Annual Manufacturing Report: UK MFG optimistic but needs more skills

Posted on 11 Feb 2015 by The Manufacturer

The 2015 Annual Manufacturing report, published today by The Manufacturer, finds the UK manufacturing sector in broadly positive territory. Confidence is well up since the post-2008 downturn and a range of investment projects are now being undertaken. The government’s handling of the economy is regarded as good overall but less so when it comes to manufacturing, specifically.

The full Annual Manufacturing Report 2015 can be downloaded by clicking here

AMR 2015 Front Cover Full Size
The full 2015 Annual Manufacturing Report can be downloaded at

Not surprisingly, UK manufacturing needs more skilled workers. Just under 90% of respondents said they have multiple vacancies and more than one-third said they have 10 or more. UK Manufacturing is prepared to give youngsters a chance: nearly nine out of 10 (87%) respondents said they had given a first job to a school, Further Education (FE) college leaver, or university graduate.

Poor preparation

There is significant concern about the ‘suitability for work’ of young school and Further Education College (FE) leavers taking up their first job. Nearly half (48%) said that 16-year-old school leavers were either “poorly” or “very poorly” prepared for work; 17/18-year-olds fare little better, whether from school or FE: again, just under half (47-48%) of employers rated their new recruits at that age as either “poorly” or “very poorly” prepared for work.

On the more positive side, over one-third (39%) of FE leavers were rated as “well prepared”; just under 30% of school leavers reached the same category. There is clearly a need for manufacturing and schools to re-establish links and improve mutual understanding.

AMR 2015: Too many youngsters ‘poorly prepared’ for work

University graduates are much more highly rated. Two-thirds (66%) of graduate recruits were described as “well” or “very well” prepared for the workplace.

Companies are prepared to invest in ongoing education and training, with 71% saying that they offer apprenticeships and more than half (52%) of those are at advanced or higher levels.

Skills shortages

The list of “hard to find” skills is headed by Engineering and Automation (58%), followed by Technical/Practical (48%) and Problem Solving (37%). More than half (53%) said that they have invested in further training and development opportunities in order to retain hard-to-find skilled staff and around one-third said they have offered higher pay, more incentives, management and leadership training or “job enrichment” programmes.

UK Manufacturers need more engineers, practical skills, problem solvers

UK Economy – fighting fit?

Three-quarters of UK manufacturers are “quite optimistic” about the British economy over the coming 12-36 months and 85% believe that the government is managing the general economy well (exceptionally well 4%; very well 19%; moderately well 63%). Confidence is lower when it comes to manufacturing specifically, with a total of 58% positive (1%; 9%; 48% exceptionally well, very well, moderately well).

Companies believe that manufacturers in other countries get more state support than those in the UK. Three of our major competitor countries – Germany, France and China – are believed by 83, 63 and 57% (respectively) of respondents to provide more government support than those in the UK.

Bureaucracy, regulation and ‘red tape’ obstructs or influences business decisions, according to 72%, and the regulatory climate is believed to encourage a ‘risk-averse’ approach by just over half (51%).

Exports, innovation, quality, customer relationships all rising

It is expected that the global economic situation will have a negative effect on the UK economy (44% very/quite optimistic; 56% quite pessimistic) but British manufacturers are seeking out new markets and growth opportunities beyond the borders of the EU.

Nearly three-quarters (73%) of those surveyed say they ‘operate globally’ – i.e., in two or more countries – and almost as many (71%) see developing international trade as very important or vital for future growth. 80% of respondents have customers overseas; 73% have overseas suppliers; and 52% said they have international business partners.

AMR 2015: UK manufacturers looking beyond Europe for growth

The biggest barriers to export success are insufficient resources (50%), and insufficient funds and insufficient personnel/HR structure (39% each). Those who have built up successful overseas trade broadly agree that those are the most important hurdles to be overcome (43% resources; 40% personnel/HR; 30% funds) but language was also mentioned (34%).

Communications infrastructure also emerged as a significant factor to be taken into account. Those that had tried and failed in global endeavours had less widespread communications than those who were pretty much totally connected.

State agencies including UKTI (UK Trade & Investment) and UKEF (UK Export Finance) are generally highly regarded by those who have used them. They achieved 73 and 78% approval ratings, respectively. EEF, Warwick Manufacturing Group; Institute of Directors; Technology Strategy Board; “Catapults”/Technology Innovation Centres; Manufacturing Advisory Service; NW Automotive Alliance; and Local Enterprise Partnerships all received ratings of 80%-plus by those who had used them.

AMR 2015: UK manufacturers boosting apprenticeships

Product development, customer satisfaction, quality

Manufacturers identified new product development/innovation (79%) and improving customer relationship management (75%) as key business focuses over the past 12 months. They remain the lead priorities for 2015 as well. The key performance indicators for measuring success are led by customer satisfaction/retention (88%); quality reputation (79%), profits growth (77%); and operational efficiencies and cost control (73%).

Automating production

Investment in automation has been strong for a few years and is now reaching very high levels; three-quarters (75%) of respondents said they had invested in automation over the past five years. The main drivers are business efficiency, reduced cycle time and improved quality. Improving health and safety and the working environment are also key concerns.

Nearly two-thirds (64%) of firms are regularly spending over £100,000/yr on automation projects. A similar percentage said that they intend to spend the same or more in 2015. The increase in Annual Investment allowance (AIA) to £500,000 appears to have encouraged the replenishment and modernisation of Britain’s production base.

Information and Communications Technology

AMR 2015: Investment in automation and ICT up

Investment in ICT (information and communications technology) has rebounded strongly in the past 12 months; 71% said they had spent more in the current financial year than the previous one and just over half (51%) said they expect to spend more again, in 2015. Businesses have been upgrading their existing infrastructure (27%) in the drive to improve analytics and reporting (40%); planning and scheduling and workforce management (36% each); supply chain management and customer relations (29% each) heading the list of priorities.

Issues of productivity improvement (60%) and product development and innovation (49%) head the list of challenges that have driven investment in ICT. Recent projects have shown a marked improvement in delivery on time, on budget and to expectations.

Where the money goes

UK manufacturers’ finances are in pretty good shape. Managing cashflow, which was a top concern for many years, is now a major focus for just 24% of those surveyed. Reducing costs is the main objective (43%) but other answers make clear the drive is for improved productivity, not reduced headcount.

AMR 2015: Lots of vacancies in manufacturing and engineering

Investment is at record levels and raising funds for investment has risen up the agenda to be a key focus for 18%. The main areas for investment that were identified are: computer software and systems (63%); machine tools (57%); and computer hardware (45%). Over 70% of companies said they invested the same or more in 2014 than they did the previous year, and more than 65% said they would be spending the same or more in 2015 and the next five years, with new product development leading the pack (91% same or more in 2015; 87% next five years).

The 2015 Annual Manufacturing Report was prepared by Hennik Research, is published by The Manufacturer, with sponsorship from Barclay’s Bank, Truphone, Pera Training and the Automation Advisory Board. Data was collated from a survey conducted during October-November 2015. Respondents came from all sectors of manufacturing, including automotive, aerospace, agribusiness, food & drink, chemicals, plastics, renewables and steel.

Manufacturing comprises approximately 10% of the UK’s GDP and supports significant levels of activity in other sectors such as accounting, law, logistics, banking, IT and transport.

Manufacturing is a major source of overseas earnings and of added value within the economy.

It is getting easier to access funds for investment. In 2011, 37% of respondents said it was impossible or difficult to obtain funds; that number has fallen to 24% in the latest survey, with just 6% saying it was impossible. 10% said it was easier, down from last year’s 21%.

Most of those surveyed (71%) said that they had used their own reserves for capital in the past two years. This percentage has been high for the past three years. Asset finance and hire purchase and leasing have risen dramatically in popularity, with just under a third saying they use these methods. 61% said that more than half of their investment is regarded as strategic, intended to support the forward vision of the company. Typical expected payback period is two to four years.

Bank loans have fallen in popularity (20%) and the same can be said for the traditional overdraft (also 20%).

Financial management and monitoring by companies themselves offer room for improvement. Only 22% of companies said they undertake full Return on Investment (ROI) quantification, with a total of 30% saying they did little or no formal ROI. Barclays Bank, which sponsored this section of the report, specifically highlighted this as an issue that should be addressed. More efficient monitoring and financial controls can help the banking relationship.

A total of 43% of respondents said they were moderately or very satisfied with the commercial funding options available from their bank. 34% said they were moderately or very unsatisfied. However, the level of service provided by banks is rated good or excellent by 69%.