The State of Manufacturing 2021 - Part 2 - With Make UK

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In the final part of our series looking back at the biggest challenges manufacturers faced in 2021, I’m joined again by Jim Davison and Fhaheen Khan from Make UK. You can listen to part one here.

In the final episode of this series, we discussed the impact of Brexit and how manufacturers can use Green Skills to help meet their sustainability targets.

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Transcript

Key topics covered (click to jump to the section)

  1. Impact of Brexit and COVID-19
  2. Sustainability and Green Skills
  3. The steps manufacturers can take in order to achieve their sustainability targets
  4. Download the "Sustainability in Manufacturing" report

Niall Sullivan, Senseye: Look into the actual impact of Brexit, taking aside a little bit from the pandemic, or do they go sort of hand in hand together as obviously causing a great disruption?

Fhaheen Khan, Make UK: It's an important question. I would say we don't really call it Brexit anymore. We say leaving the EU or the EU exit.

Niall Sullivan, Senseye: Okay. But lost you spin on it.

Fhaheen Khan, Make UK: But you almost can't separate the impact because these two things happen together, but you can see at least just immediately after the transition period ended.

So we know that in 2020, we had a transition period where we had time to implement or the UK had time to negotiate the deal with the EU. And then there was January, the first we had something called the Trade Cooperation Agreement, which is the name that we've given to the relationship we now have in terms of exporting and importing with the EU.

What we saw at least in the January, this year in the official data that exports immediately declined quite aggressively following the transition to the new relationship.

So exports declined by approximately 40%, but that's not necessarily down to exporting becoming harder, but actually it was manufacturers who were maybe unsure about exactly what this relationship looks like.

And they were maybe holding back some exports, waiting to understand the rules first before they got that. Because over time we saw these export figures improving again, and they're almost returning to near pre Brexit times, at least it's getting to that stage, but that doesn't mean that there wasn't any bumps on the road.

I mean, we did a study called six months on from leaving the EU, which I think we published in the middle of this year, which showed some very interesting stats about the effects that businesses faced at the very initial stages of that change in relationship.

One of the interesting stats that I found was one in three businesses have never filled in a rules of origin certificate, so that's something that you had to do. If you were exporting to the EU, you had to declare whether your product was an EU product based on the amount of stuff that was inside of it.

So if you had like a 30% German car, 20% from France, but then if you had some stuff coming from India as well you had to be able to declare that this was a European good or whether it was maybe an Indian good, because there was some stuff coming from there, leaving the EU as meant that the British component doesn't comply with the EU parts of it.

So we have to be able to say, is this an EU good? Or is it actually a British good because then tariffs may be applied and just filling in that certificate. Something as small businesses have never really done before, and that created many issues. And that leads on to other issues like customs that created a lot of friction, but what we did see is that manufacturers did demonstrate quite a lot of resilience in that time.

I mean, we saw businesses pretty much getting on with it. They didn't necessarily like these changes, but they were kind of moving forward with them, learning how to do it.

Almost, you could describe it as trial by fire. Just try, just having a go see what the mistakes are, fixing the process. Arguably larger firms were able to implement that much quicker, but smaller firms it took them a little bit more time. So that's what we've seen.

I think the impact could have been much worse, but it may have been hidden by the fact that COVID was also such a big impact that we won't necessarily know if Brexit itself could have been a very dramatic effect on businesses, whereas we'll never be able to actually separate those two things from each other.

And maybe we don't really need to, because we know that Brexit, even if we don't have any stats behind it, it was effective, it did impact manufacturers generally in a negative way, but we are seeing that coming back now, and there are some benefits that we could talk about as well.

Niall Sullivan, Senseye: Yeah. Well actually, let's do that. Maybe Jim, you can come in here and provide some insight on that.

Jim Davison, Make UK: Yeah. At back end of 2020, and very early 2021, a lot of companies had built large buffers of stock within their supply chains and their businesses within the UK. And I think any short term uncertainty about movement across the borders to Europe, because that's where the big change had happened at that stage.

Very quickly organizations as Fhaheen has already said, really got to understand what was different? How did they need to do it? We got past the shortage of drivers and vehicles. And actually, I would say by April that that situation had started to settle down.

Of course, because of COVID, we haven't seen the impact of movement of people. And I think that's something that we will really start to see and recognize how much more complicated moving somebody from the UK for business to meet colleagues in Europe is going to be very different.

And I don't think we've actually felt and seen and identified exactly how big an impact that will have on organizations. The other big challenge is going to be around marking. So product approvals and marking.

The government are following lobbying actually from Make UK and other business groups to help them understand, that actually to introduce the UKCA mark, on the timeline that was originally perceived, was actually just totally unachievable for our sector. And the fact that that's been in extended for 12 months is good, but actually our message to our members is actually you need to crack on and get working on that. And in fact, some companies are saying, "Look the UK market in isolation is so small to us. It's actually not worth investing in the approvals and getting our materials or soil products UKCA marked because the cost is greater than the benefit."

I think there's going to be some interesting challenges. I think one of the big opportunities though, is the fact that companies are redesigning their supply chains. And having spent 40 years integrating UK manufacturers with a particularly a pan-European supply chain ,clearly has been tested and potentially will get harder as and when goods coming into the UK, start to have more checks than they currently have had so far.

So the opportunity there, I think is that some products have actually been reassured and some of that manufacturing has, or that supply chain has been relocated or resourced within the UK. So that's definitely one positive that I think we can pull from it.

But in general terms, Fhaheen hit the nail on the head, exporting to Europe in the past, hasn't really been exporting. It's been like selling goods to Wales or Scotland. Now companies are having to do all of the customs checks, all of the customs paperwork, which is not impossible, but they've just got to reorganize and make sure that they hit those requirements.

Fhaheen Khan, Make UK:  I would just add a little bit of extra because I think Jim raised some really interesting points, especially on the people's side. And I think the actual, it's startling to me sometimes how, unaware businesses tend to be about actually, what has changed in terms of the movement of people.

Because businesses, manufacturers don't just send goods, they also send like engineers and that sort of thing abroad to customers. The difference, the main difference is that you need like a working visa and that you need to be able to get months in advance for projects that you may not even be aware of when you need to send your engineers. A colleague described it to me in quite an interesting way where you could send someone on holiday to the EU tomorrow probably, but you couldn't send them to the EU to work there tomorrow.

You'd need to get a visa three months in advance. And that is the difference. And if you try to send your engineered employees to France tomorrow and try to get them to claim they're going on holiday, when they're actually going to work well, they're probably going to get caught easily.

It's just understanding that's what's changed, that if you're sending someone for work, there's a different process. It's not like going on holiday to Germany or France or any other EU country.

The second thing I would add, and I think this is the benefit that we are hoping to see, is that the actual level of work required to export to the EU, because like Jim said, it was as easy as selling to Wales or any other part in the UK before. But now you have to fill in these custom forms, you have to know what commodity codes that your product falls in.

You have to understand the entire process of exporting, and actually the extra work required to export to a non EU country. So if you wanted to export to the UA, to South America, to Africa, the actual, the paperwork required is roughly the same as you would need to do to send goods to the EU.

So if you're a business and you've only ever traded with the EU, but now you've actually had to learn and educate yourself on how to export to the EU, which you've never done before, you as a business potentially could now more easily export to non EU countries because you have had to learn that process of exporting.

I think there's still some time to see that benefits from that. I think maybe businesses are only just realizing, oh, actually the process of exporting to France is now the same as exporting to the US. I could probably go to the US now as well. We're monitoring that situation, but I think that's something that we could see over time. So it will be interesting. And it will be good to get maybe some positives out of this, this whole debacle, I think.

Niall Sullivan, Senseye: Yeah, actually I can relate to that. I know obviously for businesses, but I had to send some goods to recently and that filling customer forms as well. It's a learning experience for the consumer as well clearly, but obviously manufacturers on a much larger scale.

So if I had problems of it, so I can imagine a manufacturer shipping thousands, hundreds of thousand goods, I don't know how they do it. So I have to take my hat off to them, I think.

So what I wanted to sort of move on to, so this year's been a big year for sustainability and climate change. Obviously we've had COP26 towards the end of this year.

So we just brought it back into the spotlight and hitting those sort of sustainability targets, so more important than ever. I mean, we are finding that talking to manufacturers as well.

So I saw on your website, you mentioned a term green skills, which I don't know if you came up with that term. It makes sense to me, but can you maybe just start by explaining what that is actually referring to, and what the impact of that will be on the manufacturing sector as well?

Fhaheen Khan, Make UK: I'll do my best to explain this on. This is a report that was written by one of our wonderful colleagues on essentially trying to give green skills a definition because it is quite broad. Green skills in the shortest possible way is essentially having the knowledge and expertise to create efficiencies or processes in a business, so you can achieve objectives in a more sustainable and achievable way.

So that could be businesses who are already, let's say making certain products, but just having someone with the skills to understand, oh, actually we can reduce waste here. We can improve energy efficiency here. So having that kind of knowledge of understanding where the issues are. But I think that's the simplest way to describe it, but it is quite broad.

But when we talk about green skills, quite often, at least what you often hear about, and this is the main issue with it, is that, we talk about usually making existing skills and making them green. So the jobs that you and I have and what Jim does can you make those job jobs green.

But actually what we need to talk more about is preparing for new jobs that don't even exist yet, because there are a lot of jobs from like the digitalization discussion that we had earlier. A lot of the jobs that exist today didn't exist 10 years ago.

And that's the kind of trend we're probably likely going to see when it comes to green and achieving a net zero target. So there are going to be new jobs coming out. And actually, how do you provide the skills so people are ready for those jobs that you may not be aware of?

Existing evidence at the moment shows that there's about 3.2 million workers right now who need up skilling in order to achieve our net zero targets, to make those job green. And to give you some context, that's bigger than the entire manufacturing workforce, which is about 2.6 million people in the UK. So it's quite a substantial number of individuals and job types that we are looking to improve.

Niall Sullivan, Senseye: So just on that, so what are the steps manufacturers can take in order to achieve that. I guess it's part of the digital skills piece. That's the big question, is how do they reach X? That is like, say a seismic target.

Fhaheen Khan, Make UK: It's a difficult one because, almost the answer isn't there. But what we really need to do is to help manufacturers actually come up with those answers.

So one of the things that we've been calling for from government is to, so R&D tax credits is hugely popular for manufacturers. It's there it's an R&D intensive industry, and they also find something with a tax based credit system, quite easy to access and helpful to their business models.

We've been calling for green skills tax credits, where manufacturers who engage in investing, in developing green skills are able to more easily access, that type of support.

But putting it into a tax space model allows them to decide the best way to achieve those goals. Because the answers on actually, how do we give them green skills is not necessarily existing at the moment. That's more of a short term solution that we're thinking about from a long-term point of view, it's more about just attacking this from the education system.

It's about just implementing the ideas of being socially responsible, sustainable, thinking about the climate change issues into the minds of young people, so that when they come into these engineering jobs, they come into those jobs with a mindset that is thinking about net zero, because essentially that's what greening a job means.

It's the same engineers that we have today, but they just think about the processes that they have on a day to day basis. But they just think about that in a more green way.

I think there's a lot more work to do in this area, but I certainly think that's something that's higher on the agenda for our members at the moment. They definitely put green and reaching net zero as probably one of the priorities for next year and the next five or six years or so.

So it's something that we're definitely looking at, and obviously Make UK will continue to like research in that area. But I think at the moment, just trying to identify what those skills are, needs to be the first step. And that's what we're looking at now.

Niall Sullivan, Senseye: So Jim, I was just wondering from your members' perspective, what are they saying to you about sustainability and the challenges there?

Jim Davison, Make UK: We surveyed our members and actually it was refreshing to hear back from them that actually a majority, significant majority believe that they can achieve net zero within the government targets and objectives currently, which is good to hear.

But there's two sides this challenge, fundamentally yes of course, manufacturing companies and engineering businesses generate a lot of the emissions that actually we need to remove from our society and our processes.

But actually equally the opportunities that they will design develop and implement and install a lot of the solutions. So as Fhaheen said, we don't necessarily know what those solutions will be today, but actually one of the key things is to encourage businesses to think differently.

So those green skills that Fhaheen talked about, start from the very top and leadership because those roles need to really understand where are the opportunities? Where are the threats? What is the organization that I need to build that will be capable of delivering net zero within the timeline that's required? So there's the challenge of implementing and meeting those objectives.

But the opportunity is huge. And that's really where, as a society and lots of the government support is looking to be a catalyst to drive this forward. Ultimately rather than just buying in solutions from other parts of the world, we need to be developing those in the UK. We need to be manufacturing those and installing them, not only domestically, but globally. And that's where some of those challenges and opportunities will come from.

And that's where as Fhaheen said earlier, we need to overlay, not only the knowledge of how to make something or engineer something or design it, but equally you need to consider all of those environmental and sustainability type considerations as well.

And part of me is very optimistic about that future, a combination of manufacturing and engineering type roles, with digital elements with green elements, actually means that they can be far more, what's the word I'm looking... Fulfilling roles and actually should be far more attractive to people within society. That historically a career in engineering and manufacturing wouldn't have been of any interest.

And what I mean by that is obviously women. We have a very imbalanced sort of gender profile within manufacturing. Typically, although this sector is obviously trying to address that, but all kinds of other elements of society that probably would've historically dismissed a career in engineering and manufacturing, actually could and should start to see it as being a very fulfilling, very future looking career choice for them. So I'm excited about that whole change.

Report: Sustainability in Manufacturing

Featuring commentary from Senseye, Make UK, Green Business Bureau and MCP, this report explores the challenges of improving sustainability in manufacturing, the opportunities available, and the bridge built by Industry 4.0 between machine health and sustainability.

Download now