The productivity challenge facing manufacturing in the North West

New statics put the productivity challenge facing Britain’s manufacturers in sharp focus. Manufacturing productivity grew by 4.7% a year between 2000 and 2007 but since the turmoil of 2008 has flatlined at less than 1%  a year.

EEF, the manufacturers’ organisation, last month called for the immediate creation of an Industrial Strategy Council. And it says it should be given the “urgent task” of setting clear goals that will focus on solutions to boost productivity growth.

Lee Hopley, chief economist at EEF, says: “We’ve known about the productivity problem for some time with various attempts made to try and fix it across the whole economy.
“Productivity growth matters for wages and international competitiveness yet 10 years on from the start of the financial crisis these attempts have not delivered a major shift and we need to tackle the challenge in a different way.”

Productivity is just one of the challenges facing North West manufacturers. Skills and Brexit are also high on the agenda, and according to Rob Elvin, managing partner at Squire Patton Boggs in Manchester, the two are interlinked.

He says: “There is a worry that skills needed in manufacturing are going to be increasingly difficult following Brexit.”

A Squire Patton Boggs’ joint report with the EEF released last month revealed that almost half of the UK’s manufacturing companies remain concerned about their ability to access skills post-Brexit.

While a fall in job applications from the EU has slowed since last year, 17 per cent of businesses reported a drop in applications from European citizens.

The report – Navigating Brexit: The Migration Minefield – called on the government to move swiftly to deliver “increased clarity over the future of EU citizens working in the UK to stem the outward flow”.

Elvin says that it is the middle layer of manufacturing talent that is being affected. “Gaps in the workforce are going

Rob Elvin

to open up,” he predicts.

He also says larger manufacturers are beginning to analyse their supply chains to see what Brexit will mean for them. The fear remains that a ‘hard’ Brexit will mean tariffs and different regulations.

“They are doing the analysis to see whether their supply chains need to be changed. The question is can they put up with any costs or do they need to change their supply chain?”

That could mean finding more components in the UK, creating opportunities – or on the flipside it could mean less manufacturing in the UK.

Elvin says manufacturers are also looking at technologies, such as 3D printing, as a way of changing their supply chain. “Rather than having lots of components from different suppliers they are looking to see if they can deliver their own.

“If you don’t need to bring component parts in from the outside the issue around tariffs disappears.”

David Morritt, partner at KPMG says that in terms of delivering support for manufacturing and pushing the Northern Powerhouse, the government has been distracted by Brexit.

He agrees that much of the sector’s focus is now on supply chains and adds: “A hard Brexit could have a major bearing on future growth opportunities and the cost base of some businesses.”

David Morritt

Morritt adds: “We need clarity and we need strategy and some stability would help as well. And coupled with that, we need support in terms of innovation, technology and education.”

He says there is widespread agreement of the need for an Industrial Strategy, and that needs to start sooner rather than later.

He believes that competition from developing and emerging economies outside UK and Europe is another challenge for the UK manufacturer.

“Places like India and China can manufacture with a cheaper labour costs and overheads than we can in the regions.

“R&D remains vital; the challenge to the innovation agenda is to have a workforce that keeps up with it.

“We have some great education establishments around the patch. It’s about keeping the talent it creates here.”
Blueprint for the future?

Richard Halstead, EEF’s membership engagement director in the North, has spent his career in manufacturing. He points to the push to create local industrial strategies that will feed into the government’s national blueprint for the future.

He applauds the idea, which is being carried out by the Local Enterprise Partnerships (LEP), but adds: “There needs to be a lot more business engagement to develop it properly.”
Cheshire and Warrington and Lancashire are among the North West LEPS working on plans.

Andy Walker, Lancashire County Council’s head of business growth, says that as part of this the LEP and its partners are talking to others across the UK with an eye on new “commercial collaborations.”

The conversations, he explains, are with places that share the county’s expertise and capacity in its key industrial sectors such as aerospace, automotive and nuclear.

Halstead also wants to see the right environment for businesses to push ahead with the introduction of technologies spearheading the so-called fourth industrial revolution.

He points to a company in the North that has just placed sensors on its equipment and is using the data gathered to improve its production. “It can be something as simple as that,” he says.