On the back of strong order growth, industry leaders expect UK manufacturing to recoup ground that was lost during the pandemic, according to a recent survey.
The Make UK/PwC Executive Survey 2022, published in January 2022, says that despite the challenges of COVID-19 and Brexit, “manufacturers are looking to the future with a level of confidence that might not have been foreseen a year ago”.
Almost three-quarters of surveyed firms said they expect conditions for their industry to improve overall in 2022. That includes around a quarter of manufacturing firms, who believe there will be a significant upswing in conditions for their subsector this year.
The report says demand is set to stay strong and that the outlook for growth and exports to major markets is positive. The economic recovery from the pandemic saw the UK’s GDP grow by 7.2% in 2021, it notes, and it forecasts a further 5.7% expansion in 2022.
“The last two years have been a rollercoaster for UK manufacturers, who have ridden the troughs of a severe loss in output to record lows, followed by a rebound in demand that has seen them reach record highs,” the report adds.
“While clouds remain on the horizon… as one of a few sectors of the UK economy that remained open throughout the COVID-19 pandemic, UK manufacturers have already proved their resilience and agility beyond any measure, helping keep the lights on, putting food on the table and keeping the UK economy moving.”
Only two-fifths of firms surveyed expect all their staff to be back in the workplace this year, while almost a third foresee some sort of hybrid working persisting through 2022 as COVID-19 continues to affect their employees.
Just 7% of firms surveyed anticipate a decline in conditions, and none expect that decline to be significant. Three-quarters say opportunities will outweigh risks and that manufacturing exports will grow by 6% in 2022.
It’s not that all the difficulties have gone away. Brexit continues to loom large over supply chains. Two-thirds of manufacturing leaders report that leaving Europe has hampered their business.
More than half (56%) say that changes to customs rules, due to come into effect in July 2022, will present significant challenges to their business. In particular, there is concern about the impact of the introduction of full safety and security declarations for all imports from the EU.
Not only will manufacturers have to comply with new customs paperwork and procedures for imports from and exports to the EU, but the UK’s own IT system for administering customs documentation is due to change in 2022.
As well as new export accounting and tax rules, exports will need to comply with rules of origin requirements to retain tariff-free access to the EU. On top of which, changes to product labelling rules are due to come into full legal effect from 2023.
“Manufacturers are responding with an impressive amount of agility and resilience, which will stand them in good stead for the year ahead.”Cara Haffey, UK Industrial Manufacturing and Automotive Leader, PwC
Supply chain lessons
“Manufacturers are responding with an impressive amount of agility and resilience, which will stand them in good stead for the year ahead,” says Cara Haffey, PwC’s UK Industrial Manufacturing and Automotive Leader.
“They have learnt valuable lessons about their supply chain vulnerabilities and the resilience needed to respond to unforeseen international or domestic risks, and are strengthening their businesses digitally as well as continuing to focus on talent and skills.”
In response to supply chain disruption, more than a third of business leaders say they plan to source from the UK rather than international suppliers in 2022, and 31% intend to relocate some or all of their production to Britain.
“Supply chain issues have highlighted the need to work collaboratively with trusted suppliers,” says Emma Botfield, RS Components’ UK & Ireland Managing Director. “At the end of the day, it’s transparency that builds trust and strengthens the relationship.”
Rising energy and shipping costs, compounded by increases due from April 2022 in UK national insurance and corporation tax, may drive up manufacturers’ costs by as much as 10%, says the Make UK report, emphasising the need to achieve value for money and maximise process efficiency.
Although more than half the firms in the survey plan to invest in new capital equipment, the surge in demand generated by the ongoing economic recovery will place enormous pressure on engineers responsible for Maintenance, Repair and Operations (MRO) to avoid outages from existing plants and equipment.
“Supply chain issues have highlighted the need to work collaboratively with trusted suppliers.”Emma Botfield, Managing Director UK & Ireland, RS Components
Research by RS Components shows that maintaining ageing assets is the biggest driver of downtime, followed by lead times to procure replacement parts – something that may have worsened during the pandemic – and the lack of onsite parts to fix the problem.
“You can only get the best out of your existing assets if you know precisely how they are performing,” says Richard Jeffers, Maintenance Solutions Director at RS Components. “That’s why condition monitoring and oil analysis are vital in preventing unplanned outages.
“With order books full and growing, most manufacturers can’t wait for new kit to arrive. They need to get the most out of what they have. As well as giving advance warning of faults that can lead to breakdowns, digital monitoring allows you to plan maintenance around the actual performance of your production assets.”
Process resilience is essentially about a mindset, says Jeffers. Describing the findings of the RS Components’ Resilience Index, he says organisations need to start by thinking deeply about how they operate.
The four key steps to building resilience are: continue to innovate; enhance back-up capacity; continuously improve; and approach outsourcing as a way to free up existing resources to do more rather than just to save money, he explains.
Digital tools have a vital role to play in improving MRO efficiency and resilience. More than two-fifths of the firms in the survey say they have concrete plans to invest in digital technologies over the next year.
“Digital tools put the power in the hands of engineers to decide what’s needed within an accountable framework, ensuring the company gets the best value for money and the right quality parts,” says Emma Botfield.
“As the pressure mounts, there’s always the temptation to cut corners and source from unauthorised suppliers,” she adds. “But a trusted supplier can share their knowledge and expertise with you to build resilience and support innovation.”
And, of course, the cost of setting up one-off suppliers, raising retrospective purchase orders and processing invoices means that parts sourced by individuals sidestepping agreed purchasing processes almost always end up being more expensive.
Only by sourcing from a trusted supplier can organisations ensure that the products they buy will adhere to their environmental, social and governance (ESG) standards. The Make UK report says ESG concerns have shot up the agenda for manufacturers since the COP26 conference in Glasgow in November 2021.
Sustainability was identified as one of the top two business pressures facing MRO procurement managers in the RS Components and Chartered Institute of Procurement & Supply’s 2021 Indirect Procurement Report, second only to the need to reduce operational budgets.
“When companies optimise their operations, better environmental performance can be a by-product.”Emma Botfield, Managing Director UK & Ireland, RS Components
More than half of UK organisations in that survey say they have a strategy in place for sustainable and ethical procurement. Data from consulting firm McKinsey demonstrates just how crucial procurement is to achieving an organisation’s sustainability goals.
McKinsey says that supply chains can account for more than 80% of a firm’s total emissions and over 90% of its impact on air, land, water, biodiversity and geological resources. “Sustainability doesn’t have to come with a hefty price tag,” the firm adds.
“When companies optimise their operations, better environmental performance can be a by-product" says Emma Botfield. "Efficient manufacturing processes and supply chains don’t just cost less to run: they also consume less energy, use fewer resources and produce less waste.”
The Make UK survey found that more than two-fifths of firms are committed to carbon zero in manufacturing, pointing to the need for procurement teams to work with trusted suppliers who share their environmental goals.
The Make UK report also highlights the wider impact of failing to uphold ESG standards in procurement. It says “access to talent” is one of the top two challenges for manufacturers and that the best people demand the highest standards from their employers.
With 63% of companies in the survey expecting to hire more people in 2022, the report adds: “More and more individuals are invested in the ESG agenda, pursue purpose as much as salary and seek to make a difference. That message needs to be amplified for the industry.”
All of which serves to underline the central role that MRO procurement plays in ensuring the resilience and continued success of UK manufacturing. Challenges remain but, as the Make UK report shows, there are strong grounds for optimism that these can be overcome in 2022.