Addressing the big four manufacturing challenges FDs can’t afford to ignore

Whilst a strengthening pound and uncertainty over Brexit have overseen a slowdown in manufacturing output in the first three months of 2018, the sector remains cautiously positive, after finishing 2017 on a 10-year high. So what’s really going on behind the headline figures and what will be the challenges keeping manufacturing’s FDs awake at night, over the months to come?

Currency fluctuation

In a truly global market, manufacturers are vulnerable to the cost of currency around the world, not least their own. There’s no doubt that manufacturing enjoyed a post-Brexit-vote export ‘dividend’ as British goods became cheaper off the back of a weak pound. Now it is strengthening and the global manufacturing market is slowing, the challenge is how to keep businesses growing going forward.

Although conditions are not as favourable as they were, export still offers great opportunities. As Fergus Camier, Finance and Procurement Director at Shropshire-based Grainger and Worrall, asserts: ‘The UK has an excellent reputation for technology, design and manufacture world-wide, which needs to be maximised.’ He goes on to point out that: ‘Government support for export growth is tremendous, but not always well advertised. Banks can get Government backing for up to 80% of export related project funding, making raising project finance easier than ever before.’

The right people in the right role at the right time

Skills shortages are a perennial problem. Let’s face it, the industry still has a bit of an image issue, finding it hard to shake perceptions of low skilled, low paid jobs with little or no career progression. Traditionally, it has struggled against other, more ‘glamorous’, sectors to attract the brightest and the best. That’s why talent strategies have become such an important part of the corporate mix.

That said, things are moving in the right direction. The spectre of student debt is making the modern apprenticeship a more attractive proposition for young talent who want to earn while they learn (although 95% of manufacturers don’t have confidence in the apprenticeship levy as a route for funding them). Closer collaboration with the higher education sector is also starting to pay off. Beyond helping to develop graduates with relevant skills, progressive manufacturers are consolidating relationships with HEIs in the arena of R&D, too. With EU funding for research drying up post Brexit, mutually beneficial research contract agreements, between universities and large manufacturers, offer a win, win, win for universities, manufacturing and students alike.

Grainger and Worrall are an example of how progressive manufacturers are addressing skills shortages directly for themselves. Backed by a Government Growth Grant, they are part of a consortium of companies in Shropshire, who have been working with their local council to set up a £4million state-of-the-art training hub in their region. The Marches Centre of Manufacturing and Technology (MCMT) is industry led, delivering industry-targeted training, to industry requirements.

Funding the future and the Internet of Things

In terms of smarter, more productive, cost-efficient working, everyone is agreed, Industry 4.0 is the way to go. But beyond the challenge of attracting the best digital changemakers to execute them, these kinds of digitalisation programmes don’t come cheap. Whilst Bank of England lending figures show investment borrowing up in the sector, other data suggests many manufacturers remain cautious. Those who are borrowing have noticed a shift as banks are, in general, becoming more supportive. However, many FDs are looking towards alternative funding options, like asset financing. In uncertain times, they enable businesses to benefit from smart-factory solutions now, whilst maintaining capital for a rainy day.

When we think of Industry 4.0, it is not simply about automating manufacturing processes. As Ynyr Merfyn, FD at South Wales based Seda UK, reports: “We are seeing an increasing trend for both customers and suppliers to also demand automation when it comes to invoicing, payment tracking, sharing forecasts” He warns: “It’s often a requirement for doing business so not something that can be avoided. Rather than reacting to requests on an as and when basis, however, companies need to be building this kind of investment into their roadmaps.”

Regulation and compliance

In an increasingly global market, the focus of regulation and compliance is ever-shifting. Currently, all eyes are on the US, watching to see how the rest of the world responds to the imposition of trade tariffs. Here in the UK, most pressing is the rush to comply with GDPR. The flip-side of the push towards digital, organisations need to ensure best-practice now to mitigate potential legal liability in the future. The furore over Facebook and Cambridge Analytica suggests that regulation is only going to become tighter. Responsibility for data protection in a sector where businesses are looking to digitally connect every facet of what they do means the role of the CSO will become increasingly influential.

And what about Brexit? Well what about it? Who really knows!? The devil, as they say, will be in the detail. Some businesses are optimistic; others remain cautious. All are philosophical that it is a fact of life that we’ll just have to deal with!

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