Mike Redwood

Columnist

The need to invest is relentless, hence we return to it frequently. No business can afford to let itself slip back in a competitive world, yet it is mentally and financially draining to invest in the face of market uncertainty and depleted cash reserves after the never-ending sequence of unexpected demands starting with Covid, then inflation and supply chain disruption.

Governments, paranoid about the implications of low or negative economic growth, are struggling to make companies invest and many of the largest businesses are giving what cash reserves they have back to investors instead.

Improving GDP is all about efficiency and getting more out of invested capital and people. Gross domestic product (GDP) is a measure of the size and health of a country’s economy. It adds up all the output generated within the borders of a country to create a monetary value of final goods and services – that is, those that are bought by the final user – produced in that country in a given period of time.

GDP can be viewed from the three aspects of production, expenditure and income, so it is quite complex and people such as Adam Smith would never have allowed a supposedly passive non-interfering service such as banking to be added in as it is now. In fact, GDP is quite a controversial measure in some circles, which think it is not the right tool to capture economies with high levels of service industries, while others think it totally false anyway. They say it only measures things that are not important and fails to measure what is important.

Increased efficiencies

The battle for increased efficiency can be taken too far. Governments and banking are adopting digital services for taxpayers and customers at the very time aging societies increasingly struggle with fat fingers, dementia and risk of fraud. Stores and hotels may save staff and increase their efficiency with automatic checkouts, but is this really a service improvement? Equally, the total loss of personal assistants and secretarial staff means that managers now spend hours off the factory floor battling online with administrative duties. Where is the real gain?

Staff shortages allied to democratic changes also weigh in here, but this only emphasises the need to assess how to value work and look at it in the light of today’s circumstances and employees’ hopes and expectations for the future.

Pits to drums

For decades, through the 1990s, the future lay in the knowledge economy and everyone required a degree. During this process, swathes of staff were made redundant by traditional manufacturing, duly ignored and left miserable, only getting a voice at election time. No wonder they created the political dislocation we have seen over the past decade.

Leather has a fascinating role in this. The move from pits to drums for most leather types was one of the biggest productivity improvements seen, aided by automatic water and chemical control, which began to remove the costly consequences of irregular quality. Over recent years, the Italian machinery industry has made an outstanding contribution to improving how leather is manufactured with clever ideas demonstrating a profound understanding of how leather is made for different end uses. Both quality and efficiency improvements have followed.

But there is a limit with leather being tied to craft. We can scan and cut leather by machine, using programmes for maximum cutting efficiency or maximum quality and everything in between but, unless we make leather into a commodity, we cannot do this simultaneously with a stack of 10 hides. That is for synthetics. Each hide or skin is an individual.

So, when tanners struggle with meagre funds to choose between a new plant for production or for environmental treatment, they should also calculate how to manage that individuality for added value in their market.

Batch processing

Tanneries vary a great deal. Large automotive plants often make only one or two basic products in long runs with pigmented finishes, which can be measured entirely by computerised colour systems. Shoe and garment leather tanneries are nearly all batch production with many leather types, which will include a lot of hard to control full aniline or semi-aniline leathers; and batches seem to be getting smaller.

There was a time when we all used benchmarking to see where we stood against competitors, even checking specific sections like warehousing and despatch against companies with specific expertise. It was all about striving to be more efficient and more effective at meeting customer requirements correctly on time. The data collected by the Leather Working Group has helped in this regard as it does show clear trends with numbers for certain tannery types, in particular bovine side leather for footwear.

Yet, there is always that key measure to remember in GDP – expenditure. As explained by the International Monetary Fund, the expenditure approach adds up the value of purchases made by final users – for example, the consumption of food, televisions and medical services by households; the investments in machinery by companies; and the purchases of goods and services by the government and foreigners.

Leather and items made with leather fit in to this definition. Remember, if you are looking for efficiency, you are also likely to want to calculate sales per employee so the balance of craft and mechanisation should be reflected in the sales price.

The consumer expectation of value matters and this means the leather industry must continue to explain the value of leather as a natural material, and a material that wears in rather than wears out. For many consumers there is less worry about how an item looks at purchase but how it will wear and repair. They want some of their items, whether it’s bags or notebook covers, to age with time and to carry memories. That is value worth paying for and will be as positive for GDP as saving money by reducing service.

So, carry on investing, wisely.

mike@internationalleathermaker.com

Follow Dr Mike Redwood on Twitter: @michaelredwood

Publication and Copyright of “Redwood Comment” remains with the publishers of International Leather Maker. The articles cannot be reproduced in any way without the express permission of the publisher.