Why does Baxall still make printed circuit boards for its world-leading CCTV cameras at its bursting-at-the-seams Stockport plant instead of in China, as most firms in its position do? MD Dominic Oughton doesn't hesitate: 'Our labour cost is 7% of sales - it would cost us that in freight and duty to bring boards from China, even if they cost nothing. So the first answer is that we can.
'Second, we design for manufacture. Direct feedback from the factory to development gives us a tremendous ratchet upwards. What we'd gain in cost we'd lose several times over in the direct contact we have between engineers and manufacturing. Third, our key differentiator is rate of innovation. Even though we're running at high volumes, we can easily slot prototyping into the manufacturing process.'
In other words, far from being a handicap, Baxall's UK manufacturing base is critical to its success. This contradicts the conventional wisdom that the UK can't both develop and make high-tech products. Unfashionably, vertical integration is an essential element of its business model, enabling it to maintain a unique and profitable niche between the big-name brands (JVC, Panasonic) and the anonymous commodity suppliers of Taiwan. Perfectionist design and manufacturing ability is also an essential part of sophisticated partnership relationships with some of the biggest US system suppliers, which provide a vital route to market. Baxall raises other intriguing issues.
Originally a buy-out from a plc, it is now largely venture-capital owned. Yet 'they are less short-termist than the plc regime,' says Oughton, noting that today's profitability could have been achieved two years ago if the firm had done less R&D and invested less in people.
But these are the heart of the Baxall operation. The R&D spend - 10% of revenues, an astronomical figure in UK terms - may come down a bit, but the aim is always to stay ahead of the game: Baxall consistently turns new technology from partners such as Sony into new products faster than they do. As for people, 'It's so competitive out there that we need to use the intelligence and energy of everyone on the site,' notes manufacturing director Ray Hemmings.
Of course, the board wants to see a return on the cost of training and support for improvement initiatives. That now comes in increased yields and quality, to everyone's benefit: operators earn more as they gain skills, (equal for all) profit shares, while the firm stays competitive. Last year it found an extra pounds 400,000 in cost savings; this year there will be more as teams learn to tackle bigger process improvements.
Last year, Baxall re-organised three-quarters of its factory. Next year it launches several different product lines, almost doubling monthly output to 28,000 units in a space that used to turn out 3,000. Cutting throughput times, overhead and work-in-progress while maintaining overall margins is the most testing examination yet of Baxall's ability to design for manufacture, as well as a major test of workforce flexibility. The company knows exactly what it has to do to become truly world-class.
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