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Manufacturing: Sparking a quiet revolution

The seventh in a series of in-depth features on sector specific challenges facing CFOs

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When French president Nicolas Sarkozy, who seems determined to push Anglo-French relations to breaking point, suggested recently that the UK has "no industry", you could be forgiven for nodding along in agreement. As a nation, we are quick to condemn the dearth of manufacturing on these shores.

But Sarkozy and, by extension, those nodding along, are wrong. The UK has a booming manufacturing sector, which contributes 12 percent to gross domestic product and employs 8.2 percent of the workforce. As a nation, we are the ninth largest manufacturer in the world, producing $235 billion (£148.6 billion) in output a year; roughly the equivalent of Mexico and Indonesia combined.

The sector is also growing, with recent trends suggesting that more and more western businesses are bringing their production and assembly lines closer to home to combat the increasing labour and logistics costs, as well as the risks, of offshoring.

"What we're finding is the 'all roads go east' scenario was primarily driven by cost," says Noel Murphy, group finance director of eXception group, a specialist printed electronics circuit board manufacturer. "We're starting to present to our customer base what we call a 'total cost solution'.

"While China or the Asian bases may be lower from a cost perspective, once you take account of logistics, speed of response, time difference, language barriers and intellectual property risk, there's still a huge attraction to UK manufacturing," he says.

That's not to say that Murphy's eXception group is turning its back on offshoring. Far from it. But it has certainly spotted the risks of doing business there and the opportunities available in a more local approach.

All of this would impress business secretary Vince Cable. In December he put aside £125 million to, as he put it, "Help improve the global competitiveness of UK advanced manufacturing supply chains".

"Recent economic and natural shocks such as the ash clouds, tsunami and Japanese earthquake have shown the fragility of long distance and single source supply chains," said Cable.

"I want to seize on the increased preference that big global companies are showing for co-locating key elements of their supply chains with their UK manufacturing operations. British suppliers have a lot to offer and we need to help them realise and develop their strengths and sell them on the international market."

Connecting the links

Someone who is certainly on board with this particular vision is Rolls-Royce CEO John Rishton. Announcing a strong set of results at the beginning of February, Rishton launched a charm offensive in support of British manufacturing, arguing that engineers should be seen as heroes and held in the same esteem in the UK that bankers and financiers had been before the credit crunch and ensuing bailouts.

Rishton is also willing to put his money where his mouth is, pledging to train double the number of apprentices this year as he did last. The interesting aspect of his apprenticeship drive is that many would be employed by his suppliers, meaning Rishton is tying himself even more deeply into UK manufacturing supply chains.

Of course, the move isn't entirely philanthropic. Rishton is a businessman, and having pledged to double Rolls-Royce's revenues within the decade, he understands how important his suppliers and supply chain is to realising that vision. In short, he is preparing for significant growth – a challenge not unique in the UK manufacturing sector.

Mark Palethorpe is CFO at Cosworth, the British manufacturer with a legacy in Formula One racing. In 2010 the company grew by 50 percent and last year was similarly successful (its final audited results are yet to be published).


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