The good news is that many companies are said Scott Kirkpatrick of F1 manufacturing. Here Scott explains why British manufacturing is on the up.
The British manufacturing industry was hit as hard as any during the economic downturn as exports fell and companies increasingly looked to source cheap products from abroad to stay afloat. Seven years of reducing margins, redundancies and falling order books takes some time to recover from, so it’s hardly surprising that manufacturing figures are yet to attain pre-recession levels.
However, despite a slowing of the growth experienced earlier in 2014, there is still much to celebrate within British manufacturing. One of the most positive signs of the recent recovery is the increased demand from the domestic market as UK companies look closer to home for materials and components.
Domestic demand aids recovery
Of course, the export market is important too, but rising demand from within the UK itself is key to long term economic recovery. So, it was encouraging to read in the CBI’s most recent quarterly Industrial Trends Survey that domestic orders had risen at their fastest pace since 1988. The overall tone of responses was also highly positive, boding well for continued growth during 2015.
Our own experience bears out the assertions made in the report. As a specialist engineering company supplying components to a range of sectors, we have noticed a significant rise in demand from British manufacturers. Our customers are also placing a higher priority on high quality and fast turnaround. Of course, price remains a factor, but if other demands are met, our clients seem prepared to pay for the improved quality and service that they believe British manufacturers can supply.
Flying the flag
So, why are companies turning their backs on cheap products made abroad? Whilst it’s great to be patriotic, companies are in the business of making a profit and so there have to be significant commercial benefits to buying British.
Well, firstly, the idea that products can be made much more cheaply abroad isn’t always accurate. Cost has risen in many emerging markets. For example, a decade ago, the productivity-adjusted cost of making manufactured goods was around £2.60 an hour in China where both wages and productivity were lower. Now, wage rises mean that productivity-adjusted wage costs are up by around 200%, taking them to them to around £7.88 an hour. So, whilst it may still be cheaper to get products made in China (or other emerging countries), the difference has reduced significantly. Running alongside this, wage cost rises in the UK (how much firms need to pay per unit of work) have been relatively low – 16% over the past decade, and less than many of our competitors. In fact, UK costs are now only 9% higher than America’s, which compares favourably to countries such as Germany (21% more expensive), France (24%) and Japan (11%).
Earning a reputation for quality
With a long and well respected history, British manufacturing also has a global reputation for quality. This is largely due to the skilled workforce that we have here in the UK.
Although the number of people employed in manufacturing has decreased over the past 30+ years (a 60% drop since 1978), productivity has risen significantly. We also have a more highly qualified workforce than many other countries, as proven by the most recent Office for National Statistics Quality Adjusted Labour Input (QALI). The report found that the quality of labour in the British manufacturing industry has steadily increased, and that the improvement for the manufacturing sector is at a higher rate than for almost any other industry.
A highly qualified workforce almost inevitably means superior quality, which is becoming an increasingly important factor in British industry. In addition, domestic manufacturers understand the importance of speed, ranking highly for fast turnaround.
But reputations can soon be lost. Innovation is essential if the UK is to maintain standards and quality, meaning that investment in R&D is essential. This fell by the wayside in some organisations when margins were excessively tight. However, the signs are that many companies are embracing R&D again, with many manufacturers reporting their intention to invest in equipment and processes over the next 12 months.
Is outsourcing in decline?
As economic confidence has returned, outsourcing appears to have declined. There’s no doubt that the practice has its place, but many manufacturers turned to outsourcing during tough times as a way of saving money – sometimes at the expense of quality and service.
When a company outsources a process, they lose control: once the contract is signed, the management of that function is effectively handed over to another company. This can be problematic if there are differing approaches and standards to quality and customer service. As the price is fixed within the contract, the only way to increase profit is to reduce expenses which will ultimately impact on quality. However, as long as an outsource partner meets the contract conditions, you are obliged to pay up.
There’s no denying that the long term impact of the last seven years is still being felt by manufacturers. But for those who have weathered the hard times, it’s great to see customers returning, seeking the quality that the best of British manufacturing can provide.
