Enjoy the purple patch but keep thinking long term

Orders: up. Predicted orders: up. Exports: up. Unemployment: down. Apprenticeship applications: at record levels. Investment plans: finally, up.

Fans of British industry can take their pick of the recent data. Manufacturing is enjoying a thumping period of confidence and strong orders, large parts of it having reinvented itself since the dark days of 2008-9.

Perhaps the biggest signal of manufacturing’s purple patch came from the Manufacturing Advisory Service (MAS), the Department for Business, Innovation & Skills’ (BIS) smaller business taskforce.

The latest MAS National Barometer, surveying a record 864 small and medium-sized enterprises (SMEs) in England, revealed that 86 per cent of respondents were planning to invest in capital equipment over the next 12-months, with companies looking to spend £121,000 on average. Two thirds of the companies planned to purchase new plant and machinery, and just over half focused on upgrading IT-communications infrastructure.

The UK, with a reputation as the sick man of Europe for manufacturing investment, is embarking on a spending spree.

Steven Barr, head of MAS, says: “There is a definite feel-good factor around English manufacturing at the moment, and these latest figures reinforce positive reports from the Society of Motor Manufacturers and Traders, and other data. Importantly, 6 per cent of smaller businesses are looking to spend more than £500,000.”

Four or five years ago, in the grip of a recession, “reshoring” was barely a recognisable word. Today the practice of bringing manufacturing operations back from a cheaper foreign location is daily parlance.

Manufacturers’ group EEF has even themed its annual conference on the trend. Speakers include Tony Caldeira, whose cushion-making company closed a factory in China to consolidate in Kirby, Merseyside, and who was the subject of a BBC TV documentary in 2012. The programme revealed that Chinese workers are far more discerning employees that many would expect, inspecting his factory before choosing to apply for a job or not.

One in six companies reshored production in-house in the last three years and one in six companies reshored sourcing to a UK-based supplier, a recent EEF survey reveals. One third of companies cited that delivery certainty and speed were the main reasons, followed by quality. China is the main country from which to reshore followed by Eastern Europe.

Manufacturing is enjoying a thumping period of confidence and strong orders, large parts of it having reinvented itself since the dark days of 2008-9

The trend will not surprise Foresight, part of the Government Office for Science. Its seminal two-year study into the future of manufacturing, published in November, identified that products will be made closer to the point of sale in the future, by local manufacturing hubs using new technologies, including additive manufacturing and 3D printing.

“While it will always be two-way, the need to be closer to customers, to have ever greater control of quality and the continued erosion of low labour costs in some competitor countries, means that in many cases it makes increasingly sound business sense,” says Terry Scuoler, EEF’s chief executive.

Post-recession, manufacturing in the UK is much more joined up than the rather laissez-faire approach of the last 20 years.

An industrial strategy from BIS, launched in 2012, now focuses on five pillars to boost manufacturing capability, including sectors, skills, the Business Bank, technology and government procurement.

It joins targeted initiatives in specific areas: the Advanced Manufacturing Supply Chain Initiative to boost supplier capabilities to access global companies; the Employer Ownership of Skills Pilot to let employers direct the type of training they need; the High Value Manufacturing (HVM) Catapult to help companies achieve higher technology readiness levels to get to market without perishing en route. All have bolstered manufacturing in a hitherto unseen level of collaboration between government, industry and academia.

“In the past, the attitude was that parts of manufacturing were not going to be profitable, so let them die,” says Professor Ken Young, technology director of the Manufacturing Technology Centre in Coventry, one of the HVM Catapult centres. “This has changed to a degree. But you still need visionaries to decide strategically that this activity or technology will make a loss for a few years, but will become profitable later, so we should invest in it. Other countries saw this, but the UK let much of it go.”

His centre is now helping a suite of SMEs move from technology readiness level (TRL) 3 to TRL 7, a key stage in the commercial qualification of components required by big global companies, such as Rolls-Royce and Jaguar Land Rover. The operative phrase is long-term strategy.

In a new £100-million factory in Ashington, Northumberland, technology tells the people what to do. Material handling and mixing equipment “talk” to the factory’s IT platforms, the manufacturing execution system and distributed control system, feeding information about flow rates and product defects.

“The factory has been configured with predictive maintenance in mind,” says Andy Jackson, project director at the new AkzoNobel paints and coatings plant. “The machines detect changes and direct the people, a reverse of our traditional method. Our future employees will be trained as much in condition-monitoring on a tablet than in how to use a spanner,” he says.

While hard maintenance and repair skills will always be required, the factory, which will make 100 million litres of Dulux paint a year, has been future-proofed, using integrated technologies to reduce labour, waste and product defects. In Germany this is called “Industry 4.0”, the integration of “the internet of things” with the internet of services. This is more than a fad; Industry 4.0 has been allocated funding of up €200 million within Germany’s high-tech strategy action plan.

While Industry 4.0 is embryonic, it is imperative that stakeholders and companies keep track of it. Skills that staff learn today may be redundant, or less important, in a few years as technology retires them. So, what should the new generation of manufacturing employees prepare to learn?

“We will need digital product and factory design software skills, PLC [programmable logic controller], DCS [distributed control system] and SCADA [supervisory control and data acquisition] programming, and other high-level languages,” says Brian Holiday, division director for Siemens Industry UK. “We will need database experts, turning big data into useful industrial information, network design engineers, skilled maintenance functions – less hammer, more IT tools.”

Business strategy has also now woken up to the importance of mid-sized businesses, a group defined by the CBI as having a £10-million to £100-million turnover. These firms represent only 1 per cent of businesses but generate 22 per cent of economic revenue and 16 per cent of all jobs. These companies have an important role to play in regional rebalancing, because they are less South East-centric than big, listed companies.

But they are seen as neglected by policymakers. Until recently, a “large” company paid an extra 3 per cent in corporation tax, when turnover might be as “low” as £11.2 million.

Brompton Bicycle in London became a “large” company in 2012-13. “We now have to pay quarterly corporation tax instalments, with two adverse effects,” says finance director Lorne Vary. “First, the cash-flow impact of making quarterly payments in advance rather than paying annually up to nine months in arrears of the year-end; then there are also higher tax adviser costs with filing more statements.”

Trade Minister Lord Livingston has pledged to offer export support to every one of the UK’s 8,900 SMEs. He says mid-sized businesses are vital to the government’s long-term economic plan to reduce the deficit and create more jobs – let’s not overlook their crucial role.