Manufacturing the Future: How can UK Manufacturers Survive and Thrive?
Halo Financial, attended the 9th Cranfield National Manufacturing Debate on 23 May 2018, sponsored by MHA and jointly hosted a panel session on the future of UK manufacturing earlier this year. Following these key industry discussions, Tony Piggott, Halo Financial’s Head of Corporate Development, identifies some of the major themes discussed and suggested approaches for businesses to secure a strong future in uncertain times.
The over-riding message from all recent discussions is that the overall outlook for the UK manufacturing sector is positive. Despite the impacts of myriad global economic and political uncertainties, the sector has outperformed expectations over the past five years. Nonetheless, there are significant challenges ahead, and firms need to be adequately prepared, equipped and resourced to survive and thrive.
What are the key Challenges Faced by UK Manufacturers?
Professor Rajkumar Roy spoke about the Four Grand Challenges for the UK’s manufacturing sector:
- Artificial Intelligence (AI) and the data economy
- Clean growth
- An ageing society
The Productivity Puzzle
Setting the scene at the debate, Lord Broers said that we understand there is a productivity problem in UK manufacturing, however, there are great examples of innovation.
MHA Partner, Atul Kariya, gave a keynote address at the debate, focusing on the current R&D landscape and exploring client responses to MHA’s annual Manufacturing & Engineering Survey regarding the challenges and opportunities for the industry.
On the government’s industrial strategy, Kariya observed, “The UK’s industrial strategy is focused on productivity. Productivity per person, per hour (pp/hr) is $24.10 in the UK; this has fallen 9% in the last 10 years. In comparison, the US figures are $32.3 (pp/hr), showing growth of 25% in the last 10 years. The UK places fourth against its seven main manufacturing competitor countries, behind the USA, Germany and France.”
Technology and AI
The focus within the strategy for both activity and funding is firmly on tech and developing Artificial Intelligence (AI), rather than investing in and developing people. The industrial strategy has committed a boost to the government R&D budget that will total £4.7 billion over four years, but the investment in people highlighted in the report is £407 million.
Yet, when UK manufacturers are asked about the biggest challenges they are facing in growing and securing their business, the most significant challenge they raise is people: recruiting and retaining the right people with the right skills and continuing the flow of workers at all levels.
While the rapid development of technology is also a key challenge for the sector, this area is inextricably linked to the people within a business. Will technology be operated by the people within manufacturing businesses, or replace them within automation processes? This is also a continuing debate and area for concern, or looking at it another way, opportunity.
This has also led to a shift in mind-set: identified in the MHA survey, 82% of respondents are now looking to technology and AI to increase productivity and 53% stated they would rather invest in technology than people.
AI is a challenge in itself. “Automation is coming in a big way, in the shape of Industry 4.0,” says Dorrien Peters, Head of Manufacturing and Business Legal Services at law firm, Irwin Mitchell. “If you’re a manufacturing company, there is a journey towards mobility and increased efficiency.”
The UK is Number 17 on the AI league tables. As a country, we’re good at the technical innovation; we just haven’t translated this into commercial gain.
Peters continues, “Moving to more technology-focused roles to make up the next generation of the workforce is another challenge for the government, in terms of building this into the UK’s education system.”
Speed of Change
Being agile and keeping up momentum, including developments in technology, geopolitical and economic change, is a major challenge. Key drivers of change in the industry include:
- Geopolitical events
- Economic uncertainties
- Inflation rate
Building for the Future
Supporting and growing the next generation of manufacturers was highlighted as a key challenge to address: this can be achieved by working to encourage, nurture and retain talent through vocational education options, apprenticeships, and greater awareness of opportunities in the sector.
On the importance of recruitment in the sector, Guy Hodgkinson, Director at MHA , commented, “Over the past six years, MHA has surveyed a total of around 2,500 UK manufacturers. Our 2017/18 survey showed that recruiting the right skill level is a significant challenge for the industry: 75% of respondents said they had issues recruiting and 46% have active skilled vacancies.” It is clear that there is a skills gap in the sector, with recruiting skilled individuals remaining a concern for the industry.
The overwhelming feeling from the discussions held and recent research into industry perspectives, is that the government has not done enough on the people side and that the apprenticeship levy has not worked. This is due to the level of administration required and the complexity of the rules, meaning that it is just seen as another cost in an already heavily cost-pressured industry; this has been illustrated in the fall of apprenticeship take up.
Encouraging more women and a younger workforce into the industry was highlighted as an important development at both events. Refreshingly, three of the keynotes at the Cranfield National Manufacturing Debate were given by women leaders in the manufacturing industry, all engaging speakers and highly experienced in their specialist fields.
The latest #BridgetheGap STEM Survey 2018 has just launched and is exploring ways to attract more girls into STEM subjects, after finding that, “Workforce diversity in the STEM sector is a major challenge… In fact, just 13% of the entire UK STEM workforce is female.”
What can Manufacturers do to Address Challenges and Capitalise on Opportunities?
- Understand your global business – both opportunities and threats. Know the key economic and geopolitical drivers, market movements, and their impact on profitability and your business’s bottom line.
- Build a robust business strategy covering all areas of risk and identify opportunities – short, medium and longerterm. The general feeling among the expert panellists at both events was that UK businesses are getting savvier in protecting against risk and preparing for the various impacts of geopolitical concerns. Currency is a key area to cover within both the company’s risk management and wider business strategy, protecting against market movements and their impact on the bottom line. Firms are now building hedging strategies and setting processes in place to manage currency and broader economic risk.
- Explore alternative trading opportunities. Exploring alternative trading relationships in other territories – such as South America, the Middle East, and Eastern Europe, helps drive growth and diversify business – these can serve to balance business areas that have been hit by Brexit uncertainty in the UK and Europe, for example. Guidance and financial support to explore opportunities in new territories and funding availability are available from Department for International Trade (DIT) and UK Export Finance. Many UK companies are still unaware of this support, so it’s worth exploring and finding areas relevant to your manufacturing business. It’s also important to continue to support domestic business through global opportunities. Remaining competitive needs to be balanced against rising cost pressures.
- Continue to innovate and develop the supply chain. The Innovate UK-backed Catapult centres for innovation and research and development (R&D) are appreciated by the industry, but there is a general lack of awareness that these facilities are available. Communication, accessibility and awareness of these services could certainly be improved; the announcement that five years of funding will be provided for the Catapult centres going forward may help to improve this and provide continued support to manufacturing businesses in developing new strategies and technologies, boosting innovation and productivity.
- Strategic partnerships. Both Anna Keeling, Senior Vice President, GKN Aerospace, and Andrew Schofield, Head of Manufacturing and Materials Engineering, BAE Systems, reinforced the importance of strategic partnerships to the future of the aerospace sector and for the wider manufacturing industry.
R&D – The Facts and Figures
- Research and development tax relief can provide the cash tax refund to keep projects viable. It’s an area under-utilised by manufacturers in the 2018 UK marketplace.
- Currently, R&D is 1.7% of GDP and government spend in support of R&D is £2.9 billion –this is up 150% in five years.
- £1.3 billion has been claimed by SMEs.
- HMRC estimates that the manufacturing sector accounts for 28% of R&D claims, with a total tax relief value of over £900 million.
- The MHA survey revealed 88% of respondents are investing in R&D, yet 43% did not claim any R&D tax relief. Therefore, a huge 67% of those surveyed did not benefit from the tax relief. Reasons for this were cited as lack of awareness, understanding and the perceived time and effort required.
What can the Industry do Collectively to Secure a Strong Future in Uncertain Times?
- Better communication and collaboration between government and industry. While the government’s revised Industrial Strategy has been welcomed by the industry for the most part, the consensus seems to be that it does not go far enough to address the key issues for the sector.
- More government initiatives. Alongside the government’s industrial strategy, described as more of a “mission statement than a strategy”, industry participants are in agreement that there need to be clear commitments to support and develop the industry and a specific business plan for the sector. More R&D investment from both government and industry is clearly needed. Could the UK’s R&D target be raised to compete with spend in other countries, for example? Currently, UK spend lags behind its competitors.
- Closer collaboration between business, government and academia. There needs to be a continuing dialogue between these key industry stakeholders and more initiatives to drive action and support. Education needs to address the need for greater awareness of the roles and careers available in the manufacturing sector and offer opportunities for the right training in order to pursue them. Another suggestion from the Cranfield debate for greater cross-industry collaboration was for larger firms to re-invest in the sector and support SMEs. Guy Hodgkinson concluded: “Overall, our clients are pleased the government has created a vision, but 60% don’t feel it goes far enough to address the sector issues. What we and our clients would like to see is a simplified system to encourage key behaviours and a results-based strategy that can be monitored and reported.”
There are practical steps that manufacturers can take now to help secure a successful future, and, from speaking with our clients, there is a positive view of the road ahead, with a genuine sense of getting on with the matter in hand. However, it is clear that more needs to be done collectively as an industry; working in close collaboration with government and educational institutions to make this a reality. Continued communication, debate and decisions are vital to support the sector’s success.
This article featured in issue 2 of our manufacturing and engineering newsletter series. Read the full newsletter here: The Engine – Issue 2