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Manufacturers should target growth over cost-cutting to help them increase profits.
That is the belief of Tony Hague, managing director of automation specialists PP Control & Automation. Hague has seen the company secure a number of contracts from OEMs looking for a boost in capacity through strategic outsourcing, and is calling for the wider industry to follow suit.
He says that PP Control & Automation have been able to maximise the benefits of being able to offer immediate solutions to capacity issues, reductions in production lead times and greater flexibility in managing costs during periods of fluctuating volumes.
“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,” Hague 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.”
In recent years, Cheslyn Hay-based PP Control & Automation has become one of the world’s largest and most respected suppliers of electrical control systems, cable harnesses and sub-contract manufacturing solutions.
The company has completed a £1m expansion of its site, giving it a further 1000 square metres of production space, and a dedicated logistics and material department – something that Hague says is will benefit them and help attract business going forward.
“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.
“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.
“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’.”
[Written by Chris Beck for worksmanagement.co.uk]