Annual Manufacturing Report signals renewed sector confidence

Posted on 6 Feb 2013 by Tim Brown

Investment in machinery and new product development are key priorities for UK manufacturers over the next 12 months, with 46% of manufacturers reporting they are ‘quite optimistic’ about the economic prospects for UK manufacturing this year.

The Annual Manufacturing Report (AMR), produced by The Manufacturer magazine in association with Barclays and eBECS, surveys more than 100 manufacturers each year.

The report shows signs of increased confidence in the sector, with a considerable increase in companies seeking to spend more on investment activities. As seen over the past year and continuing into 2013, UK manufacturers are strongly focused on research and development in order to create new products. Over a third (36%) plan to increase spending in this area in 2013, and more than half (62%) of UK manufacturers will spend over £100,000 on machinery and tools this year.

Importantly only 2% of companies reported an intention to spend less on new product development over the coming 12 months, showing manufacturers are looking to couple new product development with investment in new equipment to bring innovation to the marketplace.

Mike Rigby, Head of Manufacturing, Transport and Logistics at Barclays said: “There is a clear overall improvement in confidence compared to last year, which coupled with the increase in planned investment spend, is very encouraging to see. There is however still concern around future prospects as the economic outlook continues to be challenging, but a focus on R&D and innovation can only mean good things for the sector.”

In the last 12 months almost half of manufacturers increased their expenditure on IT, with 48% reporting an increase over prior year IT spend. This is a significant transformation from 2010, when only 13% of them had increased their IT costs over the previous year. But compared to 2010 when only 6% of companies planned to reduce their IT expenditure, we see that 38% of companies are forecasting a cut in IT spend over the next year. Cost is reported as the biggest barrier to IT investment, cited by 53% of respondents, followed by lack of management buy-in, at 39%.

There appears to be a general trend amongst UK manufacturers to increase the amount of business they are conducting overseas. In this year’s report, 35% of companies state that they conduct 20% or more of their business offshore while 37% state they plan to increase offshore activity.

When it comes to offshore production, 11% report that it is ‘very likely’ that part of their manufacturing production will move to a low cost economy over the next 12 or 24 months and 17% reporting that it is ‘quite likely’. This is in contrast to 5% that intend on returning their production to the UK.

Tim Brown, online editor at The Manufacturer said: “For the first time in three years, companies have indicated that they are very likely to return part of their manufacturing production to the UK. However, while this is encouraging, there are still a quarter of companies considering moving part of their operations overseas. Companies that are considering moving operations overseas must beware of the hidden implications that such decisions will have. These include a loss of skills; difficulties with consistent quality; and long lead times.”

Looking at supply chain integration, 53% of manufacturers plan to increase investment in supply chain integration over the next 12 months, whilst no companies expect it to decrease. This shows manufacturers realise the long-term gains to be had from developing better relationships throughout the supply chain.

Mike Rigby, continued: “It is not surprising to see UK manufacturers focus on new markets as they look to benefit from faster growing territories. This will also provide them with diversified income sources and wider opportunities for the application of their intellectual property.”

Concluding, Tim Brown said: “In many areas of the Annual Manufacturing Report 2012, the responses from manufacturers more closely reflect the pre-recession AMR figures from 2007/08. While the macroeconomic issues continue to have a negative impact on UK manufacturing, the perception of manufacturers is that the situation is improving.”

About the Annual Manufacturing Report:

The Manufacturer magazine in conjunction with Barclays have released the 2012 Annual Manufacturing Report (AMR). The AMR reports on the findings of this year’s research in the areas of Economy, Government Policy, and Finance, Purchasing, Procurement and Logistics.

A copy of the report can be downloaded here.