The four top challenges UK manufacturing SMEs are facing right now

With the cloud of Brexit uncertainty continuing to hang over the UK economy, one of the industries facing the greatest pressure is manufacturing. In May, the manufacturing sector shrunk on a monthly basis for the first time since July 2016, in the immediate aftermath of the EU referendum. Export orders were the lowest since 2014.

Brexit is far from the only challenge facing UK manufacturing, though. The sector must deal with uncertainty while making effective plans for investment, hiring and managing emerging threats such as cybersecurity. All of these are liable to put a strain on working capital capacity.

Here we outline four issues that every manufacturing business should be keeping an eye on.

1. Investment

As the imprint of automation grows across all industries, manufacturing is at the forefront. From the production line to stock management systems, there is scope to increase productivity and make savings through effective deployment of automated systems. The same is true of augmented and virtual reality when it comes to training and health & safety.

As ‘Industry 4.0’ comes into being, manufacturing companies can’t afford to be left behind by more agile, technologically-adept competitors. But that means an emphasis on capital expenditure whose ROI is unlikely to be felt immediately.

2. Talent

Access to talent and hiring is a challenge felt right across the industry. According to the British Chambers of Commerce’s quarterly economic survey, 81% of the 6,000 manufacturers the polled reported a difficulty in recruiting skilled staff in the last quarter of 2018 – the joint-highest level since the study began in 1989.

Declining EU immigration levels, and competition for skilled workers from overseas markets, are contributing to a labour shortage that has become pressing for UK industry. Firms have also reported widespread shortfalls in the advanced skills needed to make the digital, data-based model of future industry a reality.

3. Cyber security

As complex, digitally-dependent businesses, manufacturing companies face a significant threat from cyberattacks. An AIG/EEF survey in 2018 found that 48% of manufacturers in their poll had experienced a cyber security incident, with half of those suffering a financial loss or business disruption. Over a third of manufacturing companies (35%) said that cybersecurity concerns are holding them back from investing in new technology, and 45% that they don’t have the right tools to manage cyber risk.

Cybersecurity is a challenge that manufacturers are aware of, but in many cases are struggling to effectively prepare for. Effective risk management is yet another area demanding new investment and training.

4. Stockpiling

In the early part of this year, with the Brexit deadline looming, manufacturers stockpiled at quickest rates since records began. From February-April, levels of raw materials grew by 39% and finished goods by 25% as firms anticipated the disruption of a no-deal outcome.

Now companies are having to deal with the consequences of that investment spurt, with stocks of materials that have already been paid for, but not yet sold on, creating a major gap in the working capital cycle.

Final thoughts

Taken together, these challenges represent a perfect storm for manufacturing companies, which must face the certainty that new investment is needed, alongside the uncertainty of how to pilot their business through a Brexit situation whose conclusion is becoming no clearer.

At Growth Street, we work with many manufacturing businesses, helping them to smooth out the capital cycle of an industry whose investment needs are significant, and will often take some time to realise planned returns. Since 2014, we have lent over £16m to manufacturing businesses across the UK.

Through our GrowthLine product, we provide a working capital facility of up to £2m*, to companies who need short-term finance to meet immediate investment needs. For many of our manufacturing customers, this provides working capital they can’t access through alternative sources, many of which are geared towards the long-term.

Find out more here or give us a call on 0808 123 1231.

*Terms apply

Written on in Business Insights