Exporters to UK struggling with threats to margins should get Lean

The UK’s vote to leave the EU has thrown up a variety of challenges for Irish business. With the potential for previously reliable margins becoming squeezed by a fall in sterling, making your company more efficient is a useful way of maintaining profitability in the British market.

The referendum outcome also presents opportunities. Sterling volatility and, potentially, tariffs and other trade barriers further down the line, could undermine UK competitors’ cost-base and supply chain which could be favourable to Irish exporters to Britain.

Either way, Irish companies should now be reassessing their competitiveness in preparation for possible changes to their position in the UK market.

At Enterprise Ireland we work with clients to help them increase performance using what are called ‘lean’ tools and techniques. Savings of up to €750,000 annually have been achieved through these processes.

Lean principles were first developed by Toyota in Japan in the 1950s to make production processes more time- and cost-efficient. While first developed for manufacturing, ‘lean’ tools are now used widely in services in the private and public sectors. They are applied throughout an organisation’s entire value chain with the aim of producing a better offering to the customer at a better price or better margin.

Product development and design, purchasing, manufacturing, administration, logistics and sales come under review with the aim of working more efficiently from the shop floor, to the boardroom, to the point of delivery and after-sales service.

Management philosophy, workforce culture and human resource development can also be approached using ‘lean’ principles.

In carrying out an assessment of your business, be sure the following five questions can be answered:

  • What are you doing?,
  • How are you doing it?,
  • Why are you doing it?,
  • Who is going to improve it? and
  • When?

There are three key areas of focus in developing a lean business – time, money and effort.

Examine how long it takes to carry out particular tasks and analyse the value and need for every element involved. Use money as a metric for identifying wastage and putting a value on issues, problems and delays.

Wastage is a key area for identifying savings. Declare war on waste. Taichi Ohno of Toyota is credited with identifying the “seven wastes” – defective service, over production, inventory, motion, processing, transportation and waiting.

Today we recognise a significant eighth waste – people (that is, not utilising their capabilities to improve the business).

There are many more types of waste than the core eight – and there is some variation between manufacturing and service businesses, but these are a good starting point on a lean journey to competitiveness.

When implementing a lean programme, it should be achievable within a reasonable time-scale and challenging enough for all involved to feel the process was worthwhile.

Enterprise Ireland’s lean programmes have helped companies in sectors such as agri-business, manufacturing, engineering, and services to improve their competitive position.

For instance, in food processing, a Dublin-based firm saved €58,000 on raw materials; a Co Tipperary company increased line productivity by 16%; and in Co Kilkenny a firm upped productivity by 20%.

In other sectors, a drinks company achieved annual savings of €750,000; and among the many manufacturing businesses who engaged lean tools to improve their competitiveness, savings of €200,000 were achieved.

All companies should consider implementing lean processes to improve their competitiveness, especially those whose margins could be squeezed by the outcome of the UK referendum.

Prof Richard Keegan is manager at Enterprise Ireland’s competitiveness department