Re-emerging Manufacturing
Whilst the manufacturing sector has faced some difficult times as a whole, it is now time for it to rise from the ashes and be reborn.
Reinventing British Manufacturing
In 2020 the pandemic created a lot of disruptions to imports and exports, total trade exports fell by £33.1 billion between March and April and imports also dropped by £29.9 billion. This was largely seen in the machinery, transport equipment and fuel sectors.
In a survey conducted by Make UK and BDO in November 2020, almost 9 out of 10 manufacturers said they have reviewed their supply chains in response to the pandemic, 59% stating that they planned to diversify their supply chains, and a third said they would focus on reshoring the manufacturing of goods to the UK. Richard Austin, BDO’s Head of Manufacturing said:
“The supply delays experienced by UK manufacturers at the start of the pandemic were a wake-up call, prompting many operators to confront the risks involved in over-relying on single suppliers for key components. This was particularly true in cases where suppliers were geographically very distant.”
Issues really became apparent when pharmaceutical ingredients and PPE equipment began to fall short, typically ingredients were imported from India or China as they dominate the market. However, when imports were
restricted manufactures took production into their own hands and rose to the PPE challenge, producing masks, ventilators and hospital beds in a matter of weeks. The sense of British manufacturing pride rose again.
Being Agile in a Time of Need
When the pandemic hit the UK in March last year, the world as we know it stopped for a second. All but essential manufacturers were asked to close their doors, but those agile businesses who strived to survive, switched their services and offerings at a moment’s notice.
There were multiple examples of gin distilleries switching operations to begin supplying hand sanitisers to meet the drastic spike in demand. Another switch example was from Rolls Royce, who changed their aerospace operations to producing ventilators for the NHS, and dedicated 300 employees to work on that project.
Those businesses who pivoted their business models enabled their short-term survival alongside long-term sustainable growth. Manufacturers weren’t just shifting to prevent closure, they were also adapting their offerings due to a decline in sales from their core customer base. Those selling into those contracting markets began to investigate what else they could produce or which other sectors their offering may be applicable to help mitigate the impact on their business. This adaptable mindset is something we can expect to continue in the coming years.
“Make UK research at the end of last year found that manufacturers are looking to explore new products and services in a bid to remain agile in 2021. In fact, almost four in ten manufacturers said new product development is something their business is proactively planning for 2021. This coincides with earlier findings indicating that despite the challenging operating environment, companies are looking beyond their current offerings to explore new markets and new products.
We know that such diversification can be achieved, and achieved quickly. One of the lessons learnt from the pandemic has been manufacturers’ ability to repurpose production lines at speed in order to support national efforts. Manufacturers have the opportunity to build on this new-found flexibility to offer, produce and deliver new products and services to customers. With more and more businesses adopting technology to boost efficiency and drive productivity, it is no surprise that technology is being viewed as an enabler to unlock the possibility of new products, as well as new markets.”– Bhavina Bharkhada, Make UK
Digitalisation: The True Winner of 2020
With the complete physical closures of many businesses in the UK, digitalisation quickly became embedded into every aspect of our lives. From the rise in video calls, to the huge adoption of e-commerce. The manufacturing sector was no exception, whilst for most, it wasn’t a complete digitisation of factories, there was the introduction of automation, remote control of assets and using tech to minimise the number of staff needed in the business at any given time, to help reduce the spread.
“We have heard numerous examples of how technology implemented pre-pandemic has supported businesses through the challenges they have faced. From remote working and social distancing to new ways of operating and delivering which are likely to stay post pandemic.
Alphabond Technologies, Managing Director, Dylan Shaw said
“Not only has the new technology reduced manual and duplicative processes it has increased our response rates to customers. An added benefit we have seen through these challenging times, is our ability to adapt and work remotely. Remote working wouldn’t have been possible otherwise!”
One business found its adoption of a robot welder helped them continue operations when staff were self-isolating.
“Our adoption of a robot welder, through support from Made Smarter has been a success from day one. We were experiencing bottlenecks within our welding process which was causing delays in schedules. The robot has helped us overcome the delays but also helped us to continue operations at a time when some of our welders have been self-isolating, which has caused staff shortages.”
– Julian Lopez, Export Manager, Storth
“From sales and marketing to human resources and finance, all departments have seen the benefits new technology can offer. Through 3D virtual showrooms, it’s perfectly possible to effectively give support to prospects and clients – even though it’s given remotely. Customers are even able to modify product elements and measure the sizes to see if they would fit in a real space. Plus, with geography no longer a limitation, you can actually reach new audiences and markets you wouldn’t have otherwise.
Many makers are using augmented reality (AR) to expand their physical world, adding layers of digital information through the likes of audio, video, graphics and text. It is helping business to identify issues – such as maintenance or health and safety concerns, as well as supporting learning and development and training.”
– Jude Holmes, Made Smarter
Adapting to technology enables manufacturers to be more resilient to external conditions and pivot at a moment’s notice, so they can make the most out of any opportunity in the market.
Livin’ La Vida Local
The manufacturing sector post-pandemic could see a shift from global to local when it comes to their supply chains.
The supply shock that started in China in February exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere. Temporary trade restrictions and shortages of critical medical supplies highlighted this weakness. This has triggered a rise in economic nationalism and, as a consequence, manufacturers are under greater pressure to increase their domestic production; both in terms of their own growth but also to eliminate extra dependency on ‘risky’ sources.
The challenge for companies will be to make their supply chains more resilient without weakening competitiveness. Manufacturers will have to identify the weaknesses in their wider supply chain such as;
- Do they import the majority of their supplies?
- Do they require specialist components from a specific supplier?
- Are they operating a lean model?
- Do they hold safety stock?
Manufacturers will need to adapt to this new era, not completely abandoning globalisation, but having an agile structure that will allow them to adapt and be less susceptible to risks.
There is also a consumer mentality at present to ‘shop locally’ and this has started to seep into the B2B sector. Manufacturing close to the source of demand creates a tighter connection between supply and demand, which delivers goods quickly and enables producers to be more reactive to market demands. Whilst they may still cost more per unit, when you factor the ability to adapt and better fit orders, this avoids waste and reduces shipping costs from overseas.
Post-covid Growth
As the government looks to get the cogs of the UK economy moving again, manufacturing will be a powerful source of economic growth and prosperity. Not all sectors in the manufacturing industry have been decimated by Covid-19, pharmaceuticals, medical devices, chemicals and food have remained pretty consistent and, in some circumstances, have experienced growth. For example, those in food production were grappling to meet the demands of supermarkets, with the volume sales of food and drink purchased in week ending 21 June 2020 being 11.1% higher than the previous year.
Some Made Smarter partners have seen the appetite for their products soar, especially the increase in the online food segment.
“With other food producers cutting ranges to focus on volume, customers are looking for alternatives, which has created an opportunity for us Orders from all areas of the business have increased, which means we are producing more. “There is no doubt that without investing when we did, in the way that we did, with the help from Made Smarter, we would not be able to cope with this unprecedented increase in demand. The technologies we have adopted have enabled us to develop new products quicker and we are now taking pre-orders for the first time, such is the demand.”
– Patrick Mroczak, CEO, NutreeLife.
“We received advice and support from Made Smarter to implement an end-of-line robotic palletiser. It was needed to help us overcome the bottlenecks we were experiencing and speed up the production process. It has proven even more invaluable recently in managing increased and fluctuating demand for our yogurts as a result of the COVID-19 pandemic.”– Sarfaraz Akram, Chief Operating Officer at Lancashire Farm Dairies.
There are multiple predictions on how the UK manufacturing sector will recover post-Covid. Some forecasts16 have revealed that it will take until 2022 for the manufacturing sector to fully recover and get back onto the same growth trajectory, but as we speak, these predictions are constantly shifting. For example, with the vaccine programme gathering pace,
MakeUK/BDO have updated their original growth forecast for 2021 from 2.7% to 3.9% as the sector pushes back with full force. Those in the sector are optimistic about growth rates and are investigating new ways to excel their growth further.
“The manufacturers we work with are positive about recovery and growth. Post the first UK lockdown, we saw the appetite to engage with Made Smarter increase. Now more SME’s than ever, are seeking support to implement technologies within their operations to enable them to increase efficiencies, create new production lines and access new markets.
We surveyed over 200 manufacturing SMEs across the North West last year. More than half of them indicated that they planned to invest in new technologies before COVID-19, with three quarters believing that they will still be able to go ahead with those plans. The pandemic has demonstrated how technology can support continued operations in challenging times and business leaders have prioritised technology adoption.”
– Jude Holmes, Made Smarter
Even before the pandemic turned the sector on its head, the introduction of technology and driving sustainability were already key talking points in the industry. Now, they have become critical for sustained growth, and they will become the tools leading Britain’s recovery.
Bringing Production Home
Brexit has meant a move away from the single market and enter new trade agreements with the EU, that are less substantial and involve more custom and border restrictions. With this in mind, imports may no longer be the favourable option and instead businesses may start to investigate more local options. The trade frictions created by the new post-Brexit trading agreements have added a new layer of complexity which will prompt further supply chain adjustments, and a preference may emerge to source goods and supplies closer to home.
According to research, up to £4.8bn worth of goods for British retailers can be made locally. Brexit has made us re-evaluate and understand what the local capacity is for production. Whilst labour may be cheap elsewhere, it presents many other risks that can have a considerable impact on the supply chain. Although the UK will never compete with international labour market, it does have a major competitive advantage and that is specialism. UK manufacturers are able to develop innovative technologies and goods that other countries can simply not manufacture. In addition to this, the increased adoption of technology can enable manufacturers to scale their production and meet a higher level of demand and in some scenarios even produce goods that were previously not possible.
Some manufacturers may also have to evaluate their supply chain model. For example, car parts and aircraft components often cross the channel multiple times before they are assembled into the finished product. Whilst luckily the UK has agreed a deal with the EU that involves no tariffs, there are some additional red tape that could delay this process and make it less effective. When you combine this growing sustainability pressures, adapting this supply chain may soon become critical.
Regulation
One area that has been greatly impacted by the exit from the European Union, is regulation. For decades, the UK has followed the EU regulations and best practices, but by leaving, the UK no longer aligns with these regulations and until sufficient regulations are put in place that replicate the standard, it can create border frictions. For highly regulated industries like pharmaceuticals this needs to rectified. Companies like GlaxoSmithKIine and AstraZeneca prepared in advance for the changes by creating parallel batch-testing labs on the continent. Even with this medicine supply could be delayed over a month.
Exports & European Bonds
The manufacturing sector currently accounts for 45% of all UK exports, and remains a major contributor to the UK economy. Export orders in Q1 2021 reported a balance of -8%, a small decline from the previous quarter (-5%) as manufacturers face new trade barriers. Nevertheless, manufacturers remain enthusiastic about business activity going forward and forecast orders to improve over the next quarter.
As demonstrated in the graph, there is a strong European focus in the UK exports, but the USA and China still remain major markets. Whilst the free trade agreement will remain between the European Union and the UK, these growing trade frictions, can make manufacturers re-evaluate their distribution strategy and consider expanding into new territories if they haven’t done so already.
Richard Hagan, Managing Director of Crystal Doors who produce vinyl wrapped products explains how Brexit has impacted their business from an SME perspective.
“UK businesses of every size were pleased to see 2020 over and pleased to know the Brexit trade deal is finalised leaving businesses free to navigate a smooth sailing transition. Crystal Doors planned by investing over £250k of assets and materials in the last quarter of 2020 expecting the worst and hoped for the best. My first shock was only a few days back in the New Year, and another lockdown, schools closed and no tariffs to deal with, but worse. Not only extra costs for importing or exporting, but from paperwork delaying smooth trading, many ports also failed to efficiently transfer goods through. Voting to leave the European Union four years ago allowed everyone to prepare, only if manufacturing businesses knew what to prepare for. This year is not only the crisis of 2020 but compounded with several more crisis situations many manufacturers will now not survive. Manufacturers are always part of an intrinsic network of supply and consumer chains where any one broken link impacts beyond just one company. We are in this together, and together now more than ever, UK manufacturers must prioritise skills, assets, technology, supply, and consumers all in one overriding effort to shore up our industry.”
Whilst the impacts of Brexit may not be instantly identifiable, they could have been blanketed by the huge disruptions of the pandemic or they could be more slow progressing changes.
Tom Martin, CEO of Jetsoft , a software and data company that specialises in the aerospace sector delves into this further.
“We haven’t experienced any ramifications from Brexit as of yet, but we expect some later down the line. We don’t compete on price, so it is less from a cost perspective, but more from an ease of business. The attitude may be more favourable for a European client to use another European supplier that is in the trade union just out of ease. I think for the country as a whole, will experience some brain drain as the UK becomes a less attractive place to study and work, which has huge impacts on talent. There are two types of manufacturing, one based on low costs and cheap labour, the other is based around innovation and being more efficient. The UK is the later of the two and due to the specialism and innovation we need a highly talented workforce that can deliver new ideas. After Brexit, the UK needs to understand how they can still attract the best people.”
One area that has been greatly impacted by the exit from the European Union, is regulation. For decades, the UK has followed the EU regulations and best practices, but by leaving, the UK no longer aligns with these regulations and until sufficient regulations are put in place that replicate the standard, it can create border frictions. For highly regulated industries like pharmaceuticals this needs to rectified. Companies like GlaxoSmithKIine and AstraZeneca prepared in advance for the changes by creating parallel batch-testing labs on the continent. Even with this medicine supply could be delayed over a month.
Exports & European Bonds
The manufacturing sector currently accounts for 45% of all UK exports, and remains a major contributor to the UK economy. Export orders in Q1 2021 reported a balance of -8%, a small decline from the previous quarter (-5%) as manufacturers face new trade barriers. Nevertheless, manufacturers remain enthusiastic about business activity going forward and forecast orders to improve over the next quarter.
As demonstrated in the graph, there is a strong European focus in the UK exports, but the USA and China still remain major markets. Whilst the free trade agreement will remain between the European Union and the UK, these growing trade frictions, can make manufacturers re-evaluate their distribution strategy and consider expanding into new territories if they haven’t done so already.
Richard Hagan, Managing Director of Crystal Doors who produce vinyl wrapped products explains how Brexit has impacted their business from an SME perspective.
“UK businesses of every size were pleased to see 2020 over and pleased to know the Brexit trade deal is finalised leaving businesses free to navigate a smooth sailing transition. Crystal Doors planned by investing over £250k of assets and materials in the last quarter of 2020 expecting the worst and hoped for the best. My first shock was only a few days back in the New Year, and another lockdown, schools closed and no tariffs to deal with, but worse. Not only extra costs for importing or exporting, but from paperwork delaying smooth trading, many ports also failed to efficiently transfer goods through. Voting to leave the European Union four years ago allowed everyone to prepare, only if manufacturing businesses knew what to prepare for. This year is not only the crisis of 2020 but compounded with several more crisis situations many manufacturers will now not survive. Manufacturers are always part of an intrinsic network of supply and consumer chains where any one broken link impacts beyond just one company. We are in this together, and together now more than ever, UK manufacturers must prioritise skills, assets, technology, supply, and consumers all in one overriding effort to shore up our industry.”
Whilst the impacts of Brexit may not be instantly identifiable, they could have been blanketed by the huge disruptions of the pandemic or they could be more slow progressing changes.
Tom Martin, CEO of Jetsoft , a software and data company that specialises in the aerospace sector delves into this further.
“We haven’t experienced any ramifications from Brexit as of yet, but we expect some later down the line. We don’t compete on price, so it is less from a cost perspective, but more from an ease of business. The attitude may be more favourable for a European client to use another European supplier that is in the trade union just out of ease. I think for the country as a whole, will experience some brain drain as the UK becomes a less attractive place to study and work, which has huge impacts on talent. There are two types of manufacturing, one based on low costs and cheap labour, the other is based around innovation and being more efficient. The UK is the later of the two and due to the specialism and innovation we need a highly talented workforce that can deliver new ideas. After Brexit, the UK needs to understand how they can still attract the best people.”
If tackled correctly there are many opportunities for manufacturers to excel in this new era. There are many emerging markets that are growing at rapid paces, which for various goods are untapped regions.
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