British companies face some tough decisions in the wake of Covid-19. However, there is reason to be optimistic that the manufacturing industry is well prepared for the stormy weather ahead.
To say that forecasts for UK manufacturing seem decidedly mixed at this point would be an understatement.
On the one hand, data from the IHS Markit / CIPS UK Manufacturing Purchasing Managers Index for March and April is encouraging.
Two consecutive months of strong growth in production, order books and employment seem to bode well for the sector.
On the other hand, profitability has fallen to its lowest level in a decade, according to the Office for National Statistics.
The data shows that the net returns for UK manufacturing companies, calculated as the profit on capital used in production, fell sharply in 2020 for the second consecutive year to 8.8 percent – the lowest since 2010.
Both studies find that the sector is facing strong headwinds in the post-Brexit era. Supply chain disruption, in particular, continues to hit the industry, with many companies complaining about higher prices for components and raw materials, long lead times and a massive increase in shipping and freight costs.
The positive news, as I see it, is that after the Covid-19 seismic shock, many UK manufacturing companies are better prepared than ever to navigate a steady course through this stormy weather.
Having accelerated their digital transformation journeys as an opportunity in early 2020, there is now a significant need to continue that path into 2021, seeking lower costs, more profitability, and greater resilience and flexibility.
This point is supported by Make UK’s executive survey for 2021, ‘Building Agility in Manufacturing’.
It finds that digital tools and technologies were a key factor in enabling remote production workers when the pandemic first hit, and that 43 percent of companies now plan to offer remote work wherever possible.
About three in ten (28 percent) plan to invest in new digital technologies to enable predictive maintenance, to save money and time on repairs and on-site technical checks.
In other words, the work undertaken during the pandemic to maintain operations through remote working and to provide remote monitoring and equipment support will be of great help to UK manufacturers in making more fundamental changes to address the problem.
improve overall level of automation.Obviously, that will require significant investment, but there was more good news on this front in March, with Chancellor Rishi Sunak announcing a new 130 percent capital fee for companies to close between April 1, 2021 and the end of March 2023.
This can lead to a strong increase in investment. For example, in a survey of 149 UK manufacturers, Make UK found that 23 percent plan to increase their investments in direct response to the super deduction, and 28 percent plan to advance planned investments.
Over the past year, British manufacturers have amply demonstrated the industry’s ability and willingness to make fundamental changes, within short timelines and with limited budgets.
It has to keep doing that. For one thing, investment in smarter, digitally aided manufacturing is unlikely to fully deliver the promised benefits without transformations of the workplace and workforce.
And after Brexit, manufacturers will likely have to rely on more homegrown talent to enable that transformation. That could give them a tricky juggling act.
There is clearly a delicate balance to be struck here between attracting enthusiastic but less experienced new talent alongside new technologies, and ensuring that the existing workforce, with significant process experience, is upskilled to keep pace.
To further cloud the prediction, there’s the issue of sustainability to contend with. The UK’s success in reducing man-made greenhouse gas emissions to zero by 2050 will require manufacturers to make further major changes – and they can fully expect to face a range of policies and initiatives designed to to encourage, assist or commit them to share in delivering a low carbon future.
It is an added but necessary pressure at an already very disruptive time. Further digitization is a big part of the solution, but at the same time, manufacturing companies need to think beyond ‘greening’ manufacturing processes in manufacturing and the trend of smart factories, to include the carbon debt represented by products they build.
In other words, how should manufacturers feel about the materials used to make a product, and the processes chosen to build it? This requires abandoning the ‘take-make-waste’ approach, in favor of the broader idea of the ‘circular economy’, in which waste and pollution are designed from every stage of a product’s life cycle, including at the end of its useful life. .
Make no mistake; this is a time for critical decisions and firm action and investment. There may be positive signs of recovery and the Chancellor’s tax incentive will certainly help companies accelerate transformation plans aimed at increasing productivity and profitability.
But the sector as a whole must be able to execute these plans with confidence over a much longer period of time if it is to enter calmer waters in the coming years.
Nick Leeder is vice president of digital transformation solutions at PTC.