Predictions of economic doom and gloom pre-referendum are of little relevance now and UK manufacturing faces another period of uncertainty whilst the exit from the EU is negotiated. This period of uncertainty comes following the recent Scottish Referendum, and then the EU Referendum.
So now the real question becomes, what can UK manufacturers do to increase certainty in an uncertain world?
The starting point has to be cost control. From looking at the design of the product to see if material requirements can be reduced, or if cheaper parts can be used without jeopardising quality. To looking at whether the raw materials can be sourced domestically thus reducing the exposure to high import prices. Finally, examining the manufacturing process to further reduce waste. This isn’t anything the majority of UK manufacturers don’t already do as a matter of course, but while it’s important, unfortunately it’s not enough.
Understanding and being able to forecast the impact on your business as currency fluctuations drive import costs up will be critical as it could more than offset any increase in margins possible through lower pound values which could leave room for lower export prices.
Landed cost tracking also increases in importance. Manufacturers will need to be able to break down import costs and plan for them over the longer term to predict foreign currency cash requirements, in order to maximise the benefit of currency hedge funds etc. Again, many UK manufacturers already hedge against currency fluctuations, but the EU referendum results now mean that many more will be looking to start, or improve, their processes in this area.
For most manufacturers, a substantial amount of their working capital is tied up in inventory. In uncertain times it’s even more important to free up that working capital to be able to respond to fluctuations in trade. Introducing better forecasting, for sales and inventory, ensuring supply and demand are in line, and preventing high levels of obsolete stock all help reduce overall stock levels, keeping cash levels higher and the business more agile. Although many businesses have tackled excess inventory, there is often much more that can be done by employing complex data algorithms which can understand and predict patterns far better than human analysis.
To compete on the global stage productivity has always been key. The decision to leave the EU doesn’t change that. In order to maximise productivity manufacturers first need to understand in detail where time is being consumed in the manufacturing process: analysing the data, applying lean techniques, introducing automated process, robotics, intelligent devices, and embracing the gains from Industry 4.0 will all play a role.
The type of change required to embrace Industry 4.0 will be a higher risk in this climate of uncertainty, but like all higher risks the payoffs are potentially much higher too.
Whether the doom and gloom of Brexit will arrive, or whether UK manufacturing can rise to the challenge, embrace change and find a way to trade ourselves out of economic uncertainty remains to be seen. We can’t change the decision now, so all we can do is respond to it in the most positive way possible.