How to scale your manufacturing business

Scaling up your manufacturing business is an essential part of growing a profitable company. However, the manufacturing sector faces a unique scaling challenges that require a strategic approach to processes, planning and implementation to create a sustainable business model.

Kapil Davda discusses the tension between growth and scaling, the risks of falling behind, and how manufacturers can progressively scale their working practices to target long-term, efficient growth and adapt to market changes.

Scaling vs growth

Scaling is a key element of growing any business, to the point that sometimes the terms ‘growth’ and ‘scaling’ are used interchangeably. However, in practice there are subtle differences that dictate how you approach each.

• Growth is an output-focused metric, looking at what your manufacturing business is producing. This could be in terms of production volumes, run rate, customers, warehouse space or revenue – growth is the process of increasing these outputs for the benefit of the business.

• Scaling is an input-focused metric, looking at what needs to be done in order to produce these growth outputs. This can include the number of employees you have, the number of machines you use, the raw materials you buy or the time required to make a particular product.

The act of scaling a business involves regularly re-evaluating existing processes, systems and working practices to ensure that they are able to at least keep up with, if not drive, the growth of the business. This is because a growing business requires a different approach to a smaller operation.

A key example of this in practice is production volumes: in order to increase production capacity by 100%, you could double your amount of machines, or the amount of time you run them. However, these will require more space and more staff, respectively, and at some point you may hit a ceiling on these two resources, preventing your growth.

The answer is to regularly reassess your capabilities in order to ensure that they can continue to enable your growth, without risking profits, customer satisfaction or employee retention.

Scaling challenges in Manufacturing

Scaling a manufacturing business presents several challenges that can limit your growth if not addressed proactively.

Sourcing raw materials or components

Your supply of materials and components is the most basic limiter of your production capacity. It’s essential to ensure that you can not only source enough of these, but also at the right price and time frame. High transport costs and long lead times can eat into your margins or reduce production capacity. Scaling will require risk-proofing your upstream supply chain, via contracts, diversification or transport agreements.

Talent

The next main limiter of your production ability is human resources - ensuring that you have both the right number of people and the right skills. In a tight labour market it may take longer or cost more to hire new staff, risking cutting into your margins or slowing production. Proactive planning requires a long term plan for training and upskilling employees, as well managing retention to minimise hiring needs. Talent can also be augmented with additional technical capacity.

Costs and inflation

Over time, the cost of production is likely to increase. This can either be a steady increase as in the case of general inflation, or spikes in energy prices or commodities due to global events. These increases are difficult to pass on to consumers, so while the latter can be difficult to anticipate, it’s essential to consider mitigation of price increases in your processes. This can include investing in more efficient machinery, regularly reviewing suppliers for competitive pricing and reviewing your pricing in the market in line with competitors.

When is it the right time to scale up

Scaling your operations should always be considered in line with growth. Depending on your planning cycle and market conditions, this may be done in anticipation of growth or on review once growth has happened. Key scenarios to consider scaling your processes include:

• Introducing new products or services

• Adapting to new competition in your market by increasing output or efficiency

• Taking advantage of a new market opportunity

• In line with a regular review of pipeline – if you see business increasing steadily, budget time for scaling in advance

Focus areas of manufacturing scaling

When reviewing your scalability, there are three key areas to consider: your technology, your people and your customers. By proactively assessing your performance in these areas in line with your projected growth you can mitigate some of the challenges described above.

Technology

Technology is a core part of every manufacturing business, but its impact goes well beyond the production process. Given the rapid advances in hardware and software available, I recommend to my clients to regularly review all their processes, both technology and human-based to ensure they’re operating at peak performance. This can include:

• Production: AI tools aren’t just for international manufacturing giants – they can also have a significant impact on production costs and efficiency for smaller businesses too

• Back office processes: Cloud-based technology is now an essential tool for managing data across your organisation, from spending and accounting to business intelligence. Modern software can be integrated across all your core systems, including stock, ERP, budgeting and manufacturing to help you track performance at scale and productivity.

• Marketing and visibility: Compared to marketing strategies used a decade ago, the way manufacturers market their business has changed dramatically. Your clients are increasingly using the online space to research and evaluate their options. As part of the scaling up process, ensure your manufacturing business has invested in a digital marketing strategy or you will be risking not being found by your future customers. With the right digital marketing strategy, and a reliable digital marketing partner, manufacturers can strengthen their brand awareness, differentiate themselves from competitors, create a voice for their brand, and position themselves as experts.

There may also be scope to claim valuable Research and Development tax credits if the manufacturing business is investing in innovation. This can help fund investment in new technology.

People and resources

Despite the technology focus of manufacturing businesses, all your machinery is useless without the right team. Tracking your staff’s performance and managing their needs is a key part of building a scalable business, but it requires careful attention. Key considerations include:

• Staffing strategy: Just as you would match tools to products, it’s important to match the right people to the right processes. Your payroll is one of the biggest contributors to your production costs so making the best use of your team’s skills can help bring down production costs and improve your margins. For more experienced team members, leverage their experience to support newer hires or manage more responsibility.

• Retention and satisfaction: It’s always more expensive to hire new staff than to retain existing team members. Work with your team to build progression pathways that feel rewarding and that balance their needs with those of the business.

• Recruitment: When you bring on new team members, make sure your recruitment policies are setting you up for future success. Balance the short term needs of the business with an idea of how individuals might contribute in future and offer training and technology that can help them grow with the business over time.

Customers

Not all customers are created equal and finding the right audience to sell to is key to building a scalable operation. While many manufacturers just look to sell to as many customers as possible, a strategic approach can yield significant advantages.

• Managing risk: Serving fewer, larger customers is simpler from a production point of view, but leaves you more open to risk a customer leaves. Being reliant on a particular customer can also leave you in a weaker position when negotiating terms and prices. Work to build a mix of customers that provides opportunities for growth and building value-driven relationships.

• Input vs return: While most customers will be paying the same price for your goods, not all will be as valuable as others. Those that bring extra demands, frequently return goods or pay late are actually costing you more in time and stress, and may in the end not be worth their business.

How we can position you for scalable growth

Scaling your business is a unique and exciting challenge, but the right support can make a significant difference in your results. At Haines Watts, our High Wycombe team can help manufacturing businesses move from their first customers to becoming international players.

From cost analysis to assisting with claiming Research and Development tax credits, we partner with you for every step of the way to make sure you’re making the right decisions for your future.

Get in touch with us to find out how you can build processes that grow with your business and set you up for success.