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Speaker 1 : You're listening Manufacturing Ignition: Hot Topics. Bringing you right up to date on the latest trends and discussions within UK manufacturing. Sponsored by Bonfire Recruitment, helping manufacturing leaders across the UK to attract the best talent for their manufacturing company. Ignite your business or career today by visiting www.bonfirerecruitment.com
Speaker 1 : Here's your hosts: Terry Mallin and Scott Buchanan.
Terry Mallin : Moving on to the manufacturing hot topic this week. For those listening for the first time, every week we discuss a specific hot topic on the industry, and the previous weeks we've discussed autonomous cars, industry 4.0, the update and last week we did the food-to-go sector, how it's a multi million pound business. It's only gonna be growing.
Terry Mallin : This week Scott, what's the topic? What will we be covering?
Scott Buchanan : Thought it was relevant, there's a lot of challenges at the moment within manufacturing and I think it's very easy just to assume that all businesses have actually considered it. So I think we'll look at, actually the challenges within manufacturing. I think that that-
Terry Mallin : Yeah so, the current challenges today in manufacturing, as we are sitting here in November 2017-
Scott Buchanan : And with a, I guess a short term, you're not necessarily you know, at a long term view but a simpler short term view to the next six months, a year of actually, what's potentially happening because at the moment, most people within manufacturing, manufacturing out-performs every other sector in export.
Scott Buchanan : 45% of the UK export, almost 60% of that goes to the EU or that way. So there's a biggest question in there about, actually, you're making all this stuff and the majority of it's going to the EU and now we're realizing that actually, what is our relationship with the EU? And then I guess-
Terry Mallin : Yeah, exactly and I think you know, even if we hit the first nail in the head scope with the [inaudible 00:02:13] cause that's the big one that's everybody is aware of because the impact of Brexit and manufacturing, it can be very disruptive obviously to kill business models and plans and that could be from exactly what you just mentioned there, the supply chain side of it. So that might be importing or export. You know there's a massive impact on that.
Terry Mallin : Secondly, as I'm very well aware, you know, the labor skills and a lot of people that I've been discussing with over the last sort of, three to four months, who are European citizens working in the UK are, they certainly have their concern and they're reviewing whether they'll stay in the UK, subject to what happens with Brexit and move back.
Scott Buchanan : Yeah of course.
Terry Mallin : Exactly, I mean to give you an example, down the South East of England, a lot of European labor is used within the fruit and veg or the fresh produce industry. And with that, at the end of the day that's a very challenging environment to people at the best of times. If a European workforce had to leave then it's gonna have a major impact. That would be a major, major impact on that sort of fresh produce which is only gonna impact the shelves in supermarkets, etc.
Terry Mallin : So, it's very much to be aware of and I know when you were mentioning a couple of point of sales course, I know that, so manufacturing, what can I talk online at the minute, the CBI report, 45% of UK manufacturing, sorry, 45% of exports comes from manufacturing, and over half of that is then supplied into the EU. So that supply chain is really important.
Scott Buchanan : It's scary and just, tying in with your comment there around the South East, I guess, there's a massive food. There's gonna be a bit of engineering and a bit more heavier stuff there but see that actual, manufacturing output to the UK economy. On an annual basis, it's as much as 48% of the UK total. It's 19 billion.
Terry Mallin : Wow, that is phenomenal.
Scott Buchanan : So, you know, those companies will have all been fighting, not fighting you know, but, they'll be trying to attract the best talent for their organizations in that part of the world and all of a sudden these people will be wondering, well actually, we might want to review whether we should stay here.
Scott Buchanan : I don't know what your honest thoughts are Terry, my personal view is I think the max will be an element of flux I guess, but I do believe that there's probably no reason for the majority of these people to actually, to up and leave just now because I think-
Terry Mallin : Yeah, I hope so.
Scott Buchanan : The impact of UK economy is too, is massive but they're not gonna let it happen.
Terry Mallin : Yeah, I hope so. I hope so, you know, that would be the worst case scenario that people do leave and I hope that's not the case but it's prudent for manufacturing leaders to be seriously thinking about this and actually having some sort of contingency plan in place as well.
Terry Mallin : You know, even as I was touching on, Scott, the food manufacturing, it's not just about the labor side of it, they look at exports, there's a possible implication of tariffs between an EU single market and the UK, which could massively increase costs on manufacturing, so talking about food manufacturing specifically, they could face an average EU tariff of 22.3% against a current 2.3% for non-food products.
Terry Mallin : It's not just all about factoring in the labor side of it, it's actually, there's gonna be possible implications. Now, there will be positive implications and there will be negative implications. And it's actually weighing out-
Scott Buchanan : But the bottom line is though, that there's a potential additional cost in there and these companies, especially in the food sector, the margins are quite tight and actually if you're making, I don't know, you'll know better than I do Terry, you're making 100,000 cakes, do you know that way, you put the cost of sugar up by two pence or five pence because of a tax, versus the volume that's actually getting used, it wouldn't be just the one part of the ingredient, I'm sure it would be plenty others and it will all soon add up and if the cost of labor is having to increase as well, you know there's a whole other argument there.
Scott Buchanan : Herein lies another question Terry, as well, the reason that the UK is heavily reliant on labor from further afield is because UK nationals haven't really wanted to graft away in doing, I guess, less challenging roles. Do you know that way, so do you think the UK labor market is maybe more evolved now, do you think there is potentially schemes that would allow individuals to own and take some of these jobs back? I don't mean that they're taking jobs off anyone in a present role but if people leave jobs and there's vacancies would there be a pool of individuals in the UK to fall into that or is it a case of whereby this industry 4.0 is actually very relevant?
Terry Mallin : Yeah.
Scott Buchanan : By actually, a bit of forward thinking, and a bit of investment is the way to grow it?
Terry Mallin : I think that's two very valid points Scott, I think the first point is a different topic in its own but as for previous industry 4.0, definitely highlights where this could be huge or beneficial for minimizing risk and disruption for businesses within manufacturing, 100%.
Terry Mallin : So that's exports, you know and if I'm looking at a lot of innovation and R&D, it's supported by Europe and I know a lot of EU funding is supplied to R&D and manufacturing has, you know, manufacturing and R&D have accounted for 67% of the total UK R&D expenditure. And that was 2014 so I'm slightly out of date, but it gives you an idea in how hugely it highlights those that manufacturing and any changes to any funding schemes is gonna have a major impact so that has to be considered and that's one of the issues that might affect manufacturing.
Scott Buchanan : Do you remember when there was companies that used to be, especially within manufacturing, you had a R&D / design focus team, that then would work closely with manufacturing on site team, or on site within the UK team to develop a product and it all kinda works the cycles together. What happened about, what maybe eight years ago, it's happened in my career, was that plenty of organizations were tempted over to China and other parts of the world to do the manufacturing piece and some actually fully shut down and ran away and others actually kept some form of presence.
Scott Buchanan : What has actually happened, which is relevant to this is that a lot of manufacturing still does happen in China but the quality standards and actually the unidentified costs that were involved, it was actually more prudent to keep things in the UK.
Scott Buchanan : And they've actually got formal design teams in the UK, of these companies, but these companies, they need, there's an element and an incentive as well for these companies to actually do that. There's a government incentive and there's actually companies that, I'm aware of people actually working the sector that they worked with manufacturing companies and happy to help anyone that's found themselves, not got this tax rebate but there's actually companies in the basis that have been R&D worked on, that they can actually, they can literally go through the process to claim that back. And it's exactly the volume of numbers you're talking about Terry, so I wonder if, again, tying in with this EU piece, will the UK government do a similar scheme? And what will that actually mean to manufacturing? Cause at the end of the day, if you're not leading the way from a design perspective, then it's cheaper to make stuff else where, probably, to default quality standards asked there's a, probably there's a big question mark on that.
Scott Buchanan : But the worlds changing. So what do you think Terry?
Terry Mallin : Yeah, I can totally agree with you Scott, I think it's a valid point because what we are looking at is the effect of funding that was taken away, what about, what we really need to be thinking about is a positive upside of what the UK government would do in return and make sure that, if that's not equal value, if it's not more, because we should be embracing any R&D and actually really establishing the UK as a leader. Not only within manufacturing products but actually innovation and developing new products and exporting that to a global market. And that will position UK manufacturing once again at the forefront of the global scale.
Terry Mallin : And then, going on to the last point on obviously, addressing the skills crisis, Scott you probably know more about that?
Scott Buchanan : We need more skills certainly. I could, you know, I think one of the challenges that all businesses have is attracting talent and I believe that within, as it's known in the world now, is STEM skills, such as science, technology, engineering and mathematics apparently. You know, half of the businesses in the manufacturing sector, in fact over half the businesses, 55% are not confident in finding people with higher level skills in easy areas. Which is
Scott Buchanan : I mean, you know literally people with science, technology, engineering or mathematics skills, 55% of manufacturing companies in the UK are worried that they'll actually not be able to attract that. I don't know what you've seen from any of the programs that you've done or any of the, I mean that from your graduate programs and helping companies but that's quite a stat.
Terry Mallin : Yeah but I think things are getting done with the in the background, maybe not on the scale that would be essential but there's definitely stuff getting in, there's a, I've been invited to a couple of STEM events, where basically what you would do is go into schools and for me, specifically base it in a high school, a fair or whatever, but I take up in careers advice and it genuinely, these people are interested in STEM careers. And I've actually got I think, three or four penciled into a diary for the next two months.
Terry Mallin : So I mean, that's small stuff but actually on a big wider scale of more people getting involved, there's more people exposed to the opportunities within manufacturing and engineering. And that should help going forward. I think, you know, when I was at school the big thing was you'd become a lawyer, you'd become a doctor, then the realization is that you maybe don't really want to do that, then you actually try to work out what's probably the best career for you and you're probably starting to do your A Levels or highers, whatever that might be, and then you pick a topic or series of interest for university and then it's kinda driven about, you know, socially, what you see socially acceptable.
Terry Mallin : And you kinda, I think if that was more of a push in the basis of giving, specifically people at school, as much information as possible, as much exposure to what manufacturing does, and that might be something we can do in future Scott, we might actually, you know with the manufacturing companies we deal with we could do a video about it I remember watching BBC and they were doing the inside the factory, we could probably do something really good in future about that.
Scott Buchanan : Recruitment to the masses at an early stage so we can get the apprentices, the recruitment apprentices coming through as well.
Terry Mallin : Oh, I dunno about that, I don't know about that but at the end of the day, it's a good idea. Scott, I'm just cautious of time but I think that was really useful that hot topic, it was quite interesting actually so you know the key things there is Brexit, exports, innovation and then finally a skills crisis so that was four good points I think we made there.
Scott Buchanan : Very much so and I think it's important factors that are gonna kick in and will probably evolve so we'll probably revisit that maybe second quarter next year I guess to see how things are evolving, if the landscape is doing that.
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