Inflation is slowing; what should you do about it?
27 June 2023
Inflation is the enemy, but as it comes down manufacturers will face new challenges as well as new opportunities. Phil Anders takes a look at whether costs really are coming down for manufacturers, and how our team of manufacturing experts can help.
The UK is in the midst of an inflation-busting crusade. At the time of writing inflation is at 8.7% and Prime Minister Rishi Sunak is asking people to “hold their nerve” as difficult decisions are made to bring it down.
Manufacturing has been hit particularly hard by rising prices compared to the rest of the economy, but there are early signs price inflation in the sector is slowing. This is a good thing, but it also brings big challenges.
So what exactly does it mean for you and what should you do about it?
Are your costs actually coming down?
Even if price inflation is slowing overall, that doesn’t necessarily mean costs are coming down across the board.
Energy costs are still extortionately high for most manufacturers, and experts say we should expect them to stay well above what we’re used to for at least the rest of the decade. Wage pressures and skills shortages across the sector are still pushing the cost of labour up, and the cost of raw materials is still fairly elevated across the globe.
If inflation is brought down but these headline costs remain high, it will squeeze margins for manufacturers even harder and intensify competition. So how can manufacturers protect and grow a healthy profit margin as prices come down?
Solution: Be the best at what you do
The answer is to simply become better at what you do right now. Become more agile, more flexible and more innovative so you can push the right product out at the lowest possible price and grow your business.
By ‘become better’, I don’t just mean improving things on the shopfloor, I mean improving all aspects of your business – from quality to culture, to sales and marketing.
You need a complete internal review that looks at all options open to you, such as:
- Business strategy: Are you planning effectively for the future? What does your strategic long-term plan look like? (try the True North approach to get you started)
- Sales and marketing: Are you making yourself visible in the marketplace? What channels are you using to reach potential customers? (think about it as just another lean practice)
- Operational efficiency: What measures can you take to cut costs and improve processes? How can you manage and use what you’re buying more effectively? (start with activities like process mapping and 8 Wastes)
- Differentiation: How can you enhance your competitiveness by differentiating yourself from others? What are competitors doing? Can you provide superior quality, additional features, better customer service? (consider your pricing and market positioning)
- Exporting: Are there new opportunities and new destinations for your product? Slowing inflation and stabilising prices is a good opportunity to explore international markets and attract overseas buyers (use the Ansoff Matrix for inspiration)
- Product mix: Is your product offer actually working for you? Are you providing the right product for the right customer? Should you be developing something new? (start by considering what motivates your customers)
- Culture and people: Do your people feel valued and listened to? How can you develop the skills base within your business and retain talent? (think about the abilities of your workforce and how you develop people).
None of this is easy. Knowing where to start can seem overwhelming, but this is where my colleagues and I in the Manufacturing Team can come in and support you.
Start from the beginning and build from there
Before you can even begin thinking about what strategies you should employ to improve productivity or increase competitiveness, you need to build a baseline understanding of where you’re starting from and benchmark yourself with your competitors.
I’m not just talking about understanding your costs and what the return is on every pound you spend (which is crucial), but also who you are as a business. What do you actually do? Where do you want to go? What is your competitive edge in the market?
These are questions we ask in our initial review of every business we visit. We listen, we get the facts and figures in place to understand your baseline as an entire entity, and then we work with you to create a long-term growth strategy.
Thomas Storey, Manchester (read the full case study)
Leave no stone unturned
The great thing about our crack team of experts is the diverse range of skills we can bring to any manufacturing business.
Delivering fully funded site audits to identify cost reduction measures is our bread and butter, but we can also look at your culture, your readiness for bringing in digital technology, the quality standards you need to achieve, your export potential and even your marketing and social media.
Some of us have expertise in factory management, like my colleague Stephen Booth; Martin Hyman is a specialist in business strategy; Chris Manka is a seasoned pro in domestic and global sales & marketing; the list goes on. Each one of us has a different skillset so we leave no stone unturned.
Steel fabricator Thomas Storey is a great example of the power of this approach. Not only did we advise on solving a bottleneck in the factory (which increased turnover by a fifth), we also went right back to basics to address how they support and develop their people. Workplace culture went from their “biggest problem” to one of their biggest differentiators. Despite the huge impact of the economic downturn on their sector, they are going from strength to strength.
Ready for a meeting?
The businesses that come out of the inflation crisis already firing on all cylinders will be the ones that succeed, so there’s no time to lose.
Let’s get a baseline understanding of where you are and where you can be, and work from there. Get in touch today for a fully funded business review.