As the threat of recession looms over the UK economy, many organisations are facing the challenge of how to remain profitable at a time where austerity is striking many of their key customers and revenue streams.
With the UK GDP growth averaging between 2.8% - 3.8% growth, significantly lower than previously predicted, Manufacturing organisations are set to suffer, as supply and demand for certain nonessential items is set to drop. As price hikes for products and energy are hitting consumers at the same time as an increasing wage deficit, many households are looking for ways to reduce their outgoings, with many low income households struggling to weather the storm of price increases they are currently facing.
This decrease in demand for products will be passed back by retailers to their manufacturing supply chain, with orders shrinking and dropping in frequency. A challenge which is already striking manufacturers, as a study by BDO has shown that a large share of manufacturers in the UK have reported declining margins in the first quarter of the year of up to minus 21 per cent for UK exports. Decreased demand combined with the soaring cost of fuel, mounting supply chain costs and the rising cost of labour are challenging manufacturers to make tough decisions to survive. Many manufacturers have contracts with merchants or their onward supply chain which include a fixed price for the term of the contract (often three – five years), so they are unable to inflate their prices to reflect the increased cost of manufacturing. Inflation is affecting all businesses, but it presents an even greater problem for those in energy intensive industries like manufacturing.
This struggle of the manufacturing sector was acknowledged by Rishi Sunak, Chancellor of the Exchequer in his Spring Statement, where he recognised the large role manufacturers must play in the recovery of the UK economy. By investing in productivity growth, machinery and improved skills, the UK government believes manufacturers can produce more with the same input from workers.
Investing in technology innovations such as Robotic Process Automation, Artificial Intelligence and Internet of Things (IoT), will allow manufacturers to do more with less. Initial investment capital for these technologies will be difficult, however now is the time to invest as the Governments super-deduction tax break will run until March 2023. This allows manufacturers to cut their tax bill for up to 25p of every £1 they invest in productivity-enhancing plant and machinery assets, which will help them grow for the future.
The ’Great Resignation’ of 2021, saw a mass shake-up of the employment landscape with more workers accepting new roles, with the manufacturing industry being the second most affected sector after hospitality. Many manufacturers organisations saw a 20 – 30 per cent workforce attrition rate in 2021, a trend which is continuing in 2022, with the highest rate of staff turnover occurring in the lower-paid manufacturing positions. Record numbers of unfilled jobs are likely to limit higher productivity and growth in 2022, as Deloitte estimate a shortfall of 2.1 million skilled jobs by 2030. There were 97,000 vacancies for manufacturing positions in January 2022, an increase of 113% on the previous year and 80% compared to before the pandemic.
To attract and retain talent, manufacturers should pair strategies such as reskilling with a recasting of their employment brand to attract new talent into the industry. Engagement with a wider talent ecosystem of partners to reach diverse, skilled talent pools can help offset the recent wave of retirements and voluntary exits.
Investing in technology that frees employees from monotonous tasks will allow them more opportunities to upskill and take on higher value work and feel more purposeful in their roles. To compensate or their workforce deficit many organisations will turn to automation technology to maximise the production capacity of their current facilities.
As flexible work is taking root in offices, manufacturers are also being challenged by staff to offer more flexibility in working options. The workforce overall will continue to become more fluid and unpredictable, putting more pressure on the ability of less “hybrid-ready” companies like manufacturers to staff and run their operations.
The employee shortage is also being compounded by a growing skills gap in the sector. The increasingly competitive and changing market is seeing manufacturers turn to IT innovations to develop smart factories. These changes in how products are developed are triggering a requirement for new technical, digital and professional skills. However, these are proving hard to come by in today’s workforce, within which the UK Commission for Employment and Skills reports a 43% shortage of STEM skills. This greater competition for talent is limiting many manufacturers’ ability to evolve, grow and adopt new technologies.
Manufacturers need to make sure they can keep up with the trends that are reshaping their workforces. Technology Adoption will play a key role in empowering employees, attracting new talent, filling skills gaps as they arise and enabling new hybrid workflows.
Organisations are being challenged to transform their business models, driving cost savings and productivity gains by deploying technology innovations appropriate to their processes and operating models. At the same time, they must deliver transformation strategies whist maintaining production levels and so must deliver traditional infrastructure services more effectively to free up resources for change.
Industry 4.0 has been predicted by the World Economic Forum to create up to £2.7 trillion of value worldwide by 2025, so it is absolutely essential that UK manufacturers ensure they are ready and remain competitive to secure their share of this wealth. A tremendous opportunity exists with the creation of smart factories, by combining the hardware, software, connectivity and services ecosystem with autonomous robots, AR/VR, IoT devices and other technologies to enable increased speed and agility to harvest real time data and improved productivity. Digital transformation will require manufacturers to collaborate more with their suppliers and partners, be intensely aware of both industry and customer changes by rapidly adapting to future change, up -skill their workforce and ensure access to the necessary finance.
Using the opportunities created by innovative technologies will enable the development of a smart supply chain which is agile, reconfigurable and more efficient. Manufacturers are evolving so that workers are no longer tied to dedicated, repetitive jobs, with artificial intelligence combining with IoT technology to release workers to concentrate on more creative, value-added tasks.
The manufacturing sector is under constant scrutiny from regulators to comply with appropriate security standards. Whilst process and infrastructure modernisation undoubtedly brings major efficiency gains, the connection of operational technology, information technology and external networks has also increased the attack surface. Many legacy systems and technologies still in use by manufacturers are also not fit for purpose in terms of safely connecting them to today ’s sophisticated networks. Vulnerabilities caused by the shift to remote working have left manufacturers even more susceptible to breaches.
According to a study by MAKE UK , over half of manufacturers in the UK have been victim of cyber-crime in the last yea r, this has elevated cyber security as a risk management essential. It is imperative that manufacturers look not only at their cyber defences but also at the resiliency of their business in the event of an attack.