Lessons in diversification: saving manufacturers
Can diversification save manufacturers? Interflex Managing Director, Jim Griffin, thinks so. But only if it’s done the right way - and there are many pitfalls you want to avoid along the way. With over 30 years’ experience working in the manufacturing industry, Jim is no stranger to a crisis. Having led his previous company through the challenges of the 2008 recession through a programme of investment and identifying new markets, he is repeating that process through diversification. Jim shares his experience of leading Interflex into a completely new sector – manufacturing PPE.
I’ve worked in the automotive manufacturing industry for over three decades and have experienced many ups and downs – although nothing on this all-encompassing scale. However, if there is one lesson I have learned, it’s the folly of putting all your eggs in one basket, whether that be suppliers, markets, customers or products. It pays to diversify in all these areas where possible.
Spotting a gap in the market
Our company manufactures automotive trim and NVH components to reduce the impact of air, water, dust and noise in vehicles, working mainly with Original Equipment Manufacturers (OEMs) and Tier 1 and 2 suppliers in the automotive sector. When COVID-19 and the lockdown hit, vehicle manufacturing completely shut down, so I knew we had to think long term and to look at where the manufacturing need was. It was well-publicised at the time that there was a serious shortage of personal protective equipment (PPE). With the skills and manufacturing space that we had access to at that time, this seemed an obvious choice.
However, I also knew from experience that diversification is rarely straightforward. Fortunately, I’m no stranger to entering different markets and setting up new production lines, having expanded into the flooring sector and the automotive markets in Sweden, India and Germany as CEO of my previous company. However, this time the conditions were different: successful diversification should be carefully planned, but in the case of COVID-19, there was very little time to research suppliers and markets in the way that I would always advise others to do.
Making sound decisions for the business
Even in the midst of a crisis, it’s important to make logical business decisions, rather than being driven by panic or desperation. So, although unable to follow the thorough process that we would normally pursue when considering diversification, there were still certain steps that we made sure we adhered to.
The first stage was taking stock of our strategic assets - the resources we had, both human and technical and our strengths as a company. As manufacturers of sealing solutions, we had a lot of machines at our disposal that could be fairly easily adapted to manufacture other products. We had experienced staff able to operate them and adapt their skills to make other products. We also had ample space for storage and production, plus our location in the East Midlands has always been advantageous in terms of offering great transport links around the UK. This meant that we had relatively flexible capability suitable for a range of materials manufacturing.
Although there was an obvious gap for manufacturing PPE within the market, we did look at other options to ensure that we weren’t making a knee jerk decision. However, even with limited time for research, as convertors of materials, PPE production was a great fit for both our personnel's skills and our existing equipment.
Because of the time pressures to get production up and running, even with the support of the government furlough scheme, the important financial calculations and projections involving areas such as analyses of sales figures and projections and identifying the most profitable products and customers was cursory at best. Other areas that would usually be considered essential such as ensuring a balanced portfolio of clients and a robust sales pipeline were also sacrificed in the need to set up a production line quickly.
Meeting logistical challenges
We decided that it would be better to carry out production of PPE under a sub brand, and so the daughter company of Pinnacle was created. Ironically, this proved to be more complex than setting up a whole new production line. In fact, setting up the factory was a relatively simple task - although it did require an investment in some specialised machinery from China. This was modified to ensure that all the PPE met the UK’s rigorous healthy and safety standards. Diversification without investment is almost always destined to fail and so finding cash to invest in the PPE side of the business was essential – and challenging.
In addition, due to the speed of the changing situation, we had to learn about new products and a whole different set of customer expectations almost overnight. We had no existing contacts and initially it was difficult to source the right materials and ensure that we had a good ongoing supply in a market that we were unfamiliar with. However, as automotive supply chains tend to be complex, we already had lots of expertise in this area.
Letting customers know who you are
We weren’t alone in diversifying into PPE and so we needed to make ourselves known within the market. This was helped significantly when BBC news ran a story about our potential for making PPE. Featuring as a main story on the national evening news was incredibly powerful and suddenly the phones started ringing.
Reaching the end of the calendar year provides the opportunity to look back and reflect on the nine-month process. There were certainly some mistakes, largely due to the pressure of the situation, but also many successes. In fact, diversification has not only kept the company afloat, but has placed us in a very promising trading position for 2021.
Our customer base is growing through active marketing and an online shop as well as through PR and networking. There is still more to be learned about the market and our customers, but one of the most meaningful markers of the success of diversification is the fact that we were able to bring all our staff back from furlough by May because we had filled the gap in our business with PPE work. With all our employees back working on site, the automotive business is currently operating at 50% of its normal levels, with the PPE manufacturing operation supporting the other 50% of the business.
Learning your lesson
It was a steep learning curve and at times I did wonder if we were doing the right thing. So, if I had three key pieces of advice to companies looking to diversify it would be these:
1. If time allows, do your homework.
Research the market, products, supply chains and potential customers. Talk to people already in the sector you want to go into and join the industry associations.
2. Be prepared for setbacks but keep moving forward.
Team buy-in is essential, so ensure that you maintain a positive approach even when you have doubts.
3. Don’t neglect your core business.
There’s a reason why it’s your core business - so make sure it receives your attention. You don’t want to create success on the back of defeat.
Although not the ideal conditions in which to diversify, I believe that the company has ultimately become stronger because of it, which is particularly important in the precarious economic times that we find ourselves in.
Having two well-established and very different production streams operating in two different markets certainly places us in a more secure position. The signs are promising for a good year, and as we have come to understand the market more, new viable long term business opportunities are becoming apparent.
Ultimately, diversification has given us much needed flexibility and a greater market reach that bodes well for 2021 and beyond.
Jim Griffin is Managing Director of automotive parts manufacturer Interflex. Jim has over three decades of experience working in the automotive insulation industry. He has been shortlisted for the Guardian Small Business Leader of the Year and has also won the EEF Manufacturing Champion for the Midlands award. Jim has been awarded a Visiting Industrial Fellowship by Aston Business School in recognition of his contribution to business growth and entrepreneurship. He has also served as Vice Chair of the West Midlands branch of the EEF.