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CAN TOUGH ECONOMIC CONDITIONS ACTUALLY BE A BLESSING IN DISGUISE FOR BUSINESSES?

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CAN TOUGH ECONOMIC CONDITIONS ACTUALLY BE A BLESSING IN DISGUISE FOR BUSINESSES?

By Andy Archer, Regional Vice President Sales UK at Epicor Software

While economic uncertainty is never a desirable situation, it’s a fact that some of the world’s greatest businesses have started during a downturn or recession.  Indeed, of the 100 companies listed on this year’s Forbes America’s Most Promising list, around a third were forged in the doom and gloom years of the global financial crisis.

How did these companies achieve extraordinary growth when others were in freefall?  In this article we’ll take a look how businesses can overcome difficult economic conditions by better planning and the deployment of agile technology.

Industry challenges

While the wider economy struggles with uncertainty, the manufacturing sector in particular has stagnated. Indeed, last quarter it was reported that UK manufacturing has actually fallen back into recession for the third time in eight years. The woes of factories show no sign of abating after enduring 12 months of falling output.

A good proportion of this can be attributed to the difficult world economy with rising costs combining with reduced demand, the ongoing effects of the cutback in oil and gas investment and the steel crisis. On top of this, the UK vote to leave the EU raises long term concerns about growth of the global economy.

Economic cycles are a reality but the challenges and economic pressures on the manufacturing sector are distinctive to this part of the economy. This period of downturn is, however, providing opportunities for companies to emerge on top.

Smart manufacturing

There are big changes happening in manufacturing through digital transformation. This fourth industrial revolution, or ’Industry 4.0’ as it is commonly referred to, is explained as a way of increasing competitiveness through the convergence of the manufacturing process with technological and innovative applications and processes resulting in a merging of the virtual and physical worlds.

McKinsey recently published a report which stated that the digital revolution is now breaching the walls of manufacturing as it continues to disrupt media, finance, consumer products, healthcare, and other sectors. It commented that “the explosion in data and new computing capabilities—along with advances in other areas such as artificial intelligence, automation and robotics, additive technology, and human-machine interaction—are unleashing innovations that will change the nature of manufacturing itself.”

The problem is that manufacturing companies have traditionally been slow to react to the advent of digital technologies across the manufacturing value chain and operating model. While there are a few manufacturing companies that have made rapid advances in deriving significant benefits from digital software such as enterprise resource planning (ERP), their number is still small.

It’s time for a new approach. Manufacturers should be working now to build an agile platform that will allow them to adapt to future customer requirements. Organisations that embrace the latest technologies – from mobile to scalable integrated platforms and from SaaS to next gen analytics – will be able to jump on the wave of economic recovery when it arrives.

Improving visibility

The pressure on manufacturers to accelerate production cycles and become more customer centric is driving change, although perhaps more slowly than people have predicted. A key factor in this is the extent to which companies are restricted by the lack of visibility they have over an organisation’s core processes.

Manufacturing generates more data than any other sector of the economy, with an abundance of operational and shop floor data that can be used to increase yields and reduce costs. The problem is that few companies are harnessing it. Last year, one oil-and-gas company was reported to be discarding 99 percent of its data before decision makers have a chance to use it.

Manufacturers are increasingly realising the need to adopt technologies that allow them to transform their operating models and digitally connect processes, events, actions, internal and external partners.  Introducing software such as ERP can drastically improve the visibility of the whole production process, resulting in efficiency savings across the organisation.

Take, for example, inventory management processes. Central to ensuring inventory usage is maximised is the ability for manufacturers to increase visibility of all inventory levels. This includes static materials and maximising the value of, and gaining real-time visibility into, inventory in-transit.

Dutch solid wood systems manufacturer, Derako, is a great example of data best practice. The company benefits from an integrated ERP system with an intuitive dashboard for wood procurement which improves the purchasing process and saves considerable man-hours. The system makes intelligent procurement recommendations when it is running low on items like foil, nails, and doweling, providing the capability to respond quickly to market changes, customer requests, and stock levels.

ERP has effectively provided Derako with the necessary agility to become more customer focussed and competitive. The fact that the company can make decisions at the front-end of the business (customer) that automatically ripple through to the back-end (procurement and accounting) without manual intervention, ensures that they can provide the economic flexibility required to be truly customer-centric.  In a world where markets are stagnating or declining, it is the businesses that use technology to combine efficiency with customer-centricity that will prevail. These are, after all, the businesses that can provide customers with maximum flexibility and choice at a low cost.

Ensuring growth through investment

Downturns force businesses to become smarter in order to compete with, and outperform, their competitors. Coming out of the last global economic downturn, the most successful companies have made progress in boosting competitiveness through efficiency and flexibility.

Companies should be looking to invest, drive efficiency, increase productivity, and increase market share now. While the effect may be small during slow times, it could help them survive and the effects will then be magnified as the economy recovers. Companies that wait until economic recovery before they invest could be months or years behind.

Younger businesses have an advantage in this context because of their inherent agility. Nevertheless, agility doesn’t have to just be the domain of the small or the young. A list of the top ten lean manufacturing companies in the world, which includes top brand names such as Nike, Intel and Ford, shows the extent to which the implementation of these technology-driven initiatives helps even the largest companies achieve success.

Throughout the manufacturing sector, we’re seeing advances in technology that are proving to be the fundamental linchpin shaping this new business model. Technology systems like next-generation ERP give operators at all levels accurate and timely information with which to make informed decisions.

As a result, smart manufacturing businesses are investing now, with the needs of tomorrow in mind. They are also making better use of the technology investments they have already made to jump ahead of competitors and spot new market opportunities. This trend is despite, and in many ways because of, the industry downturn.

The journey is well underway from the long-outdated oil-and-overalls image to a modern and highly innovative sector.

Business

Euro zone business activity shrank in January as lockdowns hit services

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Euro zone business activity shrank in January as lockdowns hit services 1

By Jonathan Cable

LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to contain the coronavirus pandemic hit the bloc’s dominant service industry hard, a survey showed.

With hospitality and entertainment venues forced to remain closed across much of the continent the survey highlighted a sharp contraction in the services industry but also showed manufacturing remained strong as factories largely remained open.

IHS Markit’s flash composite PMI, seen as a good guide to economic health, fell further below the 50 mark separating growth from contraction to 47.5 in January from December’s 49.1. A Reuters poll had predicted a fall to 47.6.

“A double-dip recession for the euro zone economy is looking increasingly inevitable as tighter COVID-19 restrictions took a further toll on businesses in January,” said Chris Williamson, chief business economist at IHS Markit.

“Some encouragement comes from the downturn being less severe than in the spring of last year, reflecting the ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year.”

The bloc’s economy was expected to grow 0.6% this quarter, a Reuters poll showed earlier this week, and will return to its pre-COVID-19 level within two years on hopes the rollout of vaccines will allow a return to some form of normality. [ECILT/EU]

A PMI covering the bloc’s dominant service industry dropped to 45.0 from 46.4, exceeding expectations in a Reuters poll that had predicted a steeper fall to 44.5 and still a long way from historic lows at the start of the pandemic.

With activity still in decline and restrictions likely to be in place for some time yet, services firms were forced to chop their charges. The output price index fell to 46.9 from 48.4, its lowest reading since June.

That will be disappointing for policymakers at the European Central Bank – who on Thursday left policy unchanged – as uncomfortably low inflation has been a thorn in the ECB’s side for years.

Factory activity remained strong and the manufacturing PMI held well above breakeven at 54.7, albeit weaker than December’s 55.2. The Reuters poll had predicted a drop to 54.5.

An index measuring output which feeds into the composite PMI fell to 54.5 from 56.3.

But despite strong demand factories again cut headcount, as they have every month since May 2019. The employment index fell to 48.9 from 49.2.

As immunisation programmes are being ramped up after a slow start in Europe optimism about the coming year remained strong. The composite future output index dipped to 63.6 from December’s near three-year high of 64.5.

“The roll out of vaccines has meanwhile helped sustain a strong degree of confidence about prospects for the year ahead, though the recent rise in virus case numbers has caused some pull-back in optimism,” Williamson said.

(Reporting by Jonathan Cable; Editing by Toby Chopra)

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Volkswagen’s profit halves, but deliveries recovering

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Volkswagen's profit halves, but deliveries recovering 2

BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car deliveries had recovered strongly in the fourth quarter, lifting its shares.

The world’s largest carmaker said full-year operating profit, excluding costs related to its diesel emissions scandal, came in at 10 billion euros ($12.2 billion), compared with 19.3 billion in 2019.

Net cash flow at its automotive division was around 6 billion euros and car deliveries picked up towards the end of the year, the German group said in a statement.

“The deliveries to customers of the Volkswagen Group continued to recover strongly in the fourth quarter and even exceeded the deliveries of the third quarter 2020,” it said.

Volkswagen’s shares, which had been down as much as 2%, turned positive and were up 1.5% at 164.32 euros by 1158 GMT.

Sales at the automaker rose 1.7% in December, at a time when new car registrations in Europe dropped nearly 4%, data from the European Automobile Manufacturers’ Association showed.

Like its rivals, Volkswagen is facing several challenges due to the coronavirus pandemic as well as a global shortage of chips needed for production.

It also sees tough competition in developing electrified and self-driving cars. The merger of Fiat Chrysler and Peugeot-owner PSA to create the world’s fourth-biggest automaker Stellantis adds to the pressure.

Volkswagen said on Thursday it missed EU targets on carbon dioxide (CO2) emissions from its passenger car fleet last year and faces a fine of more than 100 million euros.

The group is expected to release detailed 2020 figures on March 16.

($1 = 0.8215 euros)

(Reporting by Kirsti Knolle; Editing by Maria Sheahan and Mark Potter)

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Global chip shortage hits China’s bitcoin mining sector

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Global chip shortage hits China's bitcoin mining sector 3

By Samuel Shen and Alun John

SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines used to “mine” bitcoin, a sector dominated by China, sending prices of the computer equipment soaring as a surge in the cryptocurrency drives demand.

The scramble is pricing out smaller miners and accelerating an industry consolidation that could see deep-pocketed players, many outside China, profit from the bitcoin bull run.

Bitcoin mining is closely watched by traders and users of the world’s largest cryptocurrency, as the amount of bitcoin they make and sell into the market affects its supply and price.

Trading around $32,000 on Friday, bitcoin is down 20% from the record highs it struck two weeks ago but still up some 700% from its March low of $3,850.

“There are not enough chips to support the production of mining rigs,” said Alex Ao, vice president of Innosilicon, a chip designer and major provider of mining equipment.

Bitcoin miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify bitcoin transactions in a process which produces newly minted bitcoins.

Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co, the main producers of specially designed chips used in mining rigs, would also prioritise supplies to sectors such as consumer electronics, whose chip demand is seen as more stable, Ao said.

The global chip shortage is disrupting production across a global array of products, including automobiles, laptops and mobile phones. [L1N2JP2MY]

Mining’s profitability depends on bitcoin’s price, the cost of the electricity used to power the rig, the rig’s efficiency, and how much computing power is needed to mine a bitcoin.

Demand for rigs has boomed as bitcoin prices soared, said Gordon Chen, co-founder of cryptocurrency asset manager and miner GMR.

“When gold prices jump, you need more shovels. When milk prices rise, you want more cows.”

CONSOLIDATION

Lei Tong, managing director of financial services at Babel Finance, which lends to miners, said that “almost all major miners are scouring the market for rigs, and they are willing to pay high prices for second-hand machines.”

“Purchase volumes from North America have been huge, squeezing supply in China,” he said, adding that many miners are placing orders for products that can only be delivered in August and September.

Most of the products of Bitmain, one of the biggest rig makers in China, are sold out, according the company’s website.

A sales manager at Jiangsu Haifanxin Technology, a rig merchant, said prices on the second-hand market have jumped 50% to 60% over the past year, while prices of new equipment more than doubled. High-end, second-hand mining machines were quoted around $5,000.

“It’s natural if you look at how much bitcoin has risen,” said the manager, who identified himself on by his surname Li.

The cryptocurrency surge is affecting who is able to mine.

The increasing cost of investment is eliminating smaller players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s biggest mining business.

“Institutional investors benefit from both large scale and proficiency in management whereas retail investors who couldn’t keep up will be weeded out,” said Yuan, whose company has invested over $500 million in cryptocurrency mining and plans to keep investing heavily.

Many of the larger players growing their mining operations are based outside of China, often in North America and the Middle East, said Wayne Zhao, chief operating officer of crypto research company TokenInsight.

“China used to have low electricity costs as one core advantage, but as the bitcoin price rises now, that has gone,” he said.

Zhao said that while previously bitcoin mining in China used to account for as much as 80% of the world’s total, it now accounted for around 50%.

(Reporting by Samuel Shen and Alun John; Editing by Vidya Ranganathan and William Mallard)

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