Blogs/Vlogs

Productivity in manufacturing and how to increase it

18 April 2017

In my previous blog I explored the UK’s generally low productivity rate and looked for underlying reasons. This blog, however, looks specifically at the manufacturing sector and the methods it is using to measure and improve productivity.

Last year the Engineering Employers Federation (EEF) conducted a survey of its members and published a productivity report containing excellent insights into the state of UK manufacturing.

Although UK productivity, measured across the whole economy, is one of the lowest in the G7, it is notable that the manufacturing industry has shown much better growth in productivity over the last 20 years than the services sector. As the services sector represents a larger proportion of the national economy than any of the other G7 countries, we might be tempted to think that the solution to the problem is obvious. However, 49% of manufacturers believe that the UK is lagging behind other major developed economies and there is always room for improvement.

The key to increasing productivity is the ability to measure it. (Incidentally it is arguable that the manufacturing industry lends itself much more readily to useful metrics than the service industry). The Government tends to use a basic figure of output per unit of labour input. Most companies will use a much larger range of measurements but they can be summed up in the short phrase “getting more for less”.

Companies that are successful in improving their productivity will have established which key performance indicators (KPIs) are most relevant to their activities and will set periodic targets. The KPIs are extracted on a regular basis and reported to the appropriate levels of management. Typical KPIs measure the productivity of capital equipment and employees, such as sales per hour worked, sales per employee, machinery utilisation rate, value added per £1 of employee cost, or ratio of hours worked to hours paid. Some KPIs relate mainly to cost rather than output, for example cost per unit output or sales cost per employee. Most companies will understand the factors that drive these KPIs and develop ways of improving them.

Naturally, there are some factors that affect KPIs but are outside the control of management. These might include energy costs, transport difficulties, changes in the regulatory framework, raw material prices or fundamental changes in the global market.

Assessing which KPIs are the most relevant to a particular business is always carried out after first developing clear objectives of what is to be achieved, together with contingency plans to deal with changes in those factors which cannot be controlled. The EEF survey lists the five main activities which its members had found most effective in improving productivity:

  • Investing for success.
    Machinery and equipment, automation, research and development, new factories, new IT and technical developments, and major technological advances.
  • Creating demand.
    New sales channels, increasing both domestic and export demand.
  • Optimising supply chains and processes.
    Improving supply chains and lean initiatives.
  • Training the best.
    Developing skills for both the workforce and the management.
  • Beyond the shopfloor.
    Back office processes, sales, customer service, accounting and distribution functions.

Whilst research and development is extremely important, and does attract valuable tax relief, it should be noted that its effects are usually to reduce productivity in the short term. It should therefore be undertaken with its long-term effects clearly in mind.

Supply chain management is often regarded as the preserve of larger manufacturers who have greater influence over their suppliers, but even small operators can seek close dialogue with their suppliers and collaborate on quality, product development and overcoming problems.

Lean initiatives are frequently used to improve productivity. These originated in the 19th century and were espoused and developed by the Japanese automotive industry in the second half of the 20th century. In a nutshell, this is a method of focusing on getting the right things to the right place at the right time in the right quantity, and it has put the automotive industry at the top of the productivity league, alongside pharmaceuticals. There are many individual strands in lean manufacturing. Some of the more significant are:

  • Elimination of waste;
  • Continuous improvement (often referred to as Kaizen);
  • Respect for people;
  • Smooth workflows;
  • Just in time production; and
  • Quality built in.

To summarise, the growth of productivity in the manufacturing context always involves many factors. The key is to have a very clear objective, to establish relevant KPIs, to set up effective systems for collecting them and reporting them, and to have a policy of continuous improvement. Add to this a willingness to invest in plant, technology and the best people, and you will be in the best position to withstand all of those external factors that you cannot control.

If you are interested in improving your productivity or would like help with KPIs or more information on lean techniques, please give me or your usual UHY partner a call. We can arrange an initial no cost no obligation meeting.

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