Production has been slashed at JCB, but new models are introduced.
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CEO of UK equipment manufacturer JCB Matthew Taylor speaks exclusively to PMV about the future of the industry
It has been a decent day for UK machinery giant JCB, and goodness knows that it needed it.
As one of the first machinery companies to start feeling the pinch, last year’s rise in material prices and a sluggish domestic construction market forced the firm to scale back production as early as May 2008. Inevitably this lead to a round of job losses, followed by a reduction in working hours for the remaining staff, with further cutbacks announced in November.
Today, though, the mood is far more optimistic. There is a brand new factory nestling in the spring Staffordshire countryside, complete with a row of excavators parked at the front and the trademark yellow flags fluttering in the breeze. The firm invited a delegation of foreign press to see it the new facility opened, and at the same time see a new addition to the excavator line-up launched.
It is a positive step, though CEO Matthew Taylor doesn’t see the market returning any time soon. “I think the market will be down 30-40 percent this year. I’d like to think from a construction perspective that we are seeing the low point at the moment, but we are certainly not planning on the fact that it is going to get fundamentally better.”
Inventory
“Like everybody else, we will get down to the inventory levels we want to be at, and we will adjust perhaps a little, so I do see us building at a slightly higher rate later in the year than in the first half. But not much higher as our stocks were not fundamentally unbalanced and we plan on being flat through this year and into next year. If it is better than that, fantastic, and if it is not we’ll make money at that level and we’ll continue to invest whether its in new capacity or new capability and new product, so we’ll be strong” he said.
Dealing with the downturn is proving complicated for manufacturers who had their business models based on expectations formed in 2007. Even Caterpillar admitted they were ‘whipsawed’ by the sudden drop in orders. However, Mr. Taylor says that what needed to be done was obvious; “It’s relatively simple” he explained. “We adjust our production to the volume that is available in the market and we adjust the cost structure of the business accordingly. It’s nothing more scientific than that.”
He added “We as a business saw what was coming much earlier than our competitors and we were cutting production much earlier. The result of that was that we ended up with an overall inventory of less machines at the end of the year than what we started with…” With an expression of satisfaction, he added; “I don’t think there is another construction machine manufacturer that can say that.”
Put in this manner, dramatic restructuring sounds so easy. However, I wonder if such an upheaval can ever really be so straightforward. In response, Taylor replied “It is not at all a simple process. It requires a lot of planning and throws up plenty of cautions along the way, such as what happens to your commitments on purchases and supply chain as well as the employees and so on. But, once you take the decision you have to get these aspects rolling straight away.”
He added “The most important step is taking the decision in the first place and then you get on with planning and executing it. It is not easy at all and I’m lucky to have a team that are extremely talented and have been doing exactly the opposite for the past few years in terms of expanding production and capacity, and basically turned it around and said ‘how do we take it out?’ So we cut costs, and cut quite dramatically.”
Layoffs
Putting people out of work – particularly when their families might have been with the firm for generations was never going to be easy, but it was vital for the survival of the business as a whole, as Taylor mentions: “You have to be a little bit brutal at times unfortunately and what we try to do to minimize pain is to try to communicate it with our workforce up front and tell everyone what is going on and keep ourselves in a very strong position as a company and we can weather it.” In fact last year employees of the company faced a stark choice: work short shifts with less money, or lose a percentage of the workforce.
The employees elected to be put on short time, though unfortunately this was not enough, and two month later a further 400 workers lost their jobs. However, Taylor reminds us that the business is cyclical; “We have a new factory opening today and one last week in India for when the market comes back, and it will come back and then we can take people on again and then hopefully we can take on some of the people we unfortunately had to make redundant.”
Backhoe Loader
Taylor is unrepentant about his brand being a generic trademark for backhoe loader, despite the trend towards compact equipment in many markets. “The backhoe loader is the largest volume product that we do, it is no longer doing fifty percent of the business or anything like that. It is still a big chunk of the business, maybe a third of it” he said.
I wondered if it was dangerous being so closely assosiated to one product. In repose, Taylor said;
“Do I think that is a risk? No, not really. There is a backhoe market which is pretty significant and we take over thirty five percent of that market across the world and I think it puts us in a very strong position, so we’d never walk away from the backhoe or minimize it’s impact an any way.”
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