PROSPER MAGAZINE: AUTUMN 2019 | COMMERCIAL FEATURE
THE MANUFACTURERS’ PROFITABILITY PUZZLE
DEVELOPING AND IMPLEMENTING STRATEGIES TO MAXIMISE PROFITABILITY IS A FUNDAMENTAL CHALLENGE FACING MANUFACTURERS.
To crack this puzzle, companies must carefully plan their strategy and application of resources to identify what investments will have the most impact.
With the Manufacturing PMI falling and much Brexit uncertainty, the intuitive reaction to increase profitability may be to reduce investment that doesn’t directly or immediately improve a company’s revenue-generating activities.
However, areas like R&D, sales, marketing, staffing and recruitment are an essential investment for the future. If companies follow their instincts and cut back, it creates considerable risks for profitability in the long run.
INVESTING FOR THE LONG TERM
It is important that companies focus their resources where the full potential has not yet been realised, and there’s a real prospect of generating competitive advantages.
Companies should remain forward-looking by focusing their investment on four key areas:
RESEARCH AND DEVELOPMENT
PLANT & EQUIPMENT
SKILLED LABOUR RECRUITMENT
REWARD AND INVESTMENT IN STAFF (e.g. through pension funding)
Recent analysis of 1,559 US manufacturing firms published in IJOPM (Strategy, Operations, and Profitability: The Role of Resource Orchestration, International Journal of Operations and Production Management) shows that financing R&D has a significant positive effect on long term profits, as it drives the development of new products to bring to market. Continued upgrades to plants, property and equipment are essential to future-proof a manufacturing business, as a lack of investment in these areas ultimately leads to poor performance.
The opportunity to recruit high-skilled technicians and engineers and integrate them into the company, as the agents for future long-term growth, must not be neglected. Incentivisation through investment in pension provisions, for example, can have long term, positive performance implications, helping to retain your best people.
Although profitability may suffer short term pain as a result of these investment decisions if executed well they will certainly prove beneficial in the long term.
If you require any further information or advice regarding these topics, then please feel free to contact Manufacturing & Engineering sector expert, Chris Barlow.
CHRIS BARLOW | EMAIL