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Official figures state that the UK’s manufacturing sector is responsible for 9% of GDP, whilst other reports put the figure even higher at 15% or even as much as 23%[i]. And while it is undeniable that the sector has been impacted by the looming threat of Brexit in recent months, the UK is currently the ninth largest manufacturing nation in the world, with the sector employing 2.7 million people and accounting for 45% of the country’s exports[ii].
We take a closer look at the UK’s manufacturing sector and some of the challenges it is facing, as well as risks that companies operating in the industry need to be aware of…
What do we manufacture in the UK?
Famously the UK’s manufacturing industry has centred around cars, with motor giants such as BMW and Toyota all having UK-based factories. And while the automotive market has struggled recently, with car production declining for 12 consecutive months, the sector received several significant boosts in July with the news that Jaguar Land Rover is set to invest billions in producing electric vehicles in the UK[iii] and BMW launching an electric Mini, which will also be produced in its Oxford base.
But it’s not just cars that the UK’s factories are known for producing; food and drink and tobacco products accounts for the biggest percentage of UK production (11%), followed by transport equipment (8%), basic metals (8%) and pharmaceutical products (6%)[iv].
The fourth industrial revolution
All areas of manufacturing, from cars to pharmaceuticals, are facing big changes in the coming years as manufacturing undergoes what many are terming the ‘fourth industrial revolution’. Experts expect that within the next ten years manufacturing will primarily take place within ‘smart factories’ which make use of new, disruptive technologies and automated processes to make the manufacturing process more adaptable and efficient.
This is already being seen to an extent with the UK’s first ‘smart factory’ opening in Sheffield in July 2019 as part of a collaboration between Rolls Royce, Accenture and Sheffield University and a growing number of manufacturers adopting tech such as 3D printers and Computer Aided Design.
But while these advancements are great news for the manufacturing sector and will hopefully help move the industry forward, they do bring with them potential risks. For example, if production is reliant on increasingly complex, and expensive technology, what are the implications if it breaks? It could take a long time to repair or have a knock-on effect on other equipment, meaning companies will need to have adequate insurance in place, to ensure they can be up and running again with minimal business disruption. For example, the sum insured and indemnity period for any business interruption cover may need to be greater than previously.
There is also the potential that businesses could become increasingly vulnerable to cyber attacks or data loss, as well as implications for liability. If machines are responsible for monitoring and carrying out all steps of the manufacturing process, who is liable if the resulting product causes damage or injury?
In addition, smart factories by their very nature will house complex and often bespoke machinery worth significant sums, meaning that the implications of natural disasters or accidents are much greater and, again, businesses will need to ensure they have adequate levels of cover in place.
Supply chain challenges
As well as adapting to smart factories, manufacturing businesses also need to be aware of and respond to supply chain challenges. The manufacturing supply chain is vulnerable to a number of risks, including distribution disruptions such as a supplier’s factory having to close unexpectedly, increased competition and price rises, all of which can prevent or delay manufacturers from getting the materials they need.
These risks aren’t new, but there are several factors which mean that supply chain issues could become more prevalent in the near future, the most significant of which is Brexit. With many UK manufacturers relying on imported materials, there are concerns they may have difficulty getting their hands on vital components once Britain leaves the EU, or face significantly increased costs. If there is a ‘no deal’ Brexit, then there are likely to be a raft of new regulations and processes around trading with the EU, which could lead to delays in receiving goods.
When it comes to supply chain concerns, it pays to have adequate protection, plus a solid, tested business continuity plan which provides robust solutions and alternative suppliers who can be utilised should the worst happen.
How can NIG help?
With significant changes facing the manufacturing sector in the coming years, it’s never been more important to have the right protection in place. NIG’s Manufacturers Combined product covers Material Damage and Business Interruption, as well as Employers’, Public and Products Liability, with flexible policy limits which have the potential to be uplifted. Brokers can access our Business Interruption cost calculator free of charge, to help calculate what level of protection their customers need.
We also offer Cyber Cover to protect against the ever-growing threat of digital attacks.
For more information head to NIG.com to take a closer look at our policy features and benefits, or give your NIG sales contact a call.
[i] https://www.theguardian.com/business/2019/jun/12/uk-manufacturing-sector-far-larger-than-politicians-realise
[ii] https://www.themanufacturer.com/uk-manufacturing-statistics/
[iii] https://www.theguardian.com/environment/2019/jul/07/uk-car-industry-future-hinges-not-on-brexit-but-on-batteries
[iv] https://tradingeconomics.com/united-kingdom/manufacturing-production