Whether you voted to leave or remain, like it or not, the UK is destined to leave the European Union within the next two to three years. Brexit may pose a threat to your manufacturing business or open up new opportunities and reduce bureaucracy – for most businesses it is too early to know. Although the referendum has been decided, there’s only one thing that’s certain today; the future is far from clear.
The latest survey from EEF, The Manufacturers’ Organisation, shows that manufacturers’ confidence in the UK economy and their own business performance has suffered a setback since the Brexit vote. While over 80% of firms surveyed stated that it’s too early to see any direct impact on orders, most are expecting to see the real risks from the outcome of the referendum become clearer over the next six to 12 months.
Few businesses thrive in an uncertain trading environment. Indeed, Terry Scuoler, Chief Executive of the EEF, has made it clear that the Government has the backing of manufacturers in waiting until the UK has a ‘clear and defined’ negotiating position before triggering Article 50 and the formal two-year exit process.
Top Brexit concerns for manufacturers
According to the EEF’s survey, increased exchange rate volatility is an immediate concern for three quarters of manufacturers. Whether you’re a winner or loser depends on if the falling pound increases the cost of your inputs or reduces the cost of your exports to overseas markets.
According to many commentators, immigration was the defining issue of the referendum and was also a central feature of the leave campaign. Alongside the features of any future trade agreements with the EU, there is much speculation about the strategy that the UK will adopt to control the free movement of people. Both of these issues will be fundamental to the Government’s Brexit negotiations and whether the UK remains part of the single market. Clearly, access to skills and markets are equally critical to many of the UK’s manufacturing businesses.
According to The Migration Observatory, an independent, expert advisory board based at the University of Oxford, a recent study found that manufacturing, retail and hospitality sectors were particularly dependent on EU workers. In 2014, some 22% of assemblers and routine operatives’ jobs were occupied by foreign-born workers.
So, in the face of an uncertain period where exchange rate volatility, shortages of skilled labour and markets dictated by as yet unknown trade agreements characterise your operating environment, is there anything that your business can really do to prepare for Brexit?
We believe that there are steps that manufacturers can take to minimise the risks from these uncertainties and maximise the gains from new opportunities that arise.
Agile businesses can change quickly to react to events as they happen. In terms of manufacturing, that might mean, for example, being able to introduce product variants to respond to new market opportunities and beat your competition to market. This will be easier if you have well-defined and documented processes, that you can easily modify to accommodate new products.
You should be able to communicate new steps to factory floor operators quickly and unambiguously, and have them follow instructions for the manufacture of a new product line or variant while maintaining a good level of productivity. If your factory floor is still running on paper-based jobs lists, you need to re-think your overall approach.
Boost labour performance
Boosting the productivity of your existing workforce will become increasingly important if access to skilled, cost-effective labour becomes more difficult. In future, it may be necessary to train unskilled operators and more carefully control production tasks that have a high dependence on human input. Furthermore, the cost of UK labour is set to increase with the introduction of the National Living Wage by 2020. With this in mind, no manufacturing business can afford to ignore labour productivity.
Stay profitable while pricing to win
A key challenge in running a profitable manufacturing operation is to develop an accurate, detailed understanding of your costs. This can be difficult when products have high labour content, because labour input is notoriously difficult to measure with any degree of accuracy.
Only by accurately tracking costs will you be able to price with a profit margin when you are competing against regions with a cheaper cost base, while allowing for exchange-rate fluctuations.
Looking to the future
The EEF is lobbying the Government to take immediate steps to keep manufacturing growth on track. That means minimising the short-term risk of an economic downturn and re-invigorating the UK’s industrial strategy to support long-term investment and growth in domestic supply chains. Many will hope that we remain a highly attractive country to attract and retain skilled talent, while keeping our most important trading channels free and open.
However, governments can only do so much. It is incumbent on every manufacturing business to, as far as possible, take control of their own destiny. By putting in place a factory recording and analysis solution that does away with paper trails and automates shop-floor data collection, you will have a foundation to make some of the key changes highlighted above.
Continuing to push labour and materials in at one end of the factory and ship finished goods from the other without any visibility of precisely where your losses occur is just hoping for the best. This out-dated approach, combined with the effects of Brexit, competitors who embrace Smart Manufacturing/Industry 4.0, and a failure to fine-tune your people and processes could kill your business.
MESTEC provides manufacturing solutions that measure and transform factory and labour productivity. Our software enables you to easily collect data to measure productivity and materials use, control workflows to account for different skill levels and gives you access to the level of detail you need to inform profitable pricing and become an agile manufacturing business.
We offer our manufacturing system ‘as a service’ for a low monthly fee based on the number of terminals you need, which makes it affordable and easy to budget for. We aim to be an agile business too – typically, we can get a factory up and running within a week.
See how our solutions work here.