The challenges facing the Manufacturing industry in 2023
As the manufacturing industry evolves in the face of various economic and global factors, it becomes crucial for businesses to adapt and overcome the challenges that lie ahead.
Earlier this year we took part in Insider Media’s South East manufacturing briefing, engaging with other industry specialists to discuss the sector outlook for 2023.
In this article, we outline the key takeaways from the roundtable event, shedding light on the challenges faced by the manufacturing industry and the strategies employed to address them.
Key takeaways for the manufacturing industry
Workforce and recruitment
The impact of Brexit has significantly affected the composition of workforces within the manufacturing industry.
One example is Higgidy, a local food manufacturer. They have witnessed a 4-8% staff turnover due to Brexit-related changes. To combat this issue, Higgidy are investing in recruitment and training initiatives to attract and retain skilled employees.
Similarly, manufacturers are facing the challenge of ‘recruitment stickiness,’ where individuals leave soon after being trained. The industry is focusing on upskilling and developing talent through apprenticeships and value-add benefits.
Labour shortages resulting from the Brexit transition have forced manufacturers to seek alternative solutions. Many businesses are now turning to automation to streamline processes that traditionally required significant human capital.
For instance, a wine producer invested in a machine capable of picking grapes from their vines, which initially entailed a substantial upfront cost but significantly reduced ongoing operational expenses.
Embracing automation enables manufacturers to boost efficiency, enhance production capacity, and reduce reliance on scarce labour resources.
The COVID-19 pandemic prompted unforeseen challenges, particularly for manufacturers heavily reliant on the hospitality industry. With restrictions impacting demand, businesses were compelled to diversify into new markets to ensure their sustainability.
For example, another local food manufacturer successfully expanded into an additional sector. This ensured their presence in two markets and mitigated the risk associated with over-reliance on a single industry. This diversification strategy has provided resilience and strengthened their overall position.
To alleviate the pressures exerted by complex and vulnerable supply chains, manufacturers are advocating for a more joined-up approach that encourages sourcing raw materials domestically.
By reducing reliance on international supply chains, businesses can mitigate risks associated with disruptions caused by global events and create a more stable production environment.
Rising energy costs
The manufacturing industry is grappling with significant inflationary pressure resulting from soaring energy costs. These have increased by approximately 600% in comparison to the previous year.
To offset these costs, manufacturers are often passing them on to customers, but they are also investing in marketing efforts to showcase the quality and value of their products.
Balancing price increases with effective marketing strategies allows businesses to maintain competitiveness while weathering the energy crisis.
Sustainability and Net Zero Targets
A growing number of manufacturing businesses recognise the importance of sustainability and have begun implementing comprehensive sustainability plans, especially those with high energy consumption.
Banks like HSBC are actively engaging with clients to help them achieve sustainability key performance indicators (KPIs) through loan facilities. Moreover, private equity investors are increasingly incorporating environmental, social, and governance (ESG) factors into their due diligence processes, emphasising the significance of sustainability within the industry.
Despite the challenges faced by the manufacturing industry, it has demonstrated remarkable resilience, with substantial growth observed in Asia. The sector has not experienced significant downward expansion trends, highlighting the opportunities for international growth and market penetration.
Business exit considerations
The average age of business owners within the manufacturing industry continues to rise. However, the combined impact of Brexit and the COVID-19 pandemic has complicated the exit plans for many business owners. Some are forced to accept lower valuations, while others are compelled to delay their exit strategies
In summary, manufacturing businesses continue to face a changing landscape including:
- The labour pool and recruitment post-Brexit
- Soaring energy prices impacting production costs
- Automation provides opportunities to alleviate labour shortages and facilitate growth
- Post-Covid market has created new business opportunities and challenges
- Increasing investment in sustainability and achieving net zero targets
- Reconsideration of plans for business exit