Decline in manufacturing: the pressure is on
October 1st 2007

The decline in the UK's manufacturing industry has undoubtedly contributed to the number of medium-sized transport and distribution companies going into liquidation.

Meachers Group Holdings commercial manager, Gary Whittle MILT, explores the implications for hauliers in the future

Despite a recent mini resurgence, the proportion of gross domestic product provided by manufacturing has been on a downward trend since the 1960s. In the 1960s it accounted for onethird of the economy's total output, but by the new millennium was less than one-fifth.

The removal of trade barriers and the globalisation of companies and markets in recent years have led to intensification of international competition. This, combined with a drive for greater efficiency and cost savings, technological improvements and new manufacturing techniques, has contributed to large-scale production shifting away from the UK to lower cost countries.

This momentum has undoubtedly affected medium-sized hauliers geographically, as companies close factories and transfer production to the emerging markets of South East Asia, the Far East and Latin America.

Together with the expansion of the leading logistics companies, which are often medium-sized companies' largest customers, this has resulted in SMEs floundering and desperately undercutting prices in the hope of staying afloat.

Many medium-sized hauliers believe manufacturing will reignite within two years and are keeping their companies ticking over until this happens. However, according to Professor Joe Ellis, The Economics Group: 'Manufacturing in the UK will focus more and more on knowledge-intensive activities such as product design, while outsourcing physical production to developing countries.' With markets and skills lost, it is safe to say that those hauliers waiting for the decline in manufacturing to be reversed may well be waiting for a very, very long time.

Changing mindset Many medium-sized hauliers have accepted the decline in manufacturing as a fact of life and have taken measures to consolidate their position. This has involved restructuring the company and selling off commercial interests that are not part of their core business. Other companies, such as Meachers Group Holdings, have decided to link up with similarly minded enterprises to form consortiums. In this way they are in a position to offer 3PL services and are therefore able to meet the large logistic companies head on. Such a turnaround in operating procedures has resulted in a total change of mindset among many mediumsized haulage companies.

Organisations such as LinQ Alliance operate a local management team and are able to pass on cost savings from reduced administration overheads, as well as providing efficient decision-making in an appropriate reaction time. This approach also allows synergies between multiple fleets and services to be identified, offering a single, integrated solution. Thus medium-sized hauliers can provide customers with greater geographical cover, specialist warehousing or additional value-added services.

By integrating competencies successfully, 3PL companies are producing a unique and holistic approach to supply chain management that provides their customers with many key benefits. One of the most notable changes resulting from the setting up of consortiums is the decision amongst members to exchange information.

Previously this was totally unheard of within the transport industry.

Medium-sized transport companies are also diversifying by providing customers with add-on services that incorporate freight forwarding, bulk and break storage, processing, stock management, labelling, pick and pack and inventory control. In this way, they can sign long-term contracts as total outsourced solution providers.

Integrated supply chain solutions are increasingly being sought by global corporations savvy to the benefits of an endto- end supply chain approach. Many logistics companies are now specialising in a specific industry, such as pharmaceutical or technology. Such firms offer a wide range of outsourced services to meet these specialist industries needs. Services can range from specialist warehousing to bulk pallet storage, pick/pack, kitting and assembly to fulfilment.

According to global management consulting firm A T Kearney's latest Assessment of Excellence in Procurement, the dramatic increase in the sourcing of goods and services from low-cost supply markets such as China has not, to date, been matched by growth in the knowledge and understanding of these markets. The study of procurement practices at 275 international companies, the largest and most comprehensive global procurement study conducted to date, found that only 53% had implemented strategies that indicated a clear understanding of the logistics supply chain and costs associated with emerging market alternatives. This lack of knowledge provides an opening for entrepreneurial companies to fulfil these needs.

In conclusion The fact that an increasing level of manufacturing is now sourced overseas means that global transportation has to undergo a revolution in technique, methods and functions in a quest for lower costs and increased profits to meet these changes. The rather uncomplicated business of transporting shipments from Point A to Point B has been transformed into a complicated network of logistics, supply chain management, Just-in-Time delivery and outsourcing. To meet these requirements medium-sized transport companies have to rethink their products totally to provide companies with integrated freight solutions.

More articles from Meachers Group Holdings Ltd: