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Manufacturing: Challenges and Trends in 2021

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As Britain deals with the short and long term effects of the global pandemic, the manufacturing industry is a vertical which has suffered significant challenges in the past year. Undoubtedly, these will continue into 2021 and beyond.

According to a recent survey by McKinsey, the majority of consumers foresee the financial and personal impacts of COVID-19 lasting for at least another four months. For manufacturers, the knock-on effect is likely to be felt for much longer. Since the onset of the coronavirus pandemic, consumer demand and spending habits have transformed. In addition to the difficulties proposed by the pandemic, the ramifications of Britain leaving the EU will also have a direct impact on the industry.

In this blog post, we will be covering the challenges facing the manufacturing industry for 2021 and beyond. We’ll also look into what we can anticipate for the future and how to approach challenges and trends such as; the digital supply chain, selling direct to consumers (D2C), business automation, and the skilled labour gap.

The impact of COVID-19 on the manufacturing industry

MAKE UK’s latest manufacturing report, published in late October, outlines that 51% of manufacturers currently had no staff furloughed – although, with the third national lockdown put in place after the report was published and the CJRS being extended until April, these figures have likely changed.

The data also shows that as a result of COVID-19, 50% of manufacturers had already made redundancies and a further 20% were planning redundancies for the next 6 months. It is therefore probable that redundancy has been the main cause for ending furlough, and does not necessarily indicate that the seemingly low number of workers furloughed is due to being reintroduced to work.

COVID-19 has demonstrated that major events can have a profound impact on manufacturing operations and it has also revealed weak points in outdated systems and processes, which have ultimately affected how well manufacturers were able to respond to the pandemic.

This information highlights an urgent need for action in the way that manufacturers are doing business and this must start with improving innovation capability within manufacturing firms and across manufacturing supply chains.

The impact of Brexit on the manufacturing industry

Even with commitments to support elements of the existing relationship in trade in Goods and Services, there will still be a striking change for any business operating in Great Britain, Northern Ireland and EU markets.

Companies should expect to see a change in access rights to the EU market. Supply chains could become more complex as the introduction of customs inspections and regulatory requirements increases the time it takes to move goods from one place to another.

For manufacturers, trade with the EU will likely be disrupted and become more complicated – for example, the decrease in the value of Sterling will make exports more competitive but may also drive up the costs of imported intermediate goods which will, in turn, affect output prices.

Manufacturers should ensure they have complete visibility over their supply chains, hiring processes and currency exposures. Moreover, in order to optimise future success and opportunities, it is important that the Government sets out a clear, powerful, ambitious and funded industrial strategy so that businesses can develop the confidence needed to restart investment, create jobs and boost economic growth.

Challenges for the manufacturing industry in 2021

There are different challenges that the manufacturing industry is likely to face this year. Many of which have been hastened by both the coronavirus pandemic and Britain leaving the EU. We discuss some of the biggest challenges that the manufacturing industries will face in 2021, and how the industry can tackle these.

Impact of local and national lockdowns

As previous months have demonstrated, nothing is set in stone. Fluctuating between local and national lockdowns where changes can become effective with little notice has directly impacted the manufacturing industry and this can be seen in the fact that businesses are taking on substantial debt, delaying tax bills, postponing mortgage payments and facing empty order books.

Information from MAKE UK, outlines that 35% of manufacturers regard national or local lockdowns as the biggest concern to their business over the next 12 months and 37% of employers believe it will take more than 12 months to return to normal trading conditions.

One of the most important lessons to take away from previous lockdowns is that everyone within a business should understand exactly what local restrictions mean and what restrictions are in place – especially in regards to who can travel from where and what businesses can remain open.

Businesses should always be prepared for rules and restrictions to change and should be delivering clear and regular communication to employees. Consistent, long term support, that reflects that of international competitors, is now required.

Stephen Phipson, director of MAKE UK, has encouraged the government to introduce a comprehensive plan for the next six months, delivering certainty, stability and confidence, as well as targeted support for critical sectors. He adds that “we must ensure that our great manufacturers can survive the coming challenges and be in a position to help drive the recovery when it comes.”

Skilled labour gap

According to the Annual Manufacturing Report 2020, British manufacturers are facing the largest shortage of skilled workers since 1989, with many describing this as their biggest challenge. Some figures show that in the UK, around 40% of UK workers don’t have the right qualifications for their current jobs, meaning some people are underqualified, and some are overqualified.

With the coronavirus pandemic strengthening the necessity for a digital-based economy, it is vital that industries start retraining and reskilling workers to perform their roles. Doing so will allow businesses to build the skills they need to stay competitive whilst allowing them to retain talent as a result of investing in their employees’ professional development.

A focus on consistent learning could also help to portray the industry as a modern and rewarding sector to work in, which could help attract younger people to join the industry.

The digital supply chain: Industry 4.0 is here

Industry 4.0 refers to the fourth industrial revolution, in which businesses will be able to deliver a more responsive, adaptive and connected manufacturing line.

Several technologies have arisen that are remodelling traditional ways of working. As well as the need to adapt, supply chains also have the opportunity to reach the next benchmark of effectiveness, by using digital supply chain business models and modifying the business into a digital supply chain.

A study by the SAP/MPI Group found that when asked about the importance of Industry 4.0 for the manufacturing industry, almost all manufacturing executives believed Industry 4.0 is important to their companies – 45% ‘extremely important and 38% ‘very important’ – with over half stating that it will have a ‘significant impact on industries and businesses in the next five years.

It is inevitable that technology will continue to play an important role in production lines and logistics so the ability to adapt will serve businesses well in both the short term and the long term. Manufacturers should be ensuring their own digital transformation and integrating their businesses into the supply chain to reap the benefits.

Automation

According to industry leaders speaking to the Telegraph, Britain’s manufacturers are now entering a new era – with automation, AI and the fourth industrial revolution helping to boost productivity, streamline production and allow businesses to become more creative.

Already, businesses are using technology such as machine sensors to collect large quantities of information and with this kind of innovation, the job roles necessary in the industry are shifting.
Organisations that invest in robotics can often move their employees into more skilled roles, as advanced technologies require people who understand how they work and can innovate, develop, and adapt them. Research by McKinsey suggests that through 2030, the time spent using advanced technological skills will increase by 41% in Europe, which highlights a significant need for everyone to develop basic digital skills for the new age of automation.

Manufacturers should be making strong plans to implement automation and subsequently start retraining and reskilling their workforce in line with this. Hiring people with an analytical and technology-based background will also help drive them forwards.

Selling direct to consumers

With lockdown rules in place, many high street shops have been forced to close. It is not clear exactly when they may re-open, and if they do re-open, how long that will be until they may have to close again. It is therefore paramount for businesses to maintain a presence by switching to a direct-to-consumer (D2C) model.

A new report by Barclays Corporate Banking Manufacturing found a boom in manufacturers selling direct-to-consumer will inject £24billion into the industry by 2023.
This growth is being propelled by consumer choices intensified by the pandemic. Out of the people surveyed in the Barclays report, 57% said they now frequently go directly to manufacturers because they think they will get a better price and better service.

In addition, 32% of consumers are buying directly as a conscious decision to support the UK manufacturing sector. The items most frequently purchased through the direct approach are clothes (39%), electronics (30%) and food and drink (27%) – as well as larger items such as household appliances (24%) and furniture (22%).

Encouragingly for manufacturers, consumers’ these new habits and patterns show no signs of stopping even after the pandemic, with 52% of respondents saying they will continue shopping online as much as they do at the moment. Shoppers expect 29% of their home deliveries to come via D2C in 2023, rising from 20% in 2020.

It is important to note that when preparing your business for the move to e-commerce, you are placing great emphasis on safely storing your customer’s data and the way you do this must be in line with GDPR regulations.

With all the changes that are on the horizon and the changes we have already witnessed in the span of 10 months, it is important that the manufacturing industry is above all, adaptable. The best way to embrace these changes is through technology and the implementation of digital supply chains, automation and moving your business online to keep up with consumer needs. In addition, manufacturers should be exchanging clear and confident information with their staff, as well as ensuring their staff are learning new skills to help bridge the skills gap and ensure a happy workforce that can retain talent and face the challenges ahead.

Hopefully, this article has provided you with some insight into the challenges and trends the manufacturing industry is currently facing in 2021 and beyond. If you need help with increasing your organisation’s productivity levels or managing flexibility in the face of 2021, contact us to discuss how our time and attendance software can help you.

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