Gateley looks at the 2017 challenges for manufacturers

The UK’s manufacturing industry has enjoyed a resurgence in recent years, buoyed by a renaissance in the Midlands’ automotive sector. But what does 2017 and beyond hold for manufacturers?

Paul Cliff, partner at Gateley Plc looks at the main challenges for the region’s manufacturers.

The EEF, the industry body for engineering and manufacturing employers, said manufacturers expect 2017 to be another year of risks, with almost half (46%) seeing more challenges than opportunities over the next 12 months, according to its annual Executive Survey.

So what are the main challenges facing the manufacturing sector?

Broadly speaking the challenges relate to colleagues, costs, compliance, customers and cash, or the ‘five Cs’, as they are also known.

Colleagues

In terms of colleagues, there are a number of challenges work forces are creating for manufacturers. For example, the skills gap and the difficulties companies face in recruiting skilled employees. Many believe that this is one of, if not the biggest threat to the manufacturing sector today.
 
In a bid to encourage more people to choose a career in manufacturing, the Government has introduced an apprenticeship levy, which is payable by employers with payroll costs of more than £3m a year. The Government has announced that it will contribute 10p for each £1 paid by an employer. The levy will be introduced from April 6, 2017.

Other significant challenges around the work force include wage inflation, the National Living Wage, the Modern Slavery Act 2015, which is particularly relevant to manufacturers with complex supply chains, and the free movement of labour as a result of Brexit.

Costs

Any manufacturer importing goods or paying for goods in currencies that have increased in value against the pound will now be feeling the effects of the fall in the value of the pound against those currencies since the UK voted for Brexit.
 
Many manufacturers are part of a supply chain, but few manufacturers will be able to pass the entire cost of increased supplies to businesses further down the supply chain, especially if they are operating in competitive sectors and dealing with sophisticated buyers.
 
Compliance

A recent report by the EEF found that the manufacturing sector is often subject to cyber attacks and UK manufacturers need to improve their cyber security planning. According to the report, almost half of all manufacturers have failed to increase their investment in cyber security in the past two years.
 
While compliance with regulatory requirements is no guarantee against a security incident, suffering a security breach when out of compliance can significantly increase risk, penalties and adverse publicity.

The EU is about to introduce the EU General Data Protection Regulation (GDPR).

This regulation was released in April 2016. The regulation will come into force on 25 May 2018 and will replace all data protection legislation in EU member states.

The legislation contains tough sanctions, including significant fines. Some data breaches (such as those relating to international transfers of personal data) will be punishable by fines of up to the higher of 4% of annual turnover and €20m.

As a result, data protection breaches will become far more expensive than ever before.

Manufacturers need to start planning ahead and preparing for the changes the GDPR is going to make.
 
Customers

The UK’s vote to leave the EU raises significant challenges for manufacturers which trade with the EU.  More than 50% of our exports go to the EU and four of Britain’s six biggest export partners are EU member states, in addition to the US and China.

Manufacturers could be affected by the imposition of trade barriers such as tariffs and quotas.
 
In addition, manufacturers may lose current tariff-free trade deals with countries outside the EU which have trade agreements with the EU. In parallel with the EU negotiations, the UK will need to negotiate with the key jurisdictions outside the EU to establish its future trading arrangements.

While there are many unknown factors around the UK’s future relationship with the EU and non-EU countries, there are still steps which businesses can, and should, take at this point.

Companies will need to re-assess their Brexit contingency planning in order to identify key concerns and core areas of interest for the exit negotiations.

Cash

Britain’s exit from the EU could also have significant financial implications for manufacturers, not least wage inflation, price volatility and the costs associated with complying with different sets of regulations.

Also, will the UK continue to attract the same level of direct foreign investment as it has enjoyed in recent years, with investors understandably more cautious post-Brexit?

But let’s remember that the UK is still the world’s fifth largest economy whatever the outcome of the Brexit negotiations, the country’s manufacturing industry will still be able to trade off its reputation for high quality production, highly efficient facilities and a skilled labour force to stand it in good stead for the future.

Read more: http://info.gateleyplc.com/gateley-specialists-sector-expertise

Reference

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