EEF blog

JJ Churchill is a high-precision engineering SME business in the aerospace, powergen, defence and high-horsepower diesel engine sectors.  Products include the development and production of advanced gas-turbine blades and complex diesel engines assemblies.

During the last recession JJ Churchill decided that it was imperative to continue to re-invest. This stood us in good stead at a time when many of our competitors were freezing investment decisions. These investments have meant that we achieved profitable growth of 25% in 2011 and we are now looking ahead to the next step in our 7-year business plan, that of overseas expansion.

Setting up a manufacturing facility in a foreign country is a daunting step for any business, especially an SME. But our customers – such as Rolls Royce and Siemens – expect their first-tier suppliers to offer them a local service in Europe the Americas and Asia.

The company’s need to grow, alongside this pressure to regionalise, meant we needed to enter the market for high volume gas-turbine blades (rather than just the development and spares market). Without the move into the high volume market, our strategic plan to become a £50m business by 2019 risked stalling.

But here’s the ‘rub’. When it comes to the manufacture of high volume gas-turbine blades there are two principle costs: the cost of constantly re-investing in advanced capital equipment; and the cost of skilled labour.

JJ Churchill has been able to use technology to balance the cost of labour and drive consumer value in the relatively competitively un-constrained developments and spares market. But this model breaks down when it comes to high volume gas-turbine production. The UK has the ideal skills present for this work, but the UK's investment environment is not competitive.

Advanced machine tools now cost ten-fold what they did 15 years a go. At the same time their competitive life (not to be confused with their productive life) has come down from around 10 to five years.

The UK government’s approach to capital allowances has simply failed to stay synchronised with manufacturing reality. At the same time other economies have gone out of their way to attract inward manufacturing investment.

Without a much more attractive investment environment, high technology, high-value added manufacturing will not be sourced in the UK.

JJ Churchill’s decision to expand overseas is exciting and will ultimately secure our growth plan and consequently jobs in the UK. The UK will remain the source of our approach towards gas-turbine blade manufacturing process innovation and spares supply. So in one sense our move to manufacture overseas is no loss to the UK and therefore ‘invisible’ to the government.

But the pity is that if the rhetoric of ‘re-balancing the UK economy towards manufacturing’ (oft heard from both the previous and current governments) had more substance – including a full overhaul of the tax treatment of capital to better reflect the life-span of modern machinery – then this ‘invisible’ story of overseas investment could very easily have been a good news story for the UK.

Roy Taylor is the Managing Director of Malthouse Engineering, a Sandwell-based steel profiling company. Roy has been MD for the last 28 years and has lead the firm from a one site, £1 million turnover firm to a £19 million turnover, 5 site organisation employing over 150 across the country. He is a former President of the National Association of Steel Stockholders and has recently been appointed as an Ambassador for the Sandwell area.

A government campaign during the second world war said that careless talk could costs lives. Fast forward 60 years and perhaps we are now in a situation where careless talk could be costing our economy.

My company, Malthouse Engineering, is the UK’s largest steel profiler. Trade in the last twelve months was very positive for us. Figures are substantially better than they were two years ago. Interest from customers in new orders is positive, and we have now been able to pay back our employees who took a 10% wage cut at the start of the recession to reduce costs and prevent redundancies. Our bank and our credit agencies are happy.

But looking ahead, things are more uncertain.  

It is often said that financial markets trade on confidence. Small and medium sized enterprises are no different. Innovation, investment and development have been key to Malthouse Engineering’s success over the last 28 years and they will be in the future too. But making investments requires confidence, and the increasingly negative stories we hear about the economic outlook mean we cannot be confident about 2012. This uncertainty is stifling the investment we need to make to grow. This kind of uncertainty could hinder the growth our economy needs to avoid another recession.

We hear and read continually that the collapse of the Eurozone is imminent, the UK could be downgraded and our financial system as we know it is on the verge of destruction. This does nothing to build confidence and only fuels uncertainty.

Uncertainty is causing us to hold back investment in new projects which could result in missed opportunities, lack of expansion and reduced efficiencies. We have put on hold projects to improve our capabilities and increase our output. Experienced, unemployed engineers that could be employed have not been hired

We are not alone in this and that is concerning. When small and medium enterprises do not have the confidence to invest in developing and innovating the effects can be wide-reaching: suppliers won’t receive orders; Banks won’t be able to lend; the unemployed won’t be employed. People wont or cant buy houses and therefore wont need as many washing machines , vacuum cleavers etc or indeed cars.

2011 was a strong year for us, yet we only read about doom and gloom.

We are busy in the areas of agricultural machinery, earth moving machinery, tool making, energy and machine tools. Negative stories – which are often unrepresentative of the situation in the real economy – could become a self fulfilling prophecy where our uncertainties become realities. In 1812 we did not have such a prevalent media so our society and economy was not surrounded by the negative atmosphere we see now, if the same were true today then I am certain we would be investing as our forefathers did in the first industrial revolution. But there is good news to be found, and we should make that clear.

I believe, and so do colleagues in the manufacturing industry, that if enough of us got together to talk about the positive performances of our firms then perhaps we could start turning the tide of negativity and give the UK economy a boost.

-- Roy Taylor, MD Malthouse Engineering

On Friday, ONS will publish figures for Business Investment in the final quarter of 2011. Ahead of this, three UK manufacturers will be talking about their investment decisions on our blog:

1. Today: why, for Malthouse Engineering, gloomy headlines are hitting confidence and discouraging investment;
2. On Wednesday: why the UK’s relatively uncompetitive investment environment has encouraged JJ Churchill to invest overseas;
3. On Thursday: why Jaguar Land Rover is investing in the UK
   

Phil Kite, MD Astrum (UK) with Lord Bates, Shadow Cabinet minister and Deputy Chairman of the Conservative Party, at EEF's North East Regional Council.

I am the Managing Director of Astrum (UK) Limited, based in Stanhope, County Durham. We are an engineering business with a workforce of ~250 and operate in the Defence, Earth Moving, Intermodal and General Engineering business sectors.

In the Defence market we are a world leading designer and manufacturer of track systems and running gear for Armoured Fighting Vehicles (AFVs). We also supply structural steel castings used in the manufacture of AFVs. For the Commercial sector we manufacture high integrity cast steel products and assemblies for the earthmoving, intermodal and general engineering market sectors.

My background was originally in finance, qualifying as a Chartered Accountant with Ernst & Young and I joined Astrum as Financial Accountant, becoming Managing Director in 1995. In 2006 I led a Management Buy Out of the business.

Everyone in manufacturing or business in general will say it’s challenging. Over the last two years we have seen each of the business sectors in which we operate effected by the recession. The challenge is to weather the effects of the downturn and make our business fit for the future, so we can immediately benefit when there is an upturn, i.e. plan for growth. 

The UK needs manufacturing but not everyone understands why.

To me it is the foundations on which almost every other business is based! Unfortunately we have lost a lot of manufacturing offshore and it is no good relying on financial / legal businesses to prop up the economy as they will follow the same path. We need to encourage government to take action to retain and develop manufacturing in the UK.

For those businesses that adopt continuous improvement at their heart, who provide exceptional quality, service and delivery and have a competitive product or service, their future prospects are good. For industry as a whole confidence needs to return to the market place before things improve. That is why government could do more to encourage investment through improved capital allowances.

And as one of the largest employer in Weardale with over 250 employees drawn from the surrounding area, Astrum is also critical to the future of the local economy. The next government could make it clear manufacturing is key to the UK economy, including heavy engineering, and encourage schools to recommend manufacturing as a career!

Phil Kite
Managing Director
Astrum (UK) Ltd

I am the managing director of a Welsh-based precision engineering company, that will soon celebrate 50 years in the industry.  Employing 80 people, we are design and manufacture toolmakers at the service end of manufacturing, supplying other manufacturers with the moulds, press tools and machining services they need to make their own individual products.

As a result, there is a small amount of our technical expertise in most food, drink, cosmetic packaging, cars and medical devices around Europe, and in some cases the world.

Over the years making things has become ‘unfashionable’, but the UK has just had a hard lesson in the folly of an unbalanced economy. Balance is important in everything we do from economics, to our business and personal lives. Unbalanced things can collapse unexpectedly!

Whilst the UK is part of Europe, we also need to remember that we are a small island with a developed appetite as consumers.  Sustainable indigenous manufacturing is important in supplying some of this demand.  The recession has also taught us the national value of exports and the potential downsides of imports.

Looking ahead, UK manufacturing has a significant challenge.  In the global market place, many of our competitors have the advantage of very low labour rates. China is a classic example where people earn a fraction of what is paid in the UK. Any product with a high labour content is at risk of moving out to the Far East as the transport and import duty do not erode this off shore advantage.

Therefore the future of manufacturing in the UK is all about high added value, high quality, innovative products and local supply chains. For this to happen, we need to be serious as a nation about making things, and the Government needs a clear industrial strategy that supports manufacturing business.  Higher levels of employment for our people is likely to result.

Quite clearly to replace what we have lost over the years, there is going to be a need for significant investment in new products, processes and facilities to fulfil this strategy.

The Government needs to ensure that there is effective support for business, including the need to be a business friendly taxes regime, direct support for the development of our people’s skills and a reduction in red tape on employment. We have to make the UK an easy place to do business and make things.

As somebody once said - give us the tools and we will do the job.

Gareth Jenkins
Managing Director
FSG Tool & Die Ltd

EEF's 'Manufacturing Week' is making waves in the US.

At their request, I've been talking about Manufacturing Week on the manufacturing social network MfGCrunch. Here's an exerpt from my post:

"With an election looming and our economy crawling out of recession, the simple objective of 'Manufacturing Week' is to put manufacturing at the heart of the debate on the future of the UK economy.

In the UK, the manufacturing sector is plagued by persistent myths - that manufacturing is in decline, that we don't make anything anymore, that industry is dirty and dangerous, that successful kids go to college while the slow ones work in manufacturing, and - even more dangerous - that we can keep the clever stuff in the UK and send the production abroad.

These myths are rooted in dated images of industry and sit awkwardly with the widely accepted need to 'rebalance' the economy by growing manufacturing.

But what to do about it?

Well, the answer was simple - start standing up and shouting about what makes modern manufacturing so great - and so competitive - in the UK.

See, for the past 20 years, we've had bankers and lawyers pushing politicians to support a 'post-industrialist' society. They got what they wanted because they made politicians take notice.

But instead of griping about the recession they caused, we decided to take a page from the bankers' playbook and start 're-educating' the public and our politicians about modern manufacturing and why the sector is so important to the future of our economy.

As part of this campaign, we launched 'Manufacturing Week' to allow UK manufacturers to stand up for themselves, to be heard and to get in politicians' ears.

We've had special reports in the Telegraph, the Financial Times and The Times - all showing modern manufacturing as the diverse and dynamic industry it is.

And manufacturers are hosting events all around the country and blogging on why manufacturing matters.

Sure, it's been a struggle. UK manufacturers are modest by nature - they just like to get on with being a successful business.

But get them going and their passion is contagious."

We are a small, family-run engineering business based in Leighton Buzzard, Bedfordshire. We’ve been trading since 1994 and offer precision machining services in Deep Hole Boring, Deep Hole Drilling, CNC Honing and CNC Turning. 

Our excellent team of 26 people have worked with us to create a facility and level of service that offers our customers everything they need to respond the demands of the industries we serve. These include Petrochemical, Aerospace, Defence, Motorsport, Formula 1, Hydraulics and Medical.

Although our services are specialised, competition is still fierce. Investment in our team, equipment and technology combined with innovation in our processes are our only routes to continuous improvement and competitiveness.

We love our business and the challenges it poses. Each year customers become more demanding, industries request new and increasingly complex quality standards, legislation expands and complicates every decision and Government continually confuse us with a raft of newly-branded departments seemingly designed to either help or hinder us at every opportunity.

And yet we embrace these challenges every day because UK Manufacturing was, and still can be, the greatest in the world and we are passionate about producing products of excellence.
We have some of the finest minds and educational establishments in the world. Many of the finest inventions were thought of and prototyped here in the UK and it’s a real shame that most of the manufacturing of these products has since moved out of the country.

As a business and as an industry, we are willing to overcome the challenges we face. We are willing to invest, learn, adapt and continue to satisfy the ever increasing demands of our industry.

What we need though is the Government and the rest of the country to get behind our industry and help us make the UK what it really is and should be - the heart of manufacturing excellence. 

Fair policies on tax, sensible levels of legislation so we and our team are protected but not impeded, simple access to support through streamlined departments and Government agencies and a recognition that this country and its economy cannot return to being dominated by finance and retail alone.

There are many of us within our industry willing to effect the changes required. What we would like is an acknowledgement of our efforts and importance and the removal of the barriers placed before us by previous Governments and legislation.

Andrea Rodney
Director
Hone-All Precision Limited

We are an SME based in Salford, employing 35 people and part of a multinational French-owned group which has a multifocal philosophy in that it allows its subsidiaries to run as autonomous profit centres and cater to local needs and customs, rather than imposing a centralised doctrine. We manufacture energy and data transmission systems for mobile equipment. With the demise of heavy industry we saw a dramatic decline in our traditional markets, principally the electric overhead travelling (or bridge) crane industry. We had to adapt or die; we chose the former option.

Ten years ago, although the fundamental business was sound, it was stagnating. It is not that we were short of ideas – far from it. However, creative thought often withered on the vine before a change of management liberated our engineers and allowed their considerable creativity to blossom as ideas were assessed, calculated but sensible commercial risks taken and, inevitably, survival and growth ensued.

We changed from being a mere supplier of components, a role which had brought considerable success for the past forty years, to a provider of solutions, listening to customers’ requirements and developing innovative solutions to their specific problems. This led to our designing safety systems for use in rail depots and to adapting our core product (insulated conductor bar) for use in the precious metal mines in South Africa.

When we did the maths on the rail contracts we had won, we discovered that the conductor bar portion (which, previously, would have been the only element we supplied) represented a mere 5 per cent of the total contract value. So, our conscious decision to change emphasis had a tangible and extremely positive effect on our business. Without that change, it is unlikely we would still be here today. 

Again – adapt, change, innovate or die.

The challenge now is the next generation of change to ensure succession and longevity of the business. We are embarking on a partnership programme with a highly technical and capable local University to seek out new opportunities, either for new products or new uses for existing ones – and that is the beauty of manufacturing. It is the ability to do something, to make a difference and keep the wheels turning.

It may be a simplistic view but I have always believed that someone has to create the wealth to sustain the nation and the safest and most fulfilling way to do that is to actually get off your backside and make things.

Alan Jones
Managing Director
Conductix-Wampfler Ltd

Numatic International Ltd is a British-owned company located in Chard, Somerset. We employ over 700 people in the design and manufacture of a wide range of cleaning equipment for the commercial and industrial markets.

Products range from a mop and bucket to a £10,000 plus ride-on Scrubber/ Dryer. Although commercial and industrial are our target markets, our best known product, Henry vacuum cleaner has made great advances into the domestic market as well.

The company was founded 40 ago years and has grown consistently every year, proving that manufacturers can be very successful in the UK.

Numatic passionately believes in UK manufacture and, wherever possible we source from the UK or Continental Europe. But today’s world is a truly global market place so we buy and sell in many countries.

More than 40% of our output is exported to markets throughout the world, either through agents or one of our four subsidiary companies. The factory is very far from being a ‘screwdriver plant’ where products are just assembled. Processes such as injection moulding, rotational moulding, laser cutting, robotic welding and powder coating are carried out in our modern factory covering a 25 acre site.

Such is the pace of change with new technology that we have to keep pace or lag behind at our peril. The skills, knowledge and experience of our employees are absolutely essential ingredients for our future.

Besides a very successful apprenticeship scheme we put great emphasis on developing and upgrading the skills of our entire workforce. We’re the second largest employer in the town and draw employees from a wide area so the skills and jobs we provide are vital to health of the local community.

We cannot see how the UK can possibly enjoy the high standards of living we do without a solid manufacturing base. We’re still the world’s 6th largest manufacturing nation and, with the right business environment and positive support from the media, there is no reason why we cannot maintain, even improve, on that ranking.

We see the key priorities for government are:

• Raise the public perception and awareness of the scale and importance of manufacturing (and not just new technologies) to our economic wellbeing.
• Encourage investment in both capital equipment and new product development, and not just for SME’s.
• Support skills development. Both the Manufacturing Advisory Service and the Train to Gain scheme have been very beneficial here.

Andrew Smith
Manufacturing Manager
Numatic International Ltd

JJ Churchill Ltd. is a 72-year old precision engineering business. Looking forward, as a family business of 100 people, perhaps the most straightforward course of action during the recovery would be to either to not take too many risks by continuing in our current markets (aerospace, diesel engines, defence and cutting tools), or to give-up and sell-out. 

But neither of those options would see the company getting close to what it could achieve with a little investment, vision and decent strategic planning.

So instead, we’ve recognized what were good at – innovation – and are using it to our advantage.  On the one hand, SME or not, we compete in a global environment and our customers usually have choice of supplier, but at the same time we operate in a high labour cost economy and are not about to re-locate to China.  So unless we know we can be the cheapest (we aren’t), innovation is our only way forward.

Of course, as a sub-contractor it would be easy to assume that as the designs we manufacture to aren’t ours, we can’t innovate – but this is lazy. 

We’ve made massive strides forward in process improvement, we’ve identified the markets in which we really have an advantage and we’ve invested aggressively to move up both the technology and value-add curves.  To have the confidence to do this – and that’s meant substantial counter-cyclical capital investment – we needed a rolling strategic plan that looks forward 5 years and sets our stall out.

This, I think, is what makes the difference: a good plan gives management confidence and clarity of purpose, it is the standard to which all investment decisions are assessed.

But just as important, it provides the foundation for regular communication with the bank (through good times as well as bad).  After all, the banks are also a business, and for them, a credible business plan is a lower lending risk – and that should equal a lower interest rate. 

My plea then is that every manufacturing business, no matter how small, should invest real effort ensuring they have a decent strategic plan, that it has resonance with their stakeholders and that it really is going to take them to where they should be aspiring.

Andrew Churchill
Managing Director
JJ Churchill Ltd