“The UK has always been a strong, innovative and resilient manufacturing nation. Yet it is now at a crossroads: what sort of manufacturing centre of excellence does it want to be? My view is that the future is a UK manufacturing industry driven by design capability and innovation, coupled with a strong understanding of digital technology and cyber security.” Stephen Cooper, Partner and Head of Industrial Manufacturing in the UK for KPMG
It is no wonder that UK manufacturers are concerned about economic disruption. The EU has faced strong economic headwinds over the past year and concerns over the impact of a potential ‘Brexit’ may impact on both domestic and foreign investment as executives play a Referendum waiting game.
Oil has remained at low levels far longer than expected, and high dollar rates, which have supported moderate growth, will not continue forever. While input commodity prices may continue to fluctuate, manufacturers must understand how to manage effects on profitability.
The prospect of a continued slowdown in growth in the key emerging markets of India and China are also creating challenges for some – particularly larger multinational – UK manufacturers.
With organic growth hard to come by, many UK manufacturers have been rightly focused on costs – both from a gross margin perspective and from an SG&A perspective – but just focusing on the bottom line won’t drive the business model rethink needed to capitalize on technology trends – particularly the Industrial Internet of Things. Many manufacturers, including automotive, have had a largely unchanged business model for years: yet many now face a paradigm shift: do they want to be “mere” metalsmiths or innovative grid masters focused on customized product features delivered through connected technology?
For some, the answer will clearly be through a step change in innovation and R&D investment. The UK has always had a rich heritage of excellence in production design and design capability; many clearly hope they can leverage these skills to drive new competitive advantages through R&D, particularly into automated and connected cars.
For others, moving to a demand driven supply chain, focused on real-time updates on customer demand and backed by deep visibility across the supply chain can help them keep pace with change.
The UK has always been a strong, innovative and resilient manufacturing nation. Yet it is now at a crossroads: what manufacturing centre of excellence does it want to be? My view is that the future is in design capability and innovation, coupled with a strong understanding of innovative technology and cyber security. But this will take both private and public investment, and an unparalleled focus on building the right skills for the industry to thrive in the UK for the next generation.