With just over six months to go until the UK leaves the European Union, we examine manufacturers’ readiness, and how they can prepare for Brexit. By Chris Beck
For the past two years, one word has dominated every news bulletin and boardroom discussion – Brexit. On 29 March 2019, the UK will begin the withdrawal process from the European Union and enter a new chapter in our political and trade existence.
Parliament, like the entire nation, is divided over the best route to take. Promises of ‘free and frictionless’ trade have been met with scepticism from home and abroad as Theresa May attempts to find a way to keep all parties happy.
The EU’s importance to UK industry cannot be underestimated. In 2017, the UK exported £274 billion of goods and services to EU member states. Seven of the UK’s ten biggest manufacturing export markets are in the EU, according to the latest EEF/Santander market fact card.
The threat of a bad deal – or worse, no deal at all – has spooked the industry in recent months, despite the government’s recent guidance on a ‘no-deal’ Brexit. As evidence of this, in early August, the SWMAS/Exelin Manufacturing Barometer found that SME manufacturers are concerned about the progress of Brexit, putting their international growth plans on hold for the coming 12 months. Similarly, a recent study by the Chartered Institute of Procurement & Supply, entitled The Brexit Storm, found that almost half (46%) of manufacturers have already increased their prices in preparation for Brexit. On top of that, a fifth (21%) of manufacturing companies are looking to reduce their workforce to manage the cost of Brexit.
Many of European manufacturing’s biggest names have warned of the risks posed by Brexit. Some, including Jaguar Land Rover, Airbus and BMW, have said that they will either be looking to scale back their UK manufacturing operations or significantly reduce their spending in the event of a so-called hard Brexit.
There have been warnings of a collapse in the value of the pound, gridlock at ports and a chronic shortage of the overseas workers that the manufacturing sector relies on. For an industry that operates on international supply chains and just-in-time stock, this could be a disaster. Others are more positive, saying that there is a wider world of trade out there, and that Brexit may encourage companies to look further afield.
However, there are nearly 150,000 UK firms that export only to the EU, which will have had over 40 years of tariff-free trade. For these companies, the next few years will bring complexity, confusion and, potentially, catastrophe.
To find out how prepared the UK’s manufacturers are for Brexit, MM asked a number of leading figures from the industry for their thoughts. While some are positive and looking ahead to the future, many are concerned that not enough is being done, either by industry or the government, to prepare. It’s vital that companies prepare for the worst, while hoping for the best, and that Westminster doesn’t leave it to the last minute to announce the impact.
Alex Saric, smart procurement expert, Ivalua:
As with every industry, the exact impact of Brexit on manufacturing is still unknown, even with six months to go, and making preparations is a serious challenge because we’ve had no clarity on how things will look come 29 March. With time running out, manufacturers have their work cut out planning for multiple Brexit scenarios. The final deal we get is dependent on the extent to which the country remains in the European Economic Area, and its future role with the single market and customs union.
Regardless of the outcome, manufacturers will have to think on their feet in the face of uncertainty. One of the biggest issues raised by the likes of Airbus, is whether the frictionless movement of goods across borders will continue under the final deal, and how this will impact the reliability of goods moving through supply chains post-Brexit. Many manufacturers will move parts across borders multiple times, so they must be ready to adapt how they operate to mitigate against the impact of a soft or hard Brexit, or even a no deal scenario. Regardless of the outcome, manufacturers must assess their overall supply chain to establish where slowdowns might occur, cost implications on Bills of Materials and how the supply chain can adapt to these changes to avoid shortages or significant impact on profitability – because a frictionless border may no longer be a reality pending the final deal.
With smart procurement technology, organisations can make decisions based on real-time data direct from the supply chain, using insights to evaluate risk and make smarter sourcing decisions in a world where the landscape will literally change overnight. They can better collaborate with suppliers to optimize responses and overall supply chain strategies. This ability to navigate the stormy seas of political change will help organisations mitigate any damage caused by disruption to goods and services as March 2019 approaches.
Arno Ham, chief product officer, Sana Commerce:
With six months to go until the UK officially leaves the EU and ongoing political uncertainty, it’s no surprise that British manufacturers, wholesalers and retailers are feeling unsettled. The outcome of the trade agreement between Britain and the EU is still unclear, but used to its full potential, the current climate provides a window of opportunity. Whilst the pound is still fluctuating, it’s not all bad news for UK manufacturers. It’s becoming cheaper to buy in pounds, which puts UK businesses at a trading advantage with overseas customers and provides prime opportunities for global expansion. With this in mind, manufacturers need to prepare to take business overseas.
Recent market research by Sana Commerce found that 73% of e-commerce providers believe Brexit will have an impact on how they, or other companies, sell online. The UK is the top choice for e-commerce fulfilment, and by utilising it to its full potential, manufacturers can market their products to a global audience, simplify the exporting process and scale up quickly to remain competitive outside of the EU. Whilst the future is still uncertain, UK manufacturers should remain optimistic and prepare for global expansion opportunities.
Gill Devine, VP for EMEA, Syncron:
Brexit is impacting British manufacturers in many ways. With the industry being heavily reliant on its relationship with the EU for exports, much of the future hinges on the trade agreements that are still to be put in place. However, regardless of outside circumstances – be it Brexit or otherwise – manufacturers must continue to invest in the right resources to maintain a nimble service supply chain.
Customers’ on-demand mindset has resulted in an expectation of products to ‘just work’ and service to be instantaneous. Manufacturers must adapt their service businesses to meet these ever-increasing expectations. Adopting cloud-based technologies which use data analytics to pre-empt repairs, track service parts, eliminate excess and obsolete stock and forecast when new parts are needed will help manufacturers to provide a more proactive – rather than reactive – after-sales service model. This will enable them to maximise product uptime and ensure equipment is continually functioning and productive. This ability to be agile will put manufacturers in a strong position to adapt to the unfolding challenges that Brexit presents.
Mark Proctor, managing director, EU Automation:
UK manufacturing has made the first steps towards preparing for Brexit, but there is more that we can do as an industry to improve the outcome. It’s important for British manufacturers to continue building relationships with both existing and new customers from the European Union and further afield. This means a strong emphasis on customer service and remaining open to international markets from a business, language and cultural point of view.
British manufacturers must continue to provide excellent quality and service and increase their international presence using traditional methods, such as trade missions and market visits, as well as new channels, such as digital and innovative applications of technology.
During this time of uncertainty, UK manufacturers should prepare for every possibility and make their wishes known. If the correct trade deals are struck, we are likely to continue operating as we do now. If not, we will be well prepared to adapt our strategy accordingly.
Rob Precious, E-Marketing Manager, Gyproc Tools:
The outcome of the UK’s manufacturing industry post-Brexit will depend on one thing: whether the government deems the economic damage of not granting EU citizens preferential immigration surpasses any of its benefits.
Given that manufacturing and construction professionals have still yet to be added to the UK Shortage Occupations List, we are already seeing predictions where a non-EU preferential immigration policy could potentially jeopardize a predicted £500 billion pipeline project.
In order to prepare for a Britain with little access to low-skilled labour, amplifying efforts to foster homegrown talent is now more than ever, a high priority.
Even though 20% of construction professionals feel that apprenticeship schemes are not at all effective to address the UK’s long-term EU skills shortage, it’s clear these schemes will only become more relevant as university fees skyrocket.
In the past, jobs in construction have traditionally been perceived as male-orientated. The lack of urgency to promote diversity in the industry is ultimately preventing companies from engaging with young talent. It’s clear that in order to ramp up national interest, both females and males in manufacturing will need to be targeted.
Alongside this, millennials rank career advancement opportunities and work-life balance as most important to them at work. Organisations in the manufacturing industry need to provide career development opportunities to help attract talent from a wider range of backgrounds.
It’s not all doom and gloom but preparing for an EU skills shortage post-Brexit requires thoughtful action now. With negotiations generating confusion, manufacturing businesses need to be prepared in order to survive and thrive in the long term.
Tom Leeson, industry marketing strategist for the manufacturing sector:
Some manufacturers will be better prepared for Brexit than others – based on their understanding of how every possible Brexit deal could impact their business. Brexit can be compared to the iceberg theory. Above the water-line there is commentary and noise around the manner in which Britain will leave the European Union. Yet, beneath the surface there is a silent army working to mitigate a number of risks and prepare for worst-case scenarios.
In fact, our research – conducted with the Centre for Brexit Studies at Birmingham City University – has revealed that a significant number of large UK manufacturing organisations currently have multi-disciplined and multi-geo located working parties in place – with the aim of preparing areas of the business that are most likely to be affected by the complexities of Brexit. This includes people management, contract governance, regulation and compliance, customer service and communication, cross border trade and logistics.
However, our research also highlights that SME manufacturers, with less budget and fewer resources, are more likely to wait for clarification from the government before they kick off Brexit plans. Yet, on a practical level, there are fundamental steps that manufacturers of all sizes can take today that will better enable them to act once the changes and implications of Brexit become clear.
With the impact of Brexit hanging in the balance, the best defence is a good offense. Manufacturers must create ‘business as usual’ scenarios to continue much needed investment in technology, efficiency, agility and innovation. Putting a strong information governance strategy in place will help prepare for any impact. Getting control over all the information within a business means no matter what the impact of Brexit, UK manufacturers will be prepared.
Stephen Phipson, chief executive of EEF, the manufacturers’ organisation, has warned the manufacturing supply chain to prepare for pressure from large OEMs in the run-up to Brexit. “OEMs are starting to put pressure on their supply chain to do something in preparation,” he told MM. “The supply chain will need to have the answers and some understanding of what they are going to do. It’s one thing knowing the costs involved; it’s quite another understanding the complex tariff process we may potentially have to go through. There’s a real risk that smaller companies could lose out to a company that can answer the questions being asked – and with it, lose the core of their business.”
Time is running out to get your organisation ready for Brexit, continued Phipson. However, there has been a chronic lack of willingness to do anything about it, he said. “I still hear people adamant that it’ll all remain the same once we leave the EU. Government has warned that things are going to change, but that message has struggled to get through to businesses. Smaller manufacturers in particular have to stop sitting on their hands and start getting ready for Brexit.”
To assist with this, EEF have launched a Brexit Toolkit, which is designed to prepare exporters for increased barriers to trade. The Toolkit asks the manufacturer a series of questions to help customise the results for their particular sector, product, supply chain and import/export situation. The programme will then create a customised report that summarises the tariff costs and customs issues that a particular company will face in importing and exporting with the EU. To use the Toolkit, visit https://bit.ly/2MtJnhd.
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