5 key challenges the manufacturing sector has to overcome

At the end of 2017 manufacturing output was at its highest level for 10 years. We look at some of the major challenges in 2018 that could hold back this progress.

Renewable energy projects, cars for export and an upturn in the global economy have helped to boost UK manufacturing.

However, political uncertainty continues to knock confidence in the sector. While the weak pound has led to a rise in export figures, there are several key manufacturing challenges that lie ahead as negotiations continue over the future of the UK.

1. Brexit

Concerns still loom large over how British businesses will fare once the UK leaves the EU in March 2019. Many manufacturers are worried about a possible end to tariff-free trade, while others see Brexit as an opportunity to do more business with lower-cost suppliers in countries such as China. Leaving the EU is likely to bring both opportunities and challenges for manufacturers, although much of this will depend on the terms negotiated by the Government.

The weak pound has had a mixed impact across the UK’s manufacturing sector. Raw materials have generally become more expensive to import, whereas exports have become cheaper and more appealing to overseas buyers.

2. Skills shortages

Now that the baby boomer generation is reaching retirement age, it’s leaving a significant skills gap in the workforce. This is one of the biggest threats facing the manufacturing sector today.

In 2018, it will be even more crucial for manufacturing firms to work closely with local schools and universities, especially following the drop in the number of workers arriving from the EU. The introduction of the apprenticeship levy is seen as a positive development as it aims to fund three million apprenticeships in the UK by 2020, although it has added to the wage bills of large businesses. With an ageing workforce, manufacturers must look to the next generation to prepare for the future.

3. Data protection and online threats

In May, the General Data Protection Regulation (GDPR) will come into force. This new legislation is designed to protect EU citizens from privacy breaches, and give them more say in what companies do with their personal data. According to research specialists Gartner, more than half of firms affected by it are unprepared for the change (SC1). Failure to comply will see tougher fines issued to companies, so GDPR could be a major headache for manufacturing firms this year, particularly those that gather huge amounts of data.

Cyber threats also remain high, with the manufacturing industry a prime target for fraudsters. This is due in part to increased connectivity and lack of investment in cyber security. Manufacturers need to be prepared for an attack.

4. Automation and innovation

The robots are coming… Traditionally, the UK has lagged behind some of its competitor economies in technological advances, but this is changing rapidly. The latest Annual Manufacturing Report shows that 85% of UK manufacturers have implemented some form of automation in the past 12 months (SC2). The so-called Fourth Industrial Revolution will bring about a greater emphasis on 3D printing, robotics, virtual reality and data analytics. All these offer manufacturers the opportunity to do more faster and more efficiently.

The growth in automation brings its own challenges though, not least the potential cost of initial set-up and recruiting the right people with the right skills to manage the implementation of robots and AI platforms.

5. Falling consumer demand

Stagnating wages, rising inflation and consumer debt will add to the manufacturing challenges of 2018.

The Financial Conduct Authority has warned that half of all UK adults are ‘financially vulnerable’ and rely on credit to make ends meet (SC3). Many people have less disposable income due to a rise in living costs, which means they have less to spend on products such as electrical goods and cars.

NIG understands UK enterprises and the challenges faced by the manufacturing sector. With industry experts located in each of their regional offices they are perfectly positioned to deal with a wide range of clients types and their unique insurance requirements. If you would like to find out more about NIG Manufacturers Combined Policy contact your local team.