Supply Chain View

We’re so accustomed to “doom-and-gloom” stories about manufacturing, it came as a very pleasant surprise to hear some happy news on the radio this morning. Confidence in manufacturing output and orders is at a ten-year high, according to the EEF.

This is at a time when interest rates are rising, there are fears of a global downturn due to weak US demand, and continued cost-based competition from emerging economies.

EEF chief economist Steve Radley explained the current period of growth by saying that manufacturers were “reaping the rewards of increasing their investment in skills and innovation”. This could refer to product innovation, but might also be a reference to improvements in productivity (the closest I could find in press coverage to a Lean angle on the story).

A report on BBC Radio 4 this morning suggested that UK firms had been successful in making niche, high-margin products.

All of this is very important, not just because of the economic multiplier effects of productive activities within the economy, but because of the supply-chain effects of manufacturing close to market. For products consumed in Europe, manufacture in Europe takes at least 2 months out of the lead time compared with sources in China or India.

By being able to manufacture goods here in highly productive facilities, total supply chain costs can be much lower than for products sourced in lower-cost countries: the labour arbitrage is not the only factor. In addition, shorter lead times also lead to greater flexibility in the supply chain, allowing firms to exploit rapid market changes.

Links

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/03/cnconf103.xml – article from the Telegraph
http://www.eef.org.uk/UK/ – what used to be the Engineering Employers’ Federation, now annoyingly renamed simply “EEF” (a membership organisation for engineering firms, offering advice and acting as a lobbying group).