With a strong picture for the first 6 months of the year, the opposite is now predicted for the latter part with recruitment plans ceasing, orders slowing and growth forecasts cut. But now is not the time to panic and business resilience remains important.
The economic landscape has been challenging for a while so this will not be new for engineering and manufacturing firms. Brexit, the pandemic, inflation, interest rate rises, supply chain issues, volatile pricing, change in working patterns, skills shortages, access to finance….. the list goes on. Long gone are the days where it seemed that businesses could confidently undertake long term planning and predictions.
Today’s environment is fluid, rapidly changing and, on the whole, unpredictable. The recent slight fall in inflation and holding of interest rates gives a small level of comfort but as inflation is still running well above the Bank of England’s target rate of 2% it is highly likely that the pressures will remain for the immediate future and into 2024.
Business confidence in the West Midlands is above the UK average and some believe the Bank of England’s strategy is working. Opportunities still exist and, as the old saying goes, “fortune favours the brave”. For a business to succeed and achieve long term sustainable growth it needs to be agile and be able to react quickly to the various changing factors.
With key challenges for the manufacturing sector including obsolescence, reliability & productivity, power management, decarbonisation and enterprise integration – the time to be brave is now.
Communication remains key and it is as important as ever to keep lines of communication open, both internally and externally. It is rarely a good sign when “things go quiet” but most things can be amicably resolved if both parties are willing and have honest conversations. Internally, it is essential that your management team are all working towards the same goal, have the same agenda and share business critical information.
The wider team needs to have a clear understanding of what their roles entail and what is expected of them. In reverse, the management team need to understand the pressures and challenges faced by the team. Externally, it is beneficial to have a diverse network to support each other and disseminate information to ensure you are as well informed as possible.
Know your customers. For B2B organisations your customers are likely facing the same pressures you are. The basic protections should still be undertaken such as credit checks, risk assessments, etc. but there is a wider opportunity here. Empathy is a word rarely used in business but, ultimately, the strongest business relationships are built where personal connections are made and a rapport is built. If you can solve a problem for your customer, be it a technical one, support with extended credit terms or a shorter supply time to meet their deadlines, for example, you will become a trusted supplier. Take the time to understand your customers’ business, see how you can work together, keep the conversation going and they are more likely to discuss with you their plans for future work.
Know your suppliers. How reliant are you on any one particular supplier? Supply chain issues remain although we have seen some easing in this area recently. However, some parts are still on long lead times and some materials difficult to obtain. This leads to volatility in pricing, more exposure to exchange rate fluctuations and delays in delivering projects.
Coupled with the risk a supplier may go out of business before the delivery of goods, this remains a challenge for manufacturers. Sourcing an alternate supplier, if possible, can spread the risk but we have also seen innovation in this area where alternate solutions have been engineered to circumvent a supply chain shortage. Our platform-independence is proving crucial to ensure we can deliver projects on time to our customers.
Accurate data recording and monitoring will enable you to assess your current areas of strength and weakness as well as help plan into the future. Budgets help to capture future plans and expectations and provide a baseline against which to compare actual performance.
Regular review of key performance indicators, such as turnover, gross profit margin, productivity rates, customer activity, and net profit both at project and company levels will highlight any variances against budgets and enable you to act quickly to rectify any problems. Having visibility on this type of data will also enable you to model any changes in areas such as interest rates to look at the viability of future investments or projects.
Effective cash flow management is crucial as it is more likely a business will fail due to a lack of available cash than falling turnover. This is nothing new but more likely to cause an issue when times are challenging. Cashflow forecasts are an essential weapon in your business arsenal as they highlight any pinch points and give you the opportunity to proactively manage the situation either by reducing expenditure, ensuring you have effective debtor collection policies or looking for external finance.
Look after your team. This may seem obvious but is often overlooked. People tend to be the lifeblood of a business and a valuable resource. The recent COVID upheaval and ongoing cost of living crisis have created both mental health and financial pressures for many people which can affect their wellbeing. Support during a difficult time can create loyalty and trust. Employment and recruitment costs can be a significant overhead so to have a stable and productive workforce makes sound commercial sense. Our Wellbeing Hub has been introduced here at iconsys to provide 24/7 easy-to-access information, advice, and signposting on wellbeing issues. This was followed by:
2023 may be shaping up to be a year of two halves but the storm can be weathered with strong business practices, reliable data and the ability to react quickly to change . As the 8th biggest manufacturing sector in the world, with an estimated output of £224 billion, the UK still has a lot to offer! You can read the full Make UK Outlook report here.
Authored by: Karen McLellan, Finance Director, iconsys
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