The Business Magazine and sponsors NatWest, law firm Shoosmiths, accountancy firm MHA MacIntyre Hudson, global insurance broker JLT and computer solutions company Taylor Made, invited representatives of leading Southern Manufacturing 100 companies to provide their insights.
While the region, particularly the Thames Valley, is well-known for its technology sector, there are actually more manufacturing businesses in the south east than any other UK region, David Murray pointed out. The lack of awareness is because most businesses are relatively small, niche manufacturers or high-end specialist engineering companies. “So, we have a very strong, if somewhat unrecognised, manufacturing sector in this region, and we are shining a spotlight on that with our annual Southern Manufacturing 100 listing of top independent companies, spanning £2 billion-plus to £5.88 million turnovers.”
How healthy is manufacturing at present?
Globally, manufacturing represents a £6.7 trillion economy, and the UK is the 16th largest manufacturing nation in the world, noted Murray. “Manufacturing is still an incredibly important part of the UK economy.”
The general Roundtable consensus of the UK sector’s current mood was ‘cautious optimism.’
Banker Nick Jones: “Sentiment is pretty good but there are some headwaves. Manufacturing output has slowed a bit caused by concern around the Chinese slowdown and continuing problems in Europe. We have seen a period of SMEs building cash and holding back on investment because they do not have the confidence yet to move forward.”
Paul Goodman agreed, noting the recent EEF Manufacturing Outlook’s halving of its 2015 UK manufacturing growth forecast to 0.7%. “They are worried about what China will do next with its currency. The sector is good and getting better, but there is still some concern about where Asia and possibly Greece will take us.”
From his viewpoint Tim Walker reported key trends over the past two years – increased backing from VC and PE funding for manufacturing; recruitment and bolstering of company senior teams; and good diversification away from troubled industries (oil and gas) enabling a continuing platform for business’s growth. “Our take is that the manufacturing sector is in extremely good health.”
Kate Arnott confirmed that MHA MacIntyre Hudson’s own annual manufacturing survey (issued in September – see page 40) had recorded a 16% dip in optimism for sector growth, with concerns over global turmoil, the Chinese debt crisis, the eurozone, and the strong British pound squeezing margins. “However, overall 76% of those surveyed are predicting expansion. They are still planning to increase headcount, despite their two main problems of skill shortages and the red-tape burden. There has been a dip, but it is still a sector with a lot of potential for growth with many businesses experiencing more stability.”
Murray noted that the EEF had reported 42% of south-east manufacturing companies currently experiencing an increase in output over last year.
Chris Reid of Mclaren Applied Technologies: “We are looking to expand quite a lot over the next couple of years but our major worry is recruiting the rights skills.”
Xtrac was also looking to expand, said Stephen Lane: “There is always going to be a demand for high-quality product – if companies can differentiate themselves and identify their USPs there will be demand for their products and services. Statistics appear to show there is a cautious optimism in the sector.”
While businesses can control their own operations, and to a certain extent their supply chain, the worry was macro aspects out of their control such as the Chinese or Greek economies, and activities of global organisations and large international companies. “As long as we are all looking after our own businesses, with integrity, commitment, knowledge and skill there is a fighting chance that things will continue to get stronger.”
Moog’s Michael Sachpekidis noted that growth was not happening in all manufacturing areas, although the sector overall was faring well.
He added that Moog was continuing to expand its operations. “But, we’ll need a lot of recruitment and that is where we are struggling at the moment. There is a huge lack of engineering, science, mechanical design graduates. Over the past five to10 years, a gap has arisen in the skillsets and training for such fields.”
Sean Wright agreed there were more PE deals happening within manufacturing. “I’m not sure there’s any rhyme or reason for that, other than PE houses are looking for good companies making a decent profit, whatever the sector.”
He concurred that he knew several manufacturing companies with good order books and confidence for the coming year, yet still cautiously optimistic because of their macro-economic worries such as currency strengths and political unrest.
Anyone manufacturing their own recruits?
Recruitment and getting young people into the manufacturing sector were plainly concerns of the Roundtable.
Goodman remarked: “It’s clear there is a massive impasse between what the colleges are looking to do and what the manufacturers are seeking.”
Representing the Thames Valley Berkshire LEP, Graham Wadsworth said his focus was on discovering manufacturers’ issues about recruitment and skill supply to the sector. “Are manufacturers liaising with schools or creating their own training academies?” he asked.
Noting Goodman’s viewpoint, Wadsworth explained: “There is always going to be a challenge with universities and colleges because they are businesses with their own agenda. If enough students want to study embroidery for instance, they will provide the course.
“So, if you can’t rely on local colleges to produce your skills, and can’t draw talent in from elsewhere in the UK or abroad, maybe you need to be manufacturing your recruits yourselves? Tescos and Barclays do it already, after all. And, this is where the LEP can help, but needs to know what you mean by business and manufacturing skills.”
Prof Mark Jolly noted there had been a distinct reduction in candidates for Cranfield’s ‘Operations Excellence’ Masters programme. “So, companies are not sending their people to the mid-management skills area, yet I have no problem getting small research contracts with companies who want post-graduates to help develop their technology.”
Where are the building blocks of manufacturing …
Commenting on Cranfield/Coca-Cola research about the lack of engineering skills in manufacturing, Jolly added: “We have come to the conclusion that you have to start from a very, very early age – not junior but infant school – to begin influencing the parents and teachers that there are good careers in manufacturing and they are not the type of careers that people think. They are not hot, sweaty, and dirty jobs where you don’t normally find women.
“Manufacturing is a different type of business today and we are not getting that message across as a manufacturing community.”
Sachpekidis recalled the TED Talk words of Sir Ken Robinson who spoke about encouraging innate passions, and exampled how both boys and girls play with building blocks from a very young age. “We’ve all seen how children make things, and yet the education system seems to squeeze that out of them.”
Murray revealed that in the 1980s, around 5.6 million people worked in the UK manufacturing sector, now was 2.6 million and the generational parent-child lineage of employment was much less frequent.
Arnott noted her clients, typically family businesses spanning multiple generations in High Wycombe, tended to be predominantly involved with more traditional manufacturing processes. Whereas the modern technological manufacturing companies tended not to be so traditionally or generationally linked.
Reid: “We are working with the STEM organisation and parents and teachers trying to encourage children from a young age into manufacturing. McLaren Applied Technologies also takes on 15 work-experience students every year with a new initiative for 2016 where we invite back previous work experience students for learning days across the business to maintain the contact.”
Jolly said he understood that the Government was removing work experience time from the national school curriculum. “I find that unbelievable.”
Lane revealed that Xtrac had worked closely with local schools and Newbury College for many years, and took in work-experience students and apprentices every year. “We have a pipeline of talent coming through at apprentice and undergraduate level with students coming in for summer placements, which can lead to jobs when they graduate. Additionally we will sponsor our people for further degrees such as Masters and PhDs – to us training is critical.
“We are extremely cognisant of the responsibility we have both to our business and the local community.“We recently had over a 100 people applying for our apprenticeships – an extremely high but fantastic demand that reflects the desire of local young people to join Xtrac. We see a really strong talent pipeline coming through but that’s not to say that there are not problems with low numbers of engineering candidates overall in the country. I think there is a shortage of engineers across the whole economy, although some of the Government initiatives to encourage more people to see the career opportunities within the manufacturing sector should be applauded.
“The key thing is creating that partnership with the schools and colleges, and then that pays back so much in terms of the talent pipeline into the business or organisation.”
Location also mattered, said Sachpekidis. Moog had struggled to get apprentices for one plant, but not for others, he noted.
Walker: “We see real difference between the quality of different cities in providing solid support for getting apprentices into businesses, to the extent that we (Taylor Made) will have taken on six apprentices this year in both business and technical roles.”
… and where are the women?
The other recruitment issue was the lack of women, and the manufacturing gender imbalance when compared to the population. “The proportion of ladies going into manufacturing is woeful, so as a profession we are losing out. Trying to encourage people away from the ‘boys build, girls sew’ stereotype is vital. That’s an absolutely ridiculous view in this day and age,” said Lane.
Jolly noted that Cranfield has got government support for a well-funded post-graduate engineering doctorate course in Sustainable Materials & Manufacturing, “Finding UK home students is really hard, however I do have six on my books now and 50% are female. I think it’s the ‘sustainable’ aspect that has attracted the women.”
Sachpekidis said the type of manufacturing mattered. His company supplied parts ranging from large electrical actuators for the Wimbledon roof to pencil-size high-performance hydraulics for F1 racecars. In some work areas Moog employed more women than men, although women were vastly outnumbered in the overall workforce.
Reid mentioned that Caroline Hargrove, McLaren Applied Technologies technical director, had done a number of interviews, videos, and schools initiatives to help tackle the industry skills shortage and the gender imbalance.
Arnott made the point that she was the lone woman around the Southern Manufacturing 100 roundtable and stated she understood the number of women in the manufacturing labour force was only around 24%; providing a great opportunity to help address the skills shortage if enough women could be attracted into the sector.
An unsung (and commonly misrepresented) hero
Arnott: “We need to get rid of the preconceptions about what British manufacturing today really is, and we need to do that with boys and girls from a very early age, through their parents and teachers. Otherwise at some stage in the education systems they will get pushed, subconsciously no doubt, to do slightly different things. Choices are made at infant and junior school that set children up for their life. It’s often too late to choose at university.”
Jolly said his son, at infant school, was actively discouraged from pursuing his personal interest in building things, by being called into class activities instead.
Arnott: “There are a lot more manufacturing opportunities out there nowadays and people are just not aware of it.”
Lane: “No longer do we have woollen mills in northern England that are just sweatshops. We now have really high-end precision engineering and technology that leads the way. Some of the people coming out of our universities are the best in the world at what they do, and they make a huge impact to this country’s economy, with manufacturing still providing 12% of GDP.
Wadsworth suggested manufacturers should offer schools a career-based, curriculum-linked initiative to highlight their sector – helping the teachers to teach the true manufacturing story.
Jones felt the sector had an image problem. Manufacturing was such a diverse sector and a difficult word to define, particularly for the younger generation.
Goodman said both sides needed to learn. Businessmen today probably didn’t know all that schools could offer, and many younger teachers today, coming through the education but not business environment, were not aware of the modern manufacturing world.
In the IT sector, the big vendors such as Microsoft support accredited skills training, Walker mentioned. He wondered if something similar could happen within manufacturing.
“The vendors have clearly got a vested interest, but why shouldn’t they? They are investing in supporting people coming in and training them in core technologies that the vast proportion of UK businesses will be running. That’s been a hugely successful programme, bringing people in, and keeping them within the industry.”
What’s the training like within manufacturing?
Lane: “I think we (Xtrac) offer very good training. It’s an industry accredited award-winning three to four-year apprenticeship programme, involving every part of the company’s operations and then there is a job at the end of it. It’s not six months making the tea. We offer something sustainable with an interesting future for the individual.
“When people come into our sector they sometimes don’t have a full appreciation of what our sector is all about, how it’s changing and where it can go … and then, once in the sector they realise that manufacturing and engineering really is a stimulating and exciting place to work … then you’ve got them hooked.”
Apprentices also tended to stay with their training company longer than graduates, the Roundtable noted.
Lane added that Xtrac is an employee-owned manufacturing company. “Our people know that the benefit of what they are doing is directly impacting them as a shareholder. It’s an intangible benefit, but boy is it a benefit. You can really see it on the shopfloor, and I think that can be hugely important in forging a company that is truly joined up and congruent in its vision.”
Wadsworth: “If you match your talent’s individual values with the values of the company you will get a much more congruent workforce.”
Do we need to make things smarter?
Murray asked if the lack of incoming talent was a threat to the future of high-end manufacturing in the UK.
Lane felt not necessarily, because UK manufacturing always stayed ahead of the market. “Over hundreds of years, the UK economy has always gone up the value chain when its manufacturing gets threatened, predominantly by lower-cost production countries. The UK has always re-invented itself through the use of technology and those inventive and innovative brains that we have got, mainly through our fundamentally excellent education system. That’s the situation we have got to today.
“The more productive we become the more we move towards lower input costs and higher-value products the less that threat will be.”
Jolly mentioned ‘Industry 4.0’, the data-driven digitised vision of self-organising and automated manufacturing. “I attended a seminar recently which presented data showing that companies and countries moving towards 4.0 can gain a 20% increase in productivity and a 7% boost to employment. You put in more sensors, more automation and you get higher-level skills and jobs. But, the UK is not on the 4.0 curve yet. Only 25% of UK machines are digitally or Internet connected. There is a massive change coming.”
Sachpekidis and Reid said automation was already happening in parts of their organisations, and other members of the Roundtable agreed that ‘smarter’ manufacturing was the upcoming objective.
Lane: “Whenever you are looking to grow your business, you first try to get more from what you have got, through organisational or cultural improvements. But, there comes a point where investment is required. The confidence that is cautiously there in our economy is now coming through with 5-6% business investment growth per annum.
“We (Xtrac) are investing in machinery, we have to, to make sure that the quality we have got continues to be viewed as the best, and is the best, until we can make it better. And, we are also prepared to invest in our people too in order to get to our customer-focused objectives quicker.”
Jones: “According to The Office for National Statistics (ONS) the UK is 20% behind on productivity against its comparative G7 countries.”
Wadsworth provided an LEP statistic that Thames Valley Berkshire was the only UK region that was more productive than any of the states in the USA.
Does manufacturing need a re-brand?
What’s the image of British manufacturing here and abroad; what did ‘Made in Britain’ mean to international partners and buyers, asked Murray?
Wadsworth first gave an insight into recent LEP research on the Thames Valley sectors that were likely to provide the strongest GVA (Gross Value Added) increases for the area: digital technologies, life sciences and healthcare, and energy and environment.
Although it sounded like scant support for the manufacturing sector both Wadsworth and Jolly pointed out that manufacturing was an integral part of each of the LEP’s priority sectors.
Walker’s view was: “UKTI did a pretty good job of showcasing British business and its technologies at an event I was at in Auckland, and also within the UK at showcasing the services available to UK manufacturing businesses. UKTI put on events attended by thousands of people at a time. It was incredibly interesting to me that on the other side of the world UKTI was putting something on that was going to open up that market to UK businesses and their high-quality and innovative products.”
Jolly: “I had a similar experience in China, where UKTI was ‘putting the ‘Great’ back in Britain.’ There were multiples of hundreds of people there.”
Jones recalled an event bannered: ‘Manufacturing is more than just making things’. “I thought that was such a good point to make because it does involve technology, knowledge, skills, design – so many diverse aspects.”
Murray suggested that the increasing integration of technology within manufacturing might merit a new sector name.
Both Reid and Lane mentioned that their companies lobbied for their sector and worked with government initiatives such as Innovate UK and on international trade trips. “I think the Government is very open and genuinely wants manufacturing to succeed,” said Lane.
Wright echoed the sentiment. “I don’t know who is doing the lobbying or how it comes across, but loud and clear I hear from foreign purchasers or investors in British businesses that it is the fantastic products and highly-skilled people that they want in their organisations.”
The respected reputation of the UK ’s Motorsport Valley, home to several F1 and international rally teams and supported by hundreds of highly-skilled British SMEs, was highlighted as one example of Britain’s global ‘manufacturing’ success.
Lane: “Manufacturing conveys almost the wrong impression – it is a word that has been in existence for hundreds of years and can conjure the stereotype impression of factories being dirty, overcrowded and generally unpleasant environments in which to work. In today’s world that is often not the case, and I think of myself as an FD of a high-end precision engineering business, rather than an FD from a generic manufacturing company.
“It all comes back to what this country does so well, and it is that high-end value precision engineering. Everything has got some kind of design-engineering-manufacturing aspect to it. The world exists on that infrastructure.”
Maybe ‘Manufacturing’ and ‘Engineering’ needed a re-brand, came a suggestion from the Roundtable.
Re-shoring: some manufacturing is coming home
Jones: “A few years ago it was all about keeping costs down and establishing an overseas supply chain solution but what’s emerging now is a move to bring work back to the UK, not from a cost advantage but for quality control, shorter lead times and corporate image reasons.” Jones exampled the critical nature of medical products resulting in manufacture re-shoring. But significant movement takes a big investment, including the recruitment challenge of gaining suitable staff back in Britain, he noted.
Jolly highlighted one British company that had moved all overseas production of its products back into Yorkshire, for supply chain efficiency and speed of response reasons.
Sachpekidis said Moog still manufactured throughout the world, which sometimes created supply challenges and frustrating cultural differences. He pointed out that manufacturing for motorsport was focused in the UK. “I don’t think any country in the world can do it any better at the moment.”
All Moog’s F1 work was manufactured in the UK, he confirmed, noting the proud culture of supply reliability and consistent high-standard work within the UK manufacturing community.
Arnott referenced her firm’s recent 2015 Manufacturing & Engineering Survey in highlighting that companies are moving part of their manufacturing back; 4% of those surveyed have looked to re-shore production, with 5% saying they have offshored in the past 12 months. This would suggest there is still a net outflow of manufacturing capacity. Companies generally re-shore to improve quality control and manage supply chain risks. The UK is increasingly being seen as very good with its business innovation support, such as available tax credits for research and development.
Having said that, our survey revealed that many people are still unaware of these beneficial tax credits.”
Sachpekidis pointed out that innovative products also had to be produced at a marketable price; so low-cost manufacturing was still an important factor in decision-making on the overall product creation.
Reid said McLaren Applied Technologies did not offshore its work. ”When our non-motorsport manufacturing requires scaling, we always select UK-based partners and when our motorsport activities require scaling, the quality and flexibility that we need to maintain justifies any in-house investment.”
New export territories for UK manufacturing?
Lane: “Because we are employee-owned we are not going to embark on a hugely risky expansion strategy. We won’t take a new product into a new market, but we will take a new product into an existing market, or an existing product into a new market, and we are doing both of those things.” Xtrac is currently expanding its business in North America and developing export trade in Latin America and China, mainly through agency agreements that might lead to an in-country business startup.
Reid said McLaren Applied Technologies had recently opened offices in Singapore and saw the Far East as a growth market for the company.
Jolly mentioned that the Vietnamese government was trying to grow its car manufacturing industry.
Sachpekidis revealed that the energy sector in China and use of robotics in Japan and USA was providing opportunities for UK-manufactured Moog products.
When exporting, the strength of sterling had to be borne in mind, noted Murray.
Lane: “If you get quality and delivery right, then customers will buy from you.”
Will VW issues cast a cloud over the sector?
Wright felt it was “too early to call” on potential global repercussions from the VW emissions scandal discovered in the US. (Roundtable held September 24.)
Walker wondered how much the scandal might concern the average car buyers. “Will it stop them buying VW? Unless there is a fundamental change to peoples’ personal tax, safety concerns or a financial fraud issue, I don’t think it will. I suspect VW will be hit for a while, but unless the fraud has been perpetuated company-wide, they will bounce back.”
Lane: “It is after all a management issue, not a car safety issue.”
Did the VW story raise the issue of how far environmental regulation had encroached into the process of car manufacturing, queried Murray.
Lane: “A lot of it does come back to the integrity and ethos that you have in your organisation. Ultimately it is the values of a business and its employees which provide the foundation upon which it is built.”
- Kate Arnott: Partner, MHA MacIntyre Hudson, High Wycombe
- Paul Goodman: Development director, JLT, Reading
- Mark Jolly: Professor of sustainable manufacturing, Cranfield University
- Nick Jones: Relationship director, manufacturing specialist, NatWest
- Stephen Lane: Finance director, Xtrac, transmissions technology, Thatcham
- Chris Reid: Electronic production platform leader, McLaren Applied Technologies
- Michael Sachpekidis: Business development manager, Moog industrial group
- Graham Wadsworth: Member Thames Valley Berkshire LEP (director Indigo Blue)
- Tim Walker: MD, Taylor Made Computer Solutions, Fareham
- Sean Wright: Partner, Shoosmiths, Thames Valley
- David Murray: The Business Magazine managing editor and publisher, chaired the discussion