On 31 October 2019, the UK will leave the European Union (EU). UK manufacturers should and will have been preparing for that date, whether a final Brexit deal is made or not. UK manufacturing is resilient and has a rich history, accounting for nearly half of UK trade.
But how will Brexit affect manufacturing? This article will explore that issue and offers three pieces of advice to keep manufacturing businesses moving.
How will Brexit affect manufacturing?
Brexit will represent opportunities as well as threats, and manufacturing business leaders need to prepare, whatever happens, and irrespective of whether tariffs and non-tariff barriers are put in place. Worldwide, there will be new market opportunities and supply networks to tap into, with room to forge new relationships.
In January 2018, the UK government released a white paper with a post-Brexit modern industrial strategy, promising billions of pounds of investment in technology and Industry 4.0, as well as a commitment to play a more active role in boosting the industrial sector. Smart and transformational technology, such as the Internet of Things, may allow businesses to take advantage of what could be on offer.
One of the main issues of Brexit for manufacturing companies (and businesses on the whole) is the lack of information on what precisely will happen.
Normally when businesses plan, they’re basing plans on hard facts and information. Brexit is different – businesses need to plan with unknowns in mind, even taking speculation and hypothetical scenarios into account.
Whatever the future scenario, UK manufacturers and distributors need to make sure they’re prepared with the right tools and insights to make the most of a new era. The most successful companies will have visionary leadership and will play to their strengths while minimising their weaknesses.
Three ways to prepare for Brexit
Here are three areas that manufacturers need to consider in light of Brexit.
1. Keep goods moving
Perhaps the most immediate priority for British manufacturers (and distributors) is to understand how various Brexit scenarios may affect their supply chains and the movement of goods.
- Tariff exposure and other costs.
- Compliance – irrespective of a Brexit deal (and free trade agreement between the UK and EU) or no-deal (and the transition to World Trade Organisation rules) goods will need to be declared, with custom procedures applied and opportunities for tax/duty planning.
- Relationships with suppliers – if manufacturers rely on certain components, understanding how this will work after Brexit will be a priority as lead times may increase.
- The security of customer relationships and the effect on demand volume, contract terms, pricing and rebates.
- The potential loss of EU research and development grants, and the impact on product marketing and procurement.
UK manufacturers should examine their supply chains closely, taking care to understand where delays may potentially hit the business. They should also make good use of data analytics – this could help them examine how they can consolidate goods and understand if warehouses need relocation. Manufacturers should also be asking their suppliers about their own plans for Brexit.
One option for UK manufacturers is to become an Authorised Economic Operator (AEO), which is an accreditation that allows businesses to register to apply simplified customs procedures to fast-track their goods through customers border controls and provides assurance to HMRC that their import/export practice is secure.
Supply chain strategies needn’t just be about mitigation. What forward-thinking manufacturers should be looking at is challenging what’s happening in their supply chains and doing things differently. Reducing lead times and deferring the time when any duties need to be paid makes sense in almost every scenario.
British manufacturers may benefit from considering trade opportunities with countries outside of the EU, such as China and the US. This will have its own set of challenges when it comes to culture and language.
2. Adopt new technology and innovation
The fourth industrial revolution, or Industry 4.0, is already making a considerable impact on British manufacturing. Bringing together technology such as the Internet of Things (IoT), cloud computing and artificial intelligence (AI), UK manufacturers should embrace technology in a post-Brexit world. It offers great opportunities and benefits when it comes to productivity and efficiency.
AI and automation for example, provide an opportunity for businesses to scale up volume to meet demand from outside of the EU, helping to keep production costs low and assisting the development of new products for new markets.
Automation has already changed manufacturing processes around the world and there will be new systems that can perform tasks normally done by humans, which will save money and improve efficiency.
Rather than purchase technology in a haphazard way, it’s vital that UK manufacturers understand the specific business challenges they have and make the right investment, efficiently and effectively, to gain a competitive edge.
This is particularly important for large manufacturers, which through research, development and investment could already be familiar with what technology can do for them. They won’t be simply thinking about the latest shiny new tech but rather choosing digital technology that can transform their business processes and which has been validated by similar companies.
Ultimately, preparing for Brexit through digital transformation and technology investment is very similar to preparing for any other type of business challenge – finding ways to satisfy customers, create better quality products at lower costs, and making them available to as many people as possible in the global marketplace.
3. Invest in the right people
Managing Brexit is also about recruiting and retaining the right staff to drive success. To fully implement the benefits of Industry 4.0, UK manufacturers must have a strategy of upskilling existing employees to deliver digital transformation.
Manufacturing is changing. Take 3D printing for instance – additive production techniques have radically transformed production processes. This moves away from traditional subtractive production and the traditional assembly line, and towards a process where skilled engineers design manufacturing products digitally.
Of course, the possible restriction of free movement across the EU may cause businesses to face problems of recruiting enough people to run traditional factory and supply chain processes. Businesses should audit their current workforces and look at ways to maximise the return on investment from existing employees and contractors.
Once plans for Brexit are clearer, businesses should review and evaluate what their long-term strategy means for recruitment and retention polices.
This needs honesty and a truly collaborative approach by employers, and they must support employees to work through their concerns, giving them the space to engage and remain productive.
Longer-term, businesses should look at reaping the benefits of an increasing focus on the teaching of science, technology, engineering, arts and maths (STEAM) subjects at schools, colleges and universities.
Providing excitement to students when it comes to learning about technology and improving their knowledge and skills can only benefit the workforce in facing the changing economic landscape of tomorrow.
What plans has your manufacturing business got in place ahead of Brexit and what challenges are you facing ahead of March 2019 and beyond? Let us know in the comments below.