The UK manufacturing industry is no stranger to uncertainty. Back in February this year, at a gathering at The House of Lords hosted by Lord Bilimoria, Vice President of CBI, manufacturing leaders gathered to reflect on how UK manufacturing was weathering unstable times. Lord Bilimoria reminded the audience that whilst Britain had left the EU, nothing had been decided, trade talks were still underway and there was uncertainty still. The audience was left with a sense of optimism, but also an understanding that there was still a way to go in dealing with challenges of adaptability and political uncertainty, little did we know what was to come.
The COVID-19 pandemic has resulted in an unprecedented global crisis, with industrial manufacturing businesses being hit hard from all sides. According to the CBI UK, manufacturers anticipate overall output volumes to contract by as much as 20%, marking the weakest expectations since the financial crisis (April 2009 -32%).
During the first wave of disruption through the temporary closure of major manufacturing hubs in China, many multi-national companies were left with limited contingency plans. Manufacturing businesses, who turned to off-shore supply to reduce costs and just-in-time to reduce inventory value, suddenly experienced disruption on an unprecedented scale.
Facing the second wave of disruption as the epicentre moved from Asia to Europe, manufacturing businesses have had to quickly respond to immediate and severe business changes. In the worst-case scenario, lockdown measures - or the absence of key parts - has forced the shutdown of whole production lines for some businesses. And yet many industrial manufacturers are considered to be essential businesses in their various jurisdictions, thus, they have been faced with other challenges around adapting their operations to ensure production whilst maintaining the safety of their workforce.
When distress hits, cash is king and industrial manufacturing businesses have reacted quickly to expedite measures to ensure they have enough liquidity to weather the crisis including cancelled dividend payments, suspended bonuses and board level pay cuts. In the UK many businesses have also been quick to adapt their business models and operations in order to respond to the government’s call for support in manufacturing emergency healthcare products such as PPE and ventilators. Supply chains are having to reconfigure themselves in real time and manufacturers are having to reinvent themselves at a pace never seen before.
From the outset companies have been looking for immediate measures to keep the workforce safe and their businesses solvent but now is the time that manufacturers need to start looking to the future towards possible long-term changes.
One of Oxford Economics baseline forecasts is that global manufacturing will take a 5% hit in the first 6 months compared to 2019, recovering much of that drop in H2 2020, and finally exceed the 2019 position by early 2021. Whilst this forecast may seem low, the pace and extent of the decline and subsequent recovery will vary by manufacturing sub sector. However, those sub-sectors facing the biggest output falls, such as automotive, textiles and electronics, are also forecast to start recovering the quickest in H2 2020 due to pent up demand.
As manufacturers begin to plan their road to recovery, we see some key themes emerging, many of these ideas have been on the agenda in the sector for some time but their adoption will no doubt be accelerated due to the current crisis:
Revival of (automated) domestic manufacturing: the ability to source parts and materials in times of disruption such as these is high on the agenda; we may see a surge in incentive plans to bring back manufacturing segments that are critical for national resilience and stability. Automation would support increased productivity and addresses the challenges of extended social distancing measures.
Decoupling of supply chains: this crisis has highlighted the importance of transparent, predictable and resilient supply chains. Suppliers are likely to seek a more diversified client base and more localised customers across multiple geographies. Digital tools and processes will help better inform decision making and supply chain management.
Digitisation as a competitive advantage: digitisation is not an unfamiliar term amongst manufacturing businesses; in the Annual Manufacturing Report 2020 almost 90% of manufacturers agreed with the need “to get on with it” recognising the enormous benefits of better supply chain visibility that digital technology can provide. Industry 4.0 has an important role in shortening the recovery phase and provides a platform for more resilient businesses in the long-term.
Data as a strategic asset: a control tower view of data and insights across whole manufacturing operations could become key in running manufacturing organisations. AI and Machine Learning would allow businesses to constantly reassess and re-plan activities, to scale-up and scale-down as required.
Remote working and “virtual shift”: with social distancing measures looking likely to be extended for some time, manufacturers may lose 50% of onsite personnel and could see the adoption of remote diagnostic, management and collaboration tools for those off-site to support in guiding on-site teams. Factories may also need to be adjusted to mitigate the capacity impact due to social distance requirements in areas with large headcounts.
Importance of supply chain risk: supply chain risk management is likely to stay at the top of many companies’ agendas well after the immediate threat of COVID-19. In the longer-term, digitisation of supply chains will become increasingly important in managing risk and ensuring resilience against disruption
Needless to say, it is a seminal moment for the manufacturing industry – those who prosper will be businesses who embrace new technologies, support skills development and have flexible business models to adapt to any challenge. As Lord Bilimoria put it back in February, “you must adapt in business – or die”; from manufacturers, the government, through to solution providers, let’s hope that we can collaborate to keep the UK manufacturing industry alive.