22 November 2011
UK's contract electronics manufacturers seeing strong order books
The impression given by a range of national media is that UK manufacturing, in general, is on the ropes. But when it comes to the electronics sector, nothing could be farther from the truth; certainly in the opinion of Phil Inness, chairman of the Electronic Manufacturing Services Association (EMSA) group within trade association Intellect and managing director of Bedford based manufacturer Axis Electronics.
He believes the UK contract electronics market is probably worth £1.4billion a year. "The market is in pretty good shape," he observed, "and is certainly growing in excess of 5% a year." In his role as EMSA chair, he sits down on a quarterly basis with the members to see how things are going. "Most companies are positive," he reported, "and have been for the last year. As far as we can tell, order books are as strong as they have ever been." The one potential dark cloud on the horizon is a decline in business. "Some comments were made at our last meeting about a 'softening' in demand, but those companies have been unable to quantify their feeling."
The performance of the UK's contract manufacturing sector is encouraging, given the degree of offshoring which has taken place over the last decade. "There has been a mass migration of work offshore in the last 10 years," Inness noted. "Some of this should have gone overseas without question," he accepted, "while some should not have, but did. Companies now realise that offshoring isn't going to be a fix for all evils and there is much cleverer decision making today."
The challenge of offshoring has seen the UK EMS sector improving its efficiency in the last five years, Inness believes. "There are now a lot of good companies that can do a good job at a good price," he asserted. "When you compare that to the risks involved in offshoring, it makes sense to keep the work here in the UK."
Inness reflected that many companies jumped on the offshoring bandwagon without giving the move enough thought. "They may have realised certain savings, but then ended up with obsolete stock or found the work was wrong and had to be put right, with all the time delays involved. Now, there's smarter procurement; if someone wants 73 units, they can order 73 units from a UK company and have no wastage. If you go offshore, you may have to order 100 units or more to get the price breaks."
He sees three distinct bands of EMS business. "At one extreme, there's high volume consumer. At the other, low volume, high reliability. And in the middle is a large amount of business up for grabs."
Vying for this business are some 250 companies, broadly grouped into four bands. "There are the multinational names," Inness said, "then 10 companies or so turning over roughly £50million a year. Below them is a group of probably 50 or 60 companies doing between £5m and £20m a year, then the rest."
In general, said Inness, the UK's EMS sector is recruiting and investing. "Companies continue to invest in new production equipment. As technology changes, they have to keep up and the industry, as a whole, is much closer to the leading edge than it has been and more capable of responding to customers' needs."
With the technology in place, Inness believes that EMS companies don't necessarily have to sell. "It's all about giving the customer what they need so they can sell their products on the global market. They want top quality products made as quickly as possible at a competitive price."
With new markets opening up, Inness believes it's a good time for the UK EMS sector. "Renewable energy is bringing opportunities, as is wireless technology. I'm also hearing good stories about medical, but I have yet to see anything of substance." Underpinning everything, however, is the traditional strength of the aerospace and defence sector. He described business here as revolving around 'a basket of products, some of which have been around for ages'. "But there is leading edge business emerging and a lot of embedded computing." Even so, he believes companies still need to be 'clever'. "There's a range of requirements which need to be met in order to get business from new customers."
One item on the agenda at the next meeting of EMSA may well be trying to improve the sector's visibility within Intellect. Although one of Intellect's groups, EMSA is not always immediately obvious to Intellect members. "Intellect has a large membership," Inness pointed out, "and we want to get more benefit from those companies." He also noted that, during the last six months, EMSA has been working more closely with Intellect's PCB Manufacturing Group.
As far as Axis Electronics is concerned, business is good. "We grew revenues by 50% in our last financial year and are 20% ahead of the same time last year," Inness said. "There's a strong order book across all sectors and what's driving this is customers we got involved with a couple of years ago placing business."
Headcount is also growing. "We are now around 160 people," he continued, "which is almost double that of 18 months ago." Yet Inness admits that getting the top quality people needed to run the business remains a challenge.
Here, he suggests the Government could do more to help by providing tax credits against training costs. "People are losing their jobs in the public sector and we're struggling to get skilled employees. Let's get some support to help us retrain them."
Business is also growing through making better use of existing equipment, including additional manufacturing shifts. "But we're also boosting our security classification and the additional services we offer – such as microelectronics design, conformal coating, environmental screening and product repair – are making meaningful contributions." Axis is also 'pushing hard' on the SC21 defence supply chain initiative.
But, like small businesses around the country, Axis faces the challenge of making changes and growing at the same time. "Trying to overlay business improvement is challenging," Inness admitted.
Inness' recipe for contract manufacturing success is to invest in technology and people and to have the right processes. "You have to look after all three," he contended. He acknowledges this involves climbing a learning curve. "Successful companies are following the principles," he noted, "while some aren't, but will get there." His worry is that some companies will not. "They will go 'pop'," he believes, "but there won't be too many of them."
Neither has Axis had problems in getting access to the money it needs to expand. "Few members of EMSA have complained about the lack of access to funds. Banks have the money," Inness believed, "and it's a great time for EMS companies to invest."
Now, having broadly put its house in order, it seems UK companies are beginning to win high volume manufacturing contracts that, only recently, would have been placed in the Far East without second thought. How times change.