Yesterday George continued a series of blogs on EEF’s and Infor’s recently launched report on productivity by examining how manufacturers understand and measure productivity. Today we look at the steps manufacturers have taken to raise productivity, and the obstacles that have prevented some from doing more.
Manufacturers have taken a wide range of actions to raise productivity. The actions are largely focused on the shop floor and fall into two broad camps: those that deliver steady incremental gains in productivity, and ones that trigger a radical step change in productivity.
Actions delivering steady incremental productivity gains
The report found that continuous improvement, involving companies making small changes to their processes in order to gain incremental reductions in costs and improvements in quality, is the standard way that UK manufacturers raise productivity. Their continuous improvement toolkit includes developing talent, lean initiatives and improving the supply chain.
Manufacturers have developed the skills of their workforce by investing in training, which has boosted productivity by improving the human capital of the company. Their main strategy for doing so is hiring and training apprentices, and retraining existing workers to perform other roles within the company. More than one-fifth of manufacturers surveyed for the report indicated that skills training had a positive impact on productivity over the past two years.
Also, the report found that lean initiatives are commonplace in UK manufacturing. The initiatives, which originated in Japan’s automotive sector in the 1980s, involve looking for ways to reduce waste. The most frequently mentioned initiative was redesigning the layout of the shop floor by moving machines around to minimise the distance that products move. Despite the widespread use of lean initiatives, only a small minority of manufacturers spoke of applying them beyond the shop floor in areas such as the back office, and the sales and customer service teams.
As no manufacturer is an island, problems in the supply chain have a negative impact on a company’s productivity. Suppliers missing deadlines, or providing components of a sub-standard quality, have knock-on effects on the company manufacturing the final product. Manufacturers have improved the productivity of their supply chains by engaging in constant dialogue with their suppliers in relation to timeliness and quality.
Continuous improvement leads to steady incremental productivity gains. The chart below shows only a small proportion of UK manufacturers consider that training the best (that is, skills training for the workforce and management) and optimising supply chains and processes (improving the supply chain and lean initiatives) have made the absolute biggest difference to their productivity.
An action that manufacturers take to raise productivity that complements continuous improvement is investing in the maintaining and upgrading of machinery. Such a move makes machinery more reliable and enables manufacturers to reduce lead times and make products to a higher quality while using less materials and labour. Like continuous improvement, investing in maintaining and upgrading machinery leads to steady incremental productivity gains.
Actions triggering a step change in productivity
On top of continuous improvement and investing in maintaining and upgrading machinery, a number of UK manufacturers make strategic investment decisions that boost their productivity growth in the next five to 10 years. These involve significant levels of investment in major technological advances and/or research and development (R&D).
The productivity panel at EEF’s conference yesterday highlighted that investing in technological breakthroughs has the potential to be a game-changer for UK manufacturers. Adopting leaps in technology such as 3D printing can deliver a step change in productivity gains because they fundamentally change the manufacturing process.
Similarly, investment in R&D is crucial to the long term growth of manufacturing businesses.
The new or improved products and processes resulting from the R&D eventually lead to higher sales and output, and lower costs, respectively.
The above chart shows that a large proportion of UK manufacturers consider that investing for success (which includes investing in major technological changes and R&D) has made the biggest absolute difference to productivity.
Obstacles to raising productivity
The report found that the minority of manufacturers failed to take any steps to raise productivity beyond continuous improvement. The following factors look to be responsible:
Business uncertainty: manufacturers ranked uncertainty about the business outlook as the top factor stopping them from achieving stronger productivity growth. Uncertainty drags on productivity because it prompts businesses to delay or cancel major investment plans.
Market conditions: the low crude oil price was cited as an obstacle because it has led to a sharp fall in sales by manufacturing sectors embedded in the oil and gas supply chain. The resulting lower sales revenue has hurt productivity in manufacturers that have held on to skilled staff.
A lack of financial resources: undertaking productivity-raising investment costs money. A shortage of resources within the company due to factors including little or no retained earnings, or difficulties in accessing external finance can hinder such investment.
Conflicting priorities: some manufacturers found it hard to strike a balance between supplying customers with what they want in the present, and thinking about what strategies the company could pursue to raise productivity in the future. Failing to think strategically can lead productivity to be lower than it would otherwise have been in the future.
These manufacturers need to find ways to overcome these obstacles if they are to progress beyond making small incremental gains in productivity.
Tomorrow, George will take a closer look at what room for improvement there is for manufacturers to raise productivity.