PROSPER MAGAZINE: DIGITAL EDITION
Manufacturing to the Black Country is like rugby to the Welsh – it’s extremely important. In fact, I would go as far as to say that the sector is more important to the Midlands than it is to any other region. It’s a badge of honour; it’s the foundations that our regional economy is built upon – whether that’s as a primary manufacturer or a first or second-tier supplier to the UK and global producers.
The statistics bear this out. According to Make UK, the West Midlands generates approximately 16% of its output from manufacturing, significantly higher than the UK average of 10%. Overall, the West Midlands manufacturing GVA accounts for 1.2% of the UK’s total output.
So many Black Country companies are intrinsically linked to the sector. If Jaguar Land Rover has a downturn, there are about 100 companies that feel it quickly. So many have also been profoundly affected by COVID-19 – a crisis that has, without predilection, caused facilities to grind to a halt, or significantly reduce in recent months, with international trade channels drying up, as the rest of the world also tries to cope with the global pandemic.
As the lifeblood of the region, it’s imperative that support and financial backing is given to manufacturers across the region to help rebuild businesses and get production lines moving again. The difficulty we face is that everything is unpredictable; it’s worse than unpredictable. Businesses are playing blind and trying to second guess a pandemic that has wreaked havoc on all corners of the globe.
While some manufacturers have cash reserves in the bank, allowing them to flex and adjust to overseas markets that are further ahead on the pandemic’s curve, others simply don’t. Cash equals survival to them; the option of entering and selling into new international markets that are ahead of the UK, in terms of dealing with coronavirus, are just not there.
What’s more, there is real fragility in building an overseas strategy when you cannot predict where the next flare-up will be and when the next local lockdown will be imposed. Australia is a fine example of a country that appeared to be dealing with the pandemic but has now had to introduce another lockdown in its second-largest city, Melbourne, after a spike in new coronavirus infections. We are facing uncertain times.
It’s clear from official statistics that levels of activity in UK manufacturing are beginning to increase. In May, production output rose by 6% between April and May 2020, with manufacturing providing the largest upward contribution, rising by 8.4% - the largest month-on-month rise since February 1979 (9.5%). While the upward trajectory is to be welcomed, the reality is that many regional companies are still at different degrees of crisis management.
Conversely to UK figures, the West Midlands expects manufacturing output to contract further over the next three months, with a forecast balance of -30%. This is mirrored in the region’s business confidence, which stands at 5.04, higher than the UK average (4.79), but still much lower than this time last year.
So, what can Black Country manufacturers do in order to demonstrate resilience and fight their way out of this unprecedented situation?
Although longer-term planning will be important, in the short to medium term the focus should be on how businesses will recover. The road to recovery is likely to be a bumpy one as restrictions are lifted and financial support is withdrawn to recognise the change in risk to health and the economy. Businesses will need sufficient funding and the right operating model to emerge successfully. At BDO, we consider that a robust and detailed recovery plan will be essential for most businesses to support their recovery from the crisis.
A recovery plan needs to be suitably agile and responsive to anticipate and identify the options and corresponding practical actions required. This could include re-directing or re-designing your supply chain, especially one that incorporates overseas markets – a channel that accounts for 9% of the UK’s total goods exports. Early planning should inform current decisions to ensure businesses are able to recover as smoothly and effectively as possible. Most businesses failed during recovery in the previous global financial crisis.”
The core elements of the recovery plan are:
A short-term cash flow forecast covering a rolling 13-week period
A strategic plan for the business covering its transition from the resilience stage to the realise stage – sustaining client relationships and planning for the longer term
An operations plan to deliver the strategy
An integrated financial forecast model covering the next 12 to 24 months trading period
A funding review covering both internal and external sources of finance
Contingency planning as a fallback or in the event that the strategic plan is not delivered, or sufficient funding is not available.
It’s often the case that when we are suffering domestically, we can look to overseas markets to provide a certain amount of respite. Unfortunately, the unique situation we find ourselves in, is that other countries have and are still going through the same as we are. The market challenges facing domestic manufacturers are being felt by those who export overseas.
The EU, North America, Asia and Oceania – the top three export markets for West Midlands’ goods – may have distinct markets, they may have different economies, they may be at various stages of the pandemic – either in front of the UK or behind – but the export market is as fragile as the domestic one.
The key for regional manufacturers is to continue to listen to the intelligence received from suppliers and customers and, to some degree, keep their fingers crossed that where they do business, wherever in the world, is not adversely affected by the ongoing pandemic.