Following a drop in the output of industrial production, plus the continued deterioration in the health of the UK economy, the manufacturing industry has called on the government, and our new Prime Minister, to help.
Many manufacturing companies are reporting that rising energy costs are causing major, and in some cases, catastrophic disruption, while a similar threat is being posed to the UK economy by rising transport and raw material costs.
Key reasons for the requirement for intervention include:
- Innovation delays: Shortages in global chip and semiconductor supplies have been a blocker preventing prototype development. This poses a threat to the intelligence that can drive and assess progress towards net zero and sustainability targets, and prevents businesses delivering innovative new products and services.
- Global supply chain pressures: Input prices in manufacturing are at their highest in 30 years while the cost and supply of materials like steel are increasing exponentially, leading to a decrease in demand in global manufacturing and hampering the productivity of the industry.
- Technical skills shortages and future development: According to McKinsey & Company, 87% of companies worldwide are aware that they either already have a skills gap, or will have one within a few years. This is especially relevant in AI and robotics as 56% of hiring managers predict that technological advancements like AI will cause a major shift in the skills the emerging workforce will need.
The Manufacturer’s Joe Bush caught up with Tharsus CEO Joni Rautavuori to find out the impact of supply chain challenges, chip shortages and the rising cost of steel on manufacturing, and how companies are evolving to adapt to the changes in the market.
How are supply chain challenges, chip shortages and the rising cost of steel impacting manufacturers?
There are availability issues for most materials right now which is forcing manufacturers to delay their deliveries to end customers. When they do get access to material, the natural reaction is to increase safety and security for the future by building inventory, which is exacerbating the issue around lack of materials. In the short-term there is very little they can do.
There have also been rapid increases in steel prices in the UK, in addition to the cost of living. Again, in the short-term, most manufacturers will have to take a hit on their margins, while at the same time, pushing cost increases to their customers, and eventually consumers.
Thirdly, development cycles are being delayed, especially in electronics. For a new PCB board, for example, there is now up to a 70 week lead time in some instances. If a company is developing a new product and, in the worst case scenario, has to wait half a year for a key component, there will inevitably need to be another design change, creating even further delays. This is becoming a real challenge for the development of new products.
This is where manufacturers need to think outside the box and look at alternative technologies and components, and also to the performance of the new products. For example, due to shortages, consumers who are buying a new car today may be willing to compromise and choose a configuration which is only partially suited to their needs in order to get it sooner. In the current climate, companies are also looking at ‘good enough’ products so they can get them to market and get to revenue. So, there are a number of adjustments that are taking place.
Can you explain the trend where manufacturers are moving from a model of just in time to just in case?
Companies are adapting and adjusting to the current environment and part of that means they are building inventory to secure the future against further disruption. However, this is making the situation worse. A large portion of inventory is sitting idly in storerooms while other companies can’t get material they need.
Rather than just in case, manufacturers need greater robustness in their supply chain; alternative suppliers that are close by so companies can react to change quickly. Building inventory has become the first port of call for mitigating against supply chain issues and materials shortages, however, I don’t think companies will continue to rely on that due to the cost involved. The word on everyone’s lips is resilience when it comes to supply chains and that means far more than mere stock levels. Innovation plays a key role here as it’s important to have substitute technologies that can be quickly incorporated into a design change if needed.
Manufacturers have been forced to rethink their operating models. The days of low-cost suppliers in Asia being the only solution are gone. Manufacturers are having to look at far more regional, less monopolistic supply chains and product designs that lessen the dependence on specific materials.
What more can government do to help?
Inflation, and particularly the energy crisis, is where government needs to intervene. There will undoubtedly be an impact but that needs to be mitigated because currently it is hurting companies as well as the individuals.
I personally think that the UK does not have a culture of industrial productivity and innovation. Rather, the country has traditionally been focused on imported and flexible labour. After Brexit however, the country has been working hard to establish a strategy to improve industrial productivity. We are competing with other European and global companies and currently we’re falling behind.
Most countries and companies have their own strategies in place. The UK has not really been able to establish that; in order to do so this agenda needs to span political cycles to have a real impact. These things take time however, and companies need to see the consistency and stability to be able to invest on their part. That’s an important common agenda that tech companies and governments need to put in place.
What opportunities are there to grow through the evolving challenges?
You have to be fast and agile. The three key challenges for companies currently are the need to improve productivity to be competitive, against the backdrop of a lack of labour; the need for flexibility to meet increasingly diverse customer demand and delivery expectations; and off course sustainability, which is starting to have a real impact on customer decision making.
Automation and digital solutions can be combined to provide solutions for these three problems and address them at the same time. Combination is the key word however; you could have automation that is very fixed which could actually reduce flexibility and in the worst case scenario, have a negative impact on sustainability.
Furthermore, it can also be detrimental if flexibility is improved to an extreme. For example, we see a wide variety of products in today’s supermarkets. Therefore, we have a great deal of flexibility as consumers, however, around 70% of food on sale ends up going to waste; so we are building stock but we don’t have the method to produce it in a productive and sustainable way. A combination of flexible automation, data and strategic machines offers a solution.
Joni Rautavuori joined Tharsus as CEO in January, bringing many years’ experience running complex automation organisations and scaling them in multiple territories. He led ABB’s Global Robots & Solutions business from the UK between 2015 and 2020 and headed several commercial sustainable technology businesses in the roles of CEO and founder. During his 20 years at ABB, he worked across multiple roles in end-to-end value chains in Finland, China and the UK. Joni also holds a Master’s degree from the University of Cambridge Manufacturing Leaders Programme.
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