Manufacturing

manufacturing building yellow

What’s impacting manufacturing?

The future of manufacturing industries globally is bright. According to IIoT World, 27% of worldwide manufacturers estimate at least a 10% YOY increase in revenues until 2024. This growth doesn’t come without challenges, such as trade barriers, political instability and keeping pace with technological advances, whilst remaining sustainable.

Menzies Manufacturing Magazine

Edition #3 – August 2023

It has been great to see that UK manufacturing continues to thrive, contributing over £200bn per annum to the UK economy, despite increasing energy costs and rising interest rates.

In this edition of the manufacturing magazine, we will explore some of the challenges and opportunities facing the industry:

  • What ESG means for your business and how by embedding a strategy now, you can de-risk your business for the future whilst also creating efficiencies that will strengthen your business today.
  • Installing solar panels on your roof space is one way to increase ESG ratings, whilst mitigating risk from volatile energy prices. We explore the incentives available to you, and how to plan your investments for accelerated returns.
  • We highlight government R&D tax incentives that could help to improve manufacturing productivity through investments in new innovations and technology.
  • Acquiring another business can be an excellent strategy for accelerating growth. In our acquisition readiness article, we look at the critical factors you will need to consider for a successful venture.

Autumn statement – Tariff suspension on over 100 products

The Autumn statement announced measures to suspend customs duties on a variety of products, including aluminium frames for bicycle manufacture and ingredients for food products.  The suspension period will start on 1 January 2023 and will continue for two years, reducing tariffs as high as 18% to nil.

Between 1 June and 31 July 2021, the government invited applications for duty suspensions from businesses, where certain criteria could be met and the outcome of this has now been finalised.  Applicants will be notified of the outcome of their application directly.

VAT Advisory update:

HMRC has announced that exporters will have more time to move over to CDS from CHIEF

Following consultation with the industry, exporters have been given an eight month extension to the deadline to transition to CDS.  The original deadline of 31 March 2023, has been delayed until 30 November 2023, after which exporters must use CDS to make export declarations.

The industry has welcomed this decision, as it will allow more time to deliver and test functionality, as well as allowing time for customer, software and procedural preparation.  HMRC intend to provide more information on the timeline for CDS exports by the end of January 2023.

Supporting the Manufacturing sector

We advise a diverse range of manufacturers, as well as a number of sector-dependent clients. We work closely to find solutions to industry issues, utilising our expertise in everything from business strategy and corporate finance, to audit and tax advice.

Manufacturing Report: Unlocking value on the road to net zero

While food and drink manufacturers across the UK are being challenged to reduce their carbon footprint, it is important to note that investing in sustainability doesn’t have to impact profitability. We identify ways to unlock value through investing in sustainability, including:

  • Focusing on generating revenue through waste minimisation and potential diversification
  • Improving efficiency by reducing costs
  • Revisiting people management strategies
  • Maximising available reliefs from R&D and capital allowances

The UK itself is currently the 9th industrial nation in the world, accounting for 45% of the country’s exports and 69% of its R&D activity. Despite global economic uncertainty, UK manufacturers remain resilient and resourceful. Investment in automation and technology, combined with a focus on high-value manufacturing, is high on the agenda. The Government’s Industrial Strategy has identified some key areas of opportunity for innovative manufacturers which promotes significant growth potential. As the need to be sustainable is becoming essential rather than desirable, more manufacturers are stepping up to meet the environmental concerns – and making cost savings in the process.


Key challenges for the manufacturing industry

People and Skills

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An estimated 186,000 new UK-based engineers are required each year until 2024 and currently this target is not within reach. With skills shortages and the upcoming national insurance set to continue pushing up the cost of labour, manufacturers should review their future talent requirements and incentivise existing staff to encourage retention. Maintaining and increasing investment in training at all skill levels is key. Manufacturers investing in new systems and equipment are also much more likely to invest in the personal development of their people. Funding is now available as part of the Government’s Industrial Strategy to support Knowledge Transfer Partnerships and strengthen leadership skills.

Innovation

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The UK is one of the world’s top five most innovative economies, according to the Global Innovation Index. To innovate effectively, manufacturers face challenges in balancing competing demands of winning new contracts, delivering projects and helping customers. Manufacturers are leading the way with investment in R&D and opportunities exist to utilise tax incentives, such as R&D tax relief and the Patent Box regime. Making the most of these reliefs will leave manufacturers with more funds to invest in building a stronger business and recruiting skilled staff.

Technology

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Manufacturers need to utilise the latest technology to stay relevant, innovative and competitive. Their biggest challenge is how best to use technology to achieve operational goals such as reducing costs, improving quality, productivity and safety whilst pushing product innovation. Without investment in automation and other digital technologies, they risk losing market share to competitors. Strategic investment in AI and robotics is increasingly crucial to deliver long-term value and business sustainability. Embracing Industry 4.0, particularly the Internet of Things (IoT) and the IIoT (Industrial Internet of Things), opens doors for manufacturers to create a more digital focus, including real time tracking and quality management.

Supply Chain

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From car makers toiling with semiconductor shortages to fast food chains being compelled to take milkshakes off the menu, supply issues are increasingly prominent in headlines all over the world. This has significant working capital implications for manufacturers, who will need to work with both customers and suppliers to manage fluctuating prices and demand. The challenges of an inflationary materials market extend beyond financial concerns: bulk purchasing may protect margins where the business has the storage capacity and infrastructure in place to deal with larger orders, which could have a positive impact on product lead times. Manufacturers who are able to respond with agility to a fluctuating supply chain will increasingly stand out from their competitors.

Sustainability

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To strengthen their position as global suppliers, UK manufacturers must continue to invest in boosting their sustainability credentials and drive efficiencies in the process. Growing public awareness of environmental damage requires businesses to adopt a proactive approach and take steps to mitigate their carbon footprint and reduce waste. Businesses are under increasing pressure from governments worldwide to address their impact on the environment. In the UK, large companies are now required to include Streamlined Energy and Carbon Reporting in their financial statements, whilst companies using more than 10 tonnes of plastic packaging per annum may be subject to a new plastic packaging tax. In response, Britain’s manufacturers are implementing a growing range of sustainability measures and reaping cost-saving benefits. According to Make UK’s Sustainability Report, manufacturers are beginning to look beyond the initial cost-saving benefits and instead focus on the long-term benefits of sustainable approaches within their organisations.

Productivity

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According to the UK’s Office for National Statistics, recent figures suggest that labour productivity declined in the manufacturing sector by 0.9%. Manufacturers must explore ways to close this productivity gap and secure a competitive advantage. Data is now available to identify areas where streamlining the production cycles improves efficiency. Good examples of this are the development of lean manufacturing systems, performance dashboards and predictive maintenance.

More Manufacturing Brighter Thinking

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Contact Menzies Manufacturing Sector Team

    Service head

    Charlotte Langdon - ACA

    Director

    Charlotte Langdon is Menzies Audit Director specialising in business audit and accounting compliance advisory services for SME businesses.