain with the medium and longer-term picture and how they juggle maintaining capacity and inventory whilst protecting their cash.
If companies react to the uncertainty by cutting too deep, too soon it can remove their ability to respond when things begin to pick up and leaves them unable to meet existing or new customer demand.
Placing this risk with a strategic outsourcing partner is a viable way of avoiding ‘Russian roulette’ when it comes to the future of your business.
We currently work with over 25 world class companies on this basis, spanning over 12 different markets. Together, we have developed relationships that allows our clients to focus on their core competencies, leaving PP Control & Automation to take care of non-core manufacturing processes.
The customer benefits from reduced operating costs, the elimination of unnecessary stock and reduction in work in progress and, importantly, improved manufacturing lead times.
They also gain immediate ‘agility’ with the ability to reduce and increase volumes at the press of a button – ideal in this current economic climate.
Now, imagine if they didn’t have an outsourcing partner? If sales increased rapidly they would have to invest in new machines/buildings or costly sub-contract labour to cope with the peaks. When times are tough and volumes drop, this could well turn into redundancies and capital equipment lying idle.
In our world, there are few costs for the customer to pick up when establishing a strategic outsourcing partnership. In fact, once an agreement is in place, we will take on the majority of the up-front costs, investing time and money into production engineering, setting-up test jigs/rigs and taking on supply-chain management.
Whether it’s the possible ramification of a no deal Brexit having an impact or not, there is no getting away from the fact that a lot of UK companies, who had previously offshored, are now looking to choose their outsourcing partner a lot closer to home.
Chasing the low-cost manufacturing environments of Eastern Europe and the Far East hasn’t been as lucrative as first anticipated, with inconsistent quality issues and long lead times impacting on overall productivity and the final “landed costs” of parts.
The fall in Sterling has added more strength to the argument, with the UK now 30% more competitive than it was three years ago, making purchasing decisions a lot easier than they once were.
There are lots of benefits of having a strategic supplier close to your own manufacturing operation, not least clear visibility of stock and the ability to operate and plan to a just-in-time ‘pull’ production system.
History doesn’t lie. Looking back at previous slowdowns, it is clear to see that companies that continue to invest are usually the ones that come out of the tougher times stronger and in a better position to grow and take on new opportunities.
Those that choose to batten down the hatches and cut off spending all together tend to be the ones no longer here and their factories replaced by supermarkets and housing estates.
Whilst strategic outsourcing is a great way of mitigating risk, it shouldn’t be viewed as a negative measure. In fact, it is actually the opposite.
By managing your costs, production capability and retaining the skills you need, you will create a platform that allows you to immediately turn on the tap when the good times return.
Increasing volumes can be switched on quickly and without massive outlay, whilst new opportunities that naturally emerge from an upturn can be chased knowing full well the production capacity is in place.
In summary, it appears that the uncertainty will get worse before it gets better. Mitigate the risk by exploring how strategic outsourcing can support your business both in the difficult times and in the good times.
PP Control & Automation are world leaders in strategic outsourcing solutions.
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