As we’ve mentioned several times over the past year, economic and political uncertainty continue to dampen performance and confidence in the manufacturing sector. While the weak pound may have boosted export figures, there remain a number of key manufacturing challenges for 2018, with no end to the uncertainty in sight, largely thanks to stalled EU Brexit negotiations.
Poor productivity has long dogged British business and the problem is getting worse, not better. In manufacturing the picture is particularly bleak, with the Office for National Statistics declaring that in the period April – June 2017, manufacturing output fell even though hours worked grew, resulting in a labour productivity decline of 1.3% that quarter. With productivity a key driver of the economy, as well as the engine room of corporate growth, improvement is vital but hard to come by. The Office for Budget Responsibility has recently thrown in the towel after a series of off-beam predictions of productivity improvement, announcing on 10 October that it is “likely to revise down potential productivity growth in its November forecast, weakening the outlook for the public finances.”
The rise of automation
There is no simple answer to the productivity puzzle but one potential area for investment is automation, which enables greater output from the same number of (or perhaps fewer) workers. Again, the UK has traditionally lagged behind many of its competitors but this is changing, and fast.
Indeed, in its Annual Manufacturing Report 2017, Hennik Research writes that, “85% of UK manufacturers implemented some form of automation in the past 12 months.” As the report highlighted, “Manufacturers are in the middle of one of the most exciting technological upheavals of recent years, what has become known as the fourth industrial revolution, or Industry 4.0. The capabilities – and challenges – represented by robotics; automation; additive printing, and the Industrial Internet of Things (IIoT) offer manufacturers the opportunity to do more, better, faster.”
The growth in automation is very encouraging but brings with it its own manufacturing challenges, such as finding the investment to keep up with such a fast pace of technological change and recruiting the people with the right skills to manage, maintain and plan for the robots and AI platforms required.
Lack of skills
The rise of the robots is undoubtedly compounding the skills crisis, with a sea change in the offing as some jobs become obsolete while others are created. Job displacement and labour market fragmentation threaten to widen the gap further between high-skilled, high-paid workers and low-skilled, low-paid employees, yet the education system isn’t producing people with the right qualifications and skillsets to address this (the Local Government Association estimates that there are already 9m adults in the UK who lack basic numeracy and literacy skills).
The skills shortage is exacerbated by uncertainty over post-Brexit immigration controls too. Manufacturing body the EEF has “warned of a ‘looming crunch’ in recruiting workers if the government fails to address the issue of being able to hire from the EU after Brexit.” According to reports, “The number of applicants from European workers has already fallen by a quarter…with businesses noting a 16 per cent rise in the number of EU workers leaving their employment.
The latest figures add to an existing skills shortage which means three quarters of manufacturers already struggle to fill the jobs they have. A third of them turn to workers from abroad due to the gap.” In another report, the Local Government Association estimates that “by 2024 there will be more than 4 million too few high-skilled people to meet demand for high-skilled jobs; and more than 6 million too many low-skilled.” In my view, this is one of the manufacturing challenges which will take at least a generation to fix.
Falling consumer demand
The continued lack of consumer demand for products adds to the manufacturing challenges of 2018 and has many businesses on the edge of their seats in the run-up to Christmas. Stagnating or falling wages, rising inflation and concerns about the level of consumer debt point to a precarious situation.
The Financial Conduct Authority has warned that half of all UK adults are “financially vulnerable” and rely on credit to make ends meet, while Kevin Jenkins of Visa notes that four of the last five months have seen a decline in household expenditure. According to a report last week, a recent CBI survey reveals that high street sales are falling at their fastest rate since the 2009 recession. This is hardly surprising when, according to a survey by Lloyds Bank, disposable income is threatened by an inexorable rise in living costs: consumers’ “essential spend” (rent, bills, food and fuel) has experienced 16 consecutive months of growth.
Lean product development
In this context, the need for a Lean approach seems to me more pressing than ever. By empowering and training staff to work more efficiently, cutting waste from the manufacturing process and introducing automation where appropriate, manufacturers can drive productivity and reduce costs.
Nowhere is this more necessary than in product development, which is often the most costly and time-consuming of processes. By employing Lean product development techniques, working backwards from customer need (to ensure there is a demand for the product), manufacturers can significantly shorten the time taken to get the product to market and maximise their chances of sales success.
All the signs are that 2018 is set to be another challenging year for manufacturing, particularly if the Brexit negotiations continue to limp towards the March 2019 deadline. While politicians dither, businesses need to put in place the necessary foundations to withstand the predicted seismic shifts ahead.
As ever, I’d be interested in your views on the manufacturing challenges for 2018 and look forward to your comments. I’d also be happy to help if you feel that employing a Lean specialist (either fixed contract or permanent) could be part of your preparations for the bumpy ride ahead.