Episode 73 - Driving productivity through purpose

Quentin Cole: Welcome to the Business in Focus podcast. I'm Quentin Cole, head of industries at PwC and member of our UK management board. And I'm back to host another episode where we'll be talking about some of the trends we're seeing across the business world. This time we're going to be looking specifically at industrial manufacturing and in particular how brand and a clear purpose can drive growth. We're also going to look at the increasing role of technology and automation within that and overcoming some of the challenges around building and retaining a skilled workforce. Joining me today are Steve Warren, managing director at UK bed manufacturer, Sleepeezee. And Cara Haffey, PwC UK Industrial Manufacturing Sector Leader here at PwC. Welcome to you both.

Steve Warren: It's great to be here.

Cara Haffey: Quentin, good to be here.

Quentin: So, let's get into the first question to get the conversation going. I guess when a lot of us think of the industrial manufacturing sector and the stories that we read in the news over the last few years we immediately think of Brexit, Covid lockdowns and of course, more recently, the Ukraine war and the impact that it's having on your particular sector. Steve, I guess the first question to you is, is this upheaval still dominating the industrial manufacturing landscape in the UK?

Steve: I think that it's not now, but that's just very recently started to calm down. So, during Covid itself that was a nightmare scenario for the whole of our supply chain where we saw capacity reduced, demands spiked and then we saw shortages in commodities and raw materials which affected the secondary component suppliers. We're seeing a lot more stability now in our purchasing strategy, we had it pre-Covid and we've got it post-Covid. We try and have at least two suppliers for each commodity and each component that's supplied. And we give the majority of the supply to one of those suppliers, around about 70% of production to one of those suppliers. And what we saw during Covid was that loyalty, and some of our suppliers have been with us for decades, that loyalty was actually fed back to us because we got preference over a lot of other manufacturers that had jumped supply around. So, we've worked that into more formal relationships with quite a few of our suppliers and we turn it into real, proper strategic relationships with our supply base.

Quentin: So, Steve, just exploring that a little bit further, would you say therefore the value and the strength of relationship has overcome cost pressure and pricing?

Steve: Absolutely. I mean our costs still went up enormously, certainly in the two years of Covid and then again at the start of the Ukraine war. But for us it isn't just about buying on price, on cost. Because for us we're a relatively small manufacturing business and we like to use all that space to actually add value to our products and make products. So, we don't really want to keep a lot of stocks of raw materials around. So, for us, just in time deliveries, quality of components, innovation in a supply base, are as equally as important as just a cost driven commodity.

Quentin: It's fantastic to get your insights around your organisation. But perhaps, Cara, just turning to you for a moment, given that context of upheaval, what are your views on this? Is Sleepeezee representative of what you see across the sector? Or are you seeing different organisations, perhaps different sizes of organisations, approaching these challenges differently?

Cara: I think it's really interesting. I think we're definitely seeing similar reactions. I think, as Steve said, you know, people who've been able to work through it or people who are able to talk to their suppliers have worked with them over many, many years and there's a real trust in that relationship. You know, clearly if you're supplying product or supplying components at the minute, you know, over the last two years you've had to put prices up a number of times. A lot of our clients in the manufacturing sector were so used to doing, like, annual price reviews and actually a few of them have had to do that, you know, once, twice, three times over particularly the last eighteen months. So, that was really uncomfortable for them because they worried that they would lose customers from that and, some of them I'm sure have. But actually it was something they had to do to shore up their business and to make sure they were doing the right thing for their family business or for their shareholders in a corporate context. So, I'd say similar things. I think what has come, and, you know, Steve and everything they've done at Sleepeezee goes to this, which is still focusing on the quality of the inputs. And really looking at making sure that they continue to build their product in the way they want to build it and do as much as they can around the current supply base and not just chop and change but keep that loyalty. And I wonder, Steve, it's interesting because what you've done on keeping that really quality product and how you've worked with your suppliers on that is maybe something you want to touch on. Because I'm really fascinated about how you've done that internationally but also with some of the local supply.

Steve: I think you've got to go back to what we started doing with Sleepeezee probably four years ago, is developing a brand to be more consumer facing. But also to be proud of what we do and to be very public about the things that we are doing. And once you do that you've got to make sure that you can rely on everything that your product stands for. It's the product itself, the quality of the product itself, the delivery, the lead times. So, we choose our suppliers very carefully and we're really proud of them and we're really proud of the developments that we've done. So, we use Bromley wool, for example. And we've got a bed that uses campaigns for real wool which is part of His Royal Highness, the Prince of Wales' charity organisation. We only just touched on export probably three years ago and we've started to develop our export side of the business. And really if you think of the normal Sleepeezee brand we go from mid-range beds up to premium products. On the export side, to make it worth everybody's while, it's got to focus on that premium end of the market. And we rely heavily on our heritage and we've been going now for 99 years as a business. It's coming up to our centenary next year. And, also, we've been proud holders of a Royal Warrant since 1963. And we're currently trading in Germany, Benelux and South Korea, which is a new contract that we've opened two years ago.

Quentin: That's fantastic. Cara, perhaps you could just give your reflections on the complexity that others find around exporting and some of your reflections on what Steve's just said.

Cara: Yes. No, I think it's something that we're always talking to clients about and actually, you know, particularly after the UK left Europe that piece about how do we get export? And when you're looking for growth, you know, it's quite difficult, as Steve always reminds me, about the size of your transportation of what you're transporting around the world. And actually if you look at what the business has done in terms of its focus on ESG it's also very focused on actually what are the products that you can do that with and it makes sense. And that's key. And, you know, I think actually what the business is doing really really well at the minute is that piece on focusing on the high end. You know, where does that brand really travel well? And put a lot of emphasis on that into-, you know, Sleepeezee's products are in the hotel market, you know, some of the real innovation that's come through in the bedding and manufacturing of mattresses. So, just really interesting to see how that then can be sold into the market and sold on the back of a brand. And everything that is there from the heritage and it's been about the business for an awfully long time. The other thing I was just going to move onto was actually just getting Steve to comment on some of the pieces around what you've done in the workforce and the social mobility aspects that are there. But, Quentin, maybe you had another question on export?

Quentin: Actually I was interested in a similar line really. The balance between retaining your heritage and all that that stands for but also how you fuse into that modern technologies use of social media in your marketing. How do those, sort of, old and new combine, Steve, for you?

Steve: That's a great question and I describe our business as we're modern traditionalists. We want to make sure that the product that we give to our customers is the best that it can be and using handcrafting techniques. If you ever come round the factory you'll see a lot of hand side stitching, hand tufting, tape edging but we still have to remain competitive and we still have to remain very modern. So, what we try and do is on the shop floor, it starts with a really good computer system because we're a made to order business. So, we hold no stock of finished product. So, we're continually having to plan the workload just through the shop floor. So, the supervisors are planning on the system hourly and we've got to make sure we know where every single product is in that supply chain just on our shop floor as well. Because the worst thing for us is getting a distribution load together and not having the product there to make that load at that specified time. So, the computer system is where it starts but generally in terms of our automation we have to be very careful, when we introduce any machinery, that it doesn't detract from the overall product quality. So, we tend to automate the simpler things and we still leave the finished side of the mattress, the hand finishing, to the craftsmen and to the upholsterers in the business. So, yes, modern traditionalists. I'm not sure whether it's a phrase that will fly but that's what we've described ourselves as.

Quentin: It's a great expression. Just on the computer system and the technology, you know, all of which takes investment and capital expenditure, is this a journey that you'd been on prior to Covid in terms of equipping your business for that? Or is this something that perhaps in the last few years you've had to double down your effort and your expenditure into, so that you can maintain that competitive edge?

Steve: A mixture of both really. So, eight years ago when I joined the business we didn't even barcode scan onto lorries, onto trucks, and now we barcode scan all the way through the process. And it's not just doing the barcode scanning, it's using the information that it gives you in a way in which the supervisors can be more effective. So, we're getting those real time feeds and we've got screens all over the place, so we can see where the loads are being collated during the production process. And we've taken a basic product and then bespoked it in terms of the IT support, so that it's suitable for our business and suitable for our application.

Quentin: That's fantastic. Cara, just turning to you for a moment, and listening to Steve talk about that fusion of technology and heritage and of course the need for productivity. So, you and the team are often talking about productivity in the sector. What are you seeing more broadly in industrial manufacturing and also how does the Sleepeezee story, sort of, compare to what you're seeing other organisations going through?

Cara: Yes. Productivity we're talking about a lot at the moment and I suppose why is that? I think a lot of it comes from the fact that the UK is still behind other European countries in its productivity levels. And I think, you know, unfortunately it's disappointing and it can actually shock people to see the difference. You know, some of that comes to how we use labour and also really being thoughtful about, like, digitalisation and where are we putting technology with labour. I think what I've seen at Sleepeezee is that real balance coming into play, which I really like. Which is where automation and computer technology can be used, then it is, but alongside the heritage and the handcraft nature and getting that balance right. I'm sure, Steve, your productivity's quite interesting in that balance. But I think for me the thing that we've seen in the productivity index is also about how open leaders and management teams are for change and for thinking about learning from others. And, again, Steve, I'm sure you'll touch on this, from your time you've made a lot of changes in the business since you came in. And actually have a really engaged and motivated workforce now that are proud of what the changes are making. And I think for me that's really key to productivity because actually, you know, respectfully, the best people to know what's happening are the ones doing it and actually getting that real ecosystem about people feeling like they can make changes and be empowered to do that, to be motivated for that, is really exciting. And I think some people fear that but actually once they start and people get the view that, 'Oh, actually. This is a business that does want to do that well,' then it can be really, really exciting. And some other of my clients are on that trail at the moment and actually thinking of getting that motivation in their staff for making them think about productivity. And that's not just all about how they change their labour and fear the consequences of that. But actually how that can be better for growing the business, and actually getting more product and more growth and different products. So, that for me is the balance at the moment but that openness to learning from others and openness to management is really interesting. But, Steve, I know you've had that as well, as people have really fed back to you about what other products you could be doing and how you're doing things and even how you've set out on the shop floor.

Steve: Yes. Well, for us if you don't listen to the people that are actually making the products you won't survive very long because they're the guys that's doing it day-in, day-out. So, our manufacturing manager has been with the business over 30 years and he's been promoted from the shop floor upwards. So, we really believe in growing our own in Sleepeezee and even more so because I think there's a trend that a lot of people don't want to do manual jobs anymore and I'm seeing that quite a lot. So, five years ago, for example, we were paying minimum wage and now, in the past five years, we've gradually increased. So, we've pulled away from that minimum wage. Not a lot but enough to make it more attractive to work here. And we've also looked at the softer benefits that we give people. Extra days holiday, which we did this year, uniforms, water bottles, a better canteen facility, fresh fruit twice a week that we give to the shop floor now. So, it's really trying to be a little bit different from everybody. And retention of staff for us is a major thing because we're not surrounded by other bed businesses. So, we have to put a lot of time and effort into training people to do these craftsmen's jobs and the last thing we want is for them to leave for an extra twenty pence per hour to go to another business. So, we try and be as open as we can with our staff. We've now developed a staff forum as well, so the staff can openly talk to me at any time they want to.

Quentin: I really love that approach around both attracting people to the organisation but also retaining them. Do you find when it comes to, sort of, finding your workforce that you could lose people to other industries, as opposed to within industrial manufacturing type organisations? I mean there's so much in technology these days that are people actually in danger of choosing a career outside of industrial manufacturing? And therefore you're having to, sort of, tap into them quite early, maybe at school or just after leaving school.

Steve: Yes. No, I think you're exactly right, Quentin. And our HR manager's just embarked on a tour of schools in the area to try and promote Sleepeezee. And, you know, we've had, I think, four or five work experience pupils in the past year come and look at Sleepeezee. So, I think people are more attracted to other industries. They're attracted to social media, etc. So, we try and be relevant and we've got Instagram pages, Facebook pages, we're all over social media as well. But, yes, I think it's a danger and I think they will go out of the industrial manufacturing sector. That's why we have to be quite clever in the way that we use manual work and manual workers and we've got to make those tasks as interesting as possible.

Quentin: Yes. No, that's great. Just changing tack for a moment to sustainability. I guess industrial manufacturing, sustainability, you know, clearly always in the public eye around the right things being done for the environment. Perhaps I'll turn to you, Cara, firstly. Any, sort of, reflections on decarbonisation across industrial manufacturing organisations? What trends are you seeing and what's changed over the last couple of years in that place?

Cara: Yes. We're definitely seeing a real focus on decarbonisation in each of our client base and I think that comes at different aspects. I think a lot of our clients have looked at that from their own point of view. So, you know, how do they do something differently within their own business? I think what we've got now is a really exciting place where actually green products, so the consumer desire for having products that are better for the environment, is a really interesting opportunity for a lot of my clients as they think about, 'Actually, what does the consumer of the future want to buy?'. And some of that is actually, you know, do they buy less but buy better quality? And actually, you know, how does that decision happen? And, you know, I think there's still an awful lot of cost pressure on the consumer. Clearly, the cost of living crisis, you know, is a real massive piece but how do you balance that with doing the right thing? And that's something that certainly our clients are looking at. You know, what are those products that people will want to buy? How do we cope with the future? So, what are those climate products, flooding products, unfortunately? You know, so really interesting places there of new growth opportunities but also how do they live out what they want their company to be? And, Steve, I know you've done your own things within your business of how you've looked at your own carbon footprint and I know it's something you've monitored. So, you might want to just touch on that.

Steve: We've held the Royal Warrant of His Royal Highness, the Prince of Wales, who is now the King, since 1985 continually and you have to reapply for a Royal Warrant every three to five years. So, when I first got involved with Sleepeezee eight years ago we had to go through the application process. And some of the things that we had to answer in that sustainability questionnaire made us really rethink our strategy on the business because they were touching on areas that we previously hadn't even tackled. So, thankfully we retained the Royal Warrant and we got through that but we used that almost to start our strategy of becoming a carbon neutral business. And as an industry as a whole we struggle with our image because when you go past any fly-tipping site typically you'll see a mattress on a corner. So, the industry as a whole needs to embrace this and pretty much we have. So, we've been send zero to landfill since 2012, we've been carbon neutral since 2017, we were awarded the Planet Mark for our environmental and sustainability work, which is the first bed manufacturing business to be awarded that, in 2019. And in 2021, during Covid, when money was tight, we only did two capital expense projects. And one of those was fitting solar panels to our factory roof, 591 solar panels to our factory roof, which we weren't aware the energy crisis was coming up but it makes us look like visionaries there. But we did it for the carbon saving that it would give us and we supply 25% of our own energy. And the management team all voted on the two capital projects they wanted to spend and that was one of them. So, for us you have to embrace the ESG and all of its forms or you won't be around.

Quentin: Steve, you've had some fantastic results there. Just say a little bit more about how difficult has it actually been as a management team to design and execute some of those changes and priorities around sustainability and the environment?

Steve: I think once you accept the fact that you have to change, then I think it's easy. But getting the management team to accept that fact actually wasn't too tough a task because I'm blessed with a great team around me and they are very modern in their thinking. And when something feels right then it's easy to get behind it as a management team. I think some of the harder things are designing products that are meant to last for quite a long time, which Sleepeezee products do, but also need to be recyclable at the end of that period. That's really the trick that our industry faces and that's where, you know, we have to use-, so we've got a range that uses totally natural materials. And we're trying to develop things that are chemical free, for example, both us, as a business, and us, as an industry. And that's the real tricky thing where we try to recycle a mattress that you've made to last to break it down into its component parts at the end of its life.

Quentin: Look, you've made fantastic progress on a range of the topics we just talked about. If I cast forward, what's next for Sleepeezee? What are the priorities that are going to be consuming your time and the time of your management team over the next couple of years?

Steve: Well, we're coming up to our centenary year. So, we did an event last week and we've just launched a new product called the Centurial to celebrate our centenary. And I had to make a very small speech, but a speech nonetheless, considering what it means to be around in a business, and not me personally but, for the business to be around for 100 years. And that's enormous for us, so we need to make sure that we get everything right in the centenary year.

Quentin: That's really exciting. It's a serious milestone, isn't it? And one to be very proud of. Cara, just perhaps thinking more broadly around the industrial manufacturing sector as a whole in the UK, what are we likely to see over the next year or two? What are going to be the priorities of all organisations working in that field and what are your forecasts?

Cara: Skills, skills, skills. Retraining. You know, how businesses embrace digital and how they work with that as part of their labour and the balance and collaboration between human and machine. Decarbonisation. So, everything that's coming at the industry and I suppose how people take that on and be really proactive like it. And, you know, Steve's been really honest there around actually the Royal Warrant was something that really spurred them on. And actually I find that in lots of my clients where there are, sort of, one or two things that spur them on. And then, people, sort of, think, 'Oh, actually, we should have been doing this before,' and make it a very positive piece. But, you know, without doubt it's still a very difficult industry. You know, the manufacturing statistics recently are not easy. We need an industrial strategy and a focus from the government on how we work with industry. And, you know, for me there's this piece about actually how we can really make consumer products that people want and really get export growth because of what we have facing in the UK market at the minute, which is difficult enough. So, yes, plenty to be getting on with, Quentin, as always. And we don't have all the answers but we enjoy working with great businesses like Sleepeezee to work through that. And congratulations to them on their centenary. It's an amazing achievement and something that I know the whole business will be proud of and will be celebrating.

Quentin: Completely agree. Look, thanks for those insights, Cara. And, as you say, a fantastic milestone to achieve. Well, look, we're coming to the end of another ‘In Conversation With’ episode of Business In Focus. A big thank you to Steve, from Sleepeezee, and our own Cara, from PwC, for taking part and also being such fascinating guests and sharing their insights with us. You can discover more insights from our experts about the trends affecting industries and, of course, some of the practical steps to take on our website pwc.co.uk/industry. And, also, please don't forget to subscribe to keep up-to-date with future episodes. And, finally, thank you to everyone for listening and please tune in again soon. Many thanks.

Participants

• Quentin Cole
• Steve Warren
• Cara Haffey