Mega deals and big investment are evidence the manufacturing sector is still very much alive in Yorkshire, even if it is facing the harsh realities of globalisation. Julie Hayes reports.
If recent deals activity is any measure of the health of the region’s manufacturing businesses, it shows they are valued highly.
That US private equity firm Oak Hill Capital Partners bought Sheffield-based forger of engineered steel rings Firth Rixson for £945m in the biggest deal of its type in Yorkshire is one sign of this.
Other multimillion-pound examples include Endless’ £200m purchase of 180-year-old DavyMarkham, bringing it back under local control, and ESS Steel Holdings’ £56m management buyout (MBO). South Yorkshire Investment Fund (SYIF) says it has made 167 investments in the advanced metals, manufacturing and engineering sectors, totalling more than £16m, which accounts for 40 per cent of its total funding.
Manufacturing has traditionally been the lifeblood of the Yorkshire economy and it still accounts for one fifth of the region’s economy, valued by regional development agency Yorkshire Forward at £15.5bn. The RDA also expects this figure to grow 20 per cent to £18.5bn by 2016. Within this it counts the largest concentration of food and drink manufacturers in the UK, worth £2.7bn, more than 450 chemicals manufacturers and one of the largest concentrations of orthopaedic and advanced wound-care product manufacturers.
According to figures from Leeds city council, the city has more than 1,900 companies engaged in different manufacturing activities and employs 39,000 people, representing 9 per cent of the city’s workforce. It is the largest centre outside London for print, publishing and paper manufacture, employing 8,550 people; with 13,550 people employed in specialised engineering; 4,200 in food and drink; 3,100 in furniture manufacture; 2,600 in chemicals; 1,950 in textiles and clothing; and 3,000 people in healthcare technology.
A report into Sheffield’s manufacturing industry, by the city council and the manufacturers’ organisation EEF, says the industry consists of 1,600 businesses employing 29,900 people.
This makes up 12 per cent of all employment, compared with 10.9 per cent nationally, giving Sheffield the highest manufacturing representation among the core cities.
The majority sector in the region is advanced engineering and manufacturing, which accounts for 57.6 per cent of manufacturing employment, with 17,250 people in 820 companies, representing 51.9 per cent of Sheffield’s manufacturing businesses.
The advanced manufacturing and materials sector in the whole of Yorkshire comprises 1,400 companies, employing more than 170,000 people.
South Yorkshire has been recognised as a focal point with the positioning of national resources, such as the National Metals Technology Centre (NAMTEC) research and training organisation and the Advanced Manufacturing Park (AMP).
Chris Scholey, managing director of the AMP, says there is a lot of expertise in the region and the AMP in association with Yorkshire Forward and Renaissance South Yorkshire was built to provide a focal point for the transformation of the sector.
“There is a lot of expertise to build on through the universities and research and development (R&D) organisations, such as NAMTEC, Corus’ Swinden laboratories and other metal development organisations,” he says. “Out of that came the vision for the AMP for companies in the knowledge-based manufacturing sector.”
Businesses from the AMP’s Innovation Technology Centre, created for start ups, growing businesses and R&D operations, have already submitted 18 licences and patents – one a month since it opened.
This level of R&D and the standard of companies resident in the region demonstrates the type of knowledge-based value that can be added to UK manufacturing, and Yorkshire is well placed to capitalise on it.
The region has one of the largest concentrations of universities in Europe, attracting academic research investment worth £347m. R&D investment by higher education is 12 per cent above the European average, with academic R&D accounting for 42 per cent of R&D investment, compared with 20 per cent nationally.
The universities have numerous institutes and research centres that provide collaboration with industry. Sheffield Hallam University’s (SHU) Materials and Engineering Research Institute (MERI) is just of these, and one of its services is consultancy Sheaf Solutions.
It provides computer simulations for companies that may be looking at the effects of setting up, changing or investing in new operations. Sheaf Solutions helped Sheffield Assay Office model the environment in their new premises to enable them to lay the operations out for the most effective workplace.
Nick Farmilo, business development manager at SHU, says the university’s MERI department can also help large and small businesses with coatings, corrosions issues and surface hardness.
“We do more than 200 jobs for industry each year,” he says. “Businesses can access expertise through the university that they would have no hope of retaining on a full-time basis.
“A lot of our best work these days is when people are getting parts in from China and add value by finishing them off here. Often they don’t fully have control of what they’re being supplied with and we can support that.”
One example of this is Sheffield-based The Umbrella Company. Operations director Paul Bimpson says a plastic part they were having made by an associate in China for one of their umbrella frames couldn’t quite stand up to British weather. “We weren’t quite getting the right grade of materials from the Chinese. Nick’s team did some analysis and pointed us in the right direction to the type of materials we should be using, and since then the products have been received well and have been selling strongly,” he says.
But highly technical R&D is not the only way to be innovative. Robin Watson, regional director of the Manufacturing Advisory Service (MAS), says innovating also means making changes in something established. So, as such, any company can innovate. “Very often innovation is perceived as something in the higher level technology area but it is much broader than that,” he says.
“If a company adopts new ideas in terms of production or design, that’s innovative to them.
Innovation can also mean the introduction of new processes and procedures that will improve their efficiency.”
It includes making sure your business model is up to date, which may mean shaking things up in terms of lean manufacturing, supplier relationships and incentivising staff.
Simon Foster, deputy chief executive at the Wakefield-based Redhall Group, which provides niche engineering support services to the sectors including oil, gas and nuclear, says: “Our manufacturing tends to be offered as part of an integrated solution with ongoing maintenance.”
He says it is this type of niche offering that is needed to differentiate companies, which could be easily outpriced by cheaper manufacturing costs in the Far East or Eastern Europe. “It is just not the case that commodity pricing offers the lowest cost,” he says. “If you look at the overall cost of a project, it is not value for money if it has taken 12 months longer to achieve it.”
Andy Makin, sales director for Harrogate-based designer and manufacturer of energy efficient ventilations systems EnviroVent, goes even further to say having tried off-shoring, the best route for his company is to keep manufacturing in Yorkshire.
The company has previously outsourced the manufacturing of component parts but Makin says it didn’t really work for them. “Costs were rising overseas anyway and in Yorkshire we have control of the process,” he says. “We know there are good-quality skills in the labour force, be it in technical or manufacturing positions. We have good links between the business and supply chain, raw materials and logistics. It just makes extreme sense to continue to invest in the base in Harrogate.”
He says although the company made the conscious decision to invest in UK plc, the decision was a commercial one. “By having much of our business close to hand in Yorkshire we can control our manufacturing and don’t have to carry as many finished goods and raw materials, which has had a positive effect on the bottom line,” he says.
But to assist manufacturers remaining in Yorkshire, Sheffield’s Master Cutler and chief executive of Rotherham-based AESSEAL, Gordon Bridge, says the government could do more to ease some of the pressures making conditions hard for manufacturers in the UK.
“Some of the main issues affecting the industry are the price of raw materials and energy,” he says. “But just as important going forward is the security of our energy supply. We are seeing energy rationed in many parts of the world and the government must have a proper energy plan.”
However, it is undeniable that overseas manufacturing has a role to play in enabling Yorkshire businesses to flourish by focusing their efforts on innovation.
Nick Boyd heads KPMG’s consultancy business in the north and says manufacturers have to ask themselves some difficult questions, including: “What is the point of my business?” and: “If I were starting this business today, how would it look?”
He says this means the company must provide something special that others don’t, so there is a specific reason for the customer to stay with it. And if it would not set up manufacturing in a certain market today, it should consider why it is doing so.
He says a two-speed model works well for many companies. “If a company manufactures, for example, bread and butter pumps at a high volume, they could source those from overseas.
Then in Yorkshire they could work with customers on one-off design and build projects and as they can do those locally, they can be very responsive.”
The Umbrella Company makes use of a two-speed model, which enables it to service different customers’ requirements, says Bimpson.
“For larger orders where price is an issue, then Far East factories come into play,” he says. “This tends to be a promotional product – a bulk order for something that is three to four months away, and we have got the lead time to do it. Where somebody is doing a golf day or taking clients to Ascot, they might look at the weather forecast and see that it’s going to rain. So they may need 25 umbrellas in three to four days, which we would manufacture in Yorkshire. We have set up the business to cater for most enquiries.”
And getting the business model correct, as always, includes investing in people.
Watson says the new era of manufacturing needs to bring with it a change in perceptions as to the conditions in the industry and its career prospects. He says: “Engineering and manufacturing are often seen as the poor relation of other career routes. That clearly needs addressing as we are seeing an increasing skills shortage in the manufacturing industry at production level and management level.
We need to educate people, even at the school stage, as to the potential opportunities and careers that are available in manufacturing. We also need to make sure that the practical and relevant courses are available to support that skills development and as people progress through their career in manufacturing.”
And it is in this area where MAS and the University of Leeds have identified a gap and conceived the Masters in manufacturing leadership, specifically for the managers of manufacturing companies.
Professor Richard Thorpe, deputy director of the Keyworth Institute at the Universiy of Leeds, says the course will cover the conceptual understanding of the issues the manufacturing industry is facing, particularly globalisation and internationalisation, international supply chains and strategic management. And from the start of the three-year course managers are required to identify projects and models they could work on in their own business.
“There are many companies that are only now responding to some of these agendas, which have been around for several years such as lean manufacturing,” he says. “If they’re not doing that or thinking about implementing that now then it’s probably almost too late. We’re trying to get them to think about the ways in which the business adds value, particularly linked to aspects of the knowledge economy.”
Scholey, at the AMP, says the knowledge-based manufacturing at the AMP attracts young talent because it defies the perceptions of a dirty and declining industry. “People are coming from all over the world to witness the new manufacturing in South Yorkshire,” he says. “That is allowing us to keep some of the graduates from Sheffield’s two universities in the region.
“In particular, once the Factory of the Future is up to full speed there will be about 120 people working there. About half of those will be Phd students or working towards them – the other half will be graduates.”