The document discusses the state of manufacturing in the UK and opportunities for growth. It notes that while manufacturing has experienced ups and downs in recent years, the sector is showing signs of recovery. However, revival is not guaranteed and manufacturers need to take steps to secure a more positive future. Key opportunities for growth include investing in innovation, improving productivity, strengthening supply chains through better management, and embracing new technologies like Industry 4.0. Ensuring the workforce has the right skills through training is also important for the future of the sector.

1. COUNTING ON A REVIVAL IN MANUFACTURING?
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2. WHAT THE SECTOR CAN DO TO
HELP ITSELF
Once the backbone of British
industry, manufacturing has
experienced many ups and
downs in recent years. Now, with
the UK economy exhibiting a
return to growth, manufacturing
might look forward to resurgence.
The British Chamber of Commerce
predicts 0.7 per cent growth in UK
manufacturing in 2016, rising to 2 per
cent in 2017.
The sector currently accounts for 44 per
cent of all UK exports and £150 billion of
national economic output.
Manufacturing productivity
outperformed growth in the UK
economy by 3.2 per cent in 2014,
with food accounting for 16 per cent,
transport 13 per cent and metals 11 per
cent of output.
Revival is not a given. The stats are
moving in the right direction but what
RSM asks, can British manufacturing
do differently to secure a more buoyant
future for itself?
2.6m
EMPLOYS
PEOPLE IN THE UK
£150bn
CONTRIBUTES
TO UK NATIONAL
ECONOMIC OUTPUT
70%
ACCOUNTS FOR
OF UK R&D
40%
ACCOUNTS FOR
OF ALL UK EXPORTS
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3. LOWS AND HIGHS IN MANUFACTURING
THE WAY THINGS
WERE: 2008
Like the rest of the global
economy, manufacturing came in
for a hard time during the financial
crisis. 2008 began a rollercoaster
period. Between the first quarter
of 2008 and the third quarter of
2009, manufacturing output fell
by 13 per cent. It then rebounded
faster than the services sector,
only to drop off early in 2012. The
period was characterised by:
• Loss of market share
• Negative profits
• Redundancies
• Reduced product quality
• Industrial action.
THE WAYS THINGS
ARE: 2016
Despiteaslumpinthesteelandenergy
markets,andexportsimpactedbyan
ongoingslowdowninChina’seconomic
growth,UKmanufacturersarefeeling
alittlebitpositive.TheManufacturer:
AnnualManufacturingReport2016finds:
• 45percentofmanufacturerssay
halfoftheircompany’scapital
investmentisstrategic
• 12percentaresettospend
£500,000ormoreonnewproduct
developmentin2016
• 26percentaretospend£50,000or
moreonnewITinfrastructure
• 60percentofmanufacturersare
usingcashreservesforcapital
investment.
In2016,theUKisonceagainaglobal
leaderinmanufacturing.Thesector
hasrecoupedmarketsharefromother
economiesandisshowingareturnto
profitability.Recruitmentinthesectoris
upand‘brandUK’isbecoming,onceagain,
synonymouswithquality.
UKcompanies,recognisingtheneedto
remaincompetitiveandtomovewith
thetimes,areinvestingininnovationand
researchanddevelopment.
THE OUTLOOK IS ...
2015 went down on record as the worst
year for growth in the manufacturing
industry since 2009. The sector will,
according to the British Chamber of
Commerce, record -0.2 per cent growth.
2016 should see a return to positive
growth, at 0.7 per cent, rising to 2 per
cent in 2017.
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4. IS MANUFACTURING ON TRACK FOR RECOVERY?
86%
INVENTORY MAKES UP, ON
AVERAGE,
OF WORKING CAPITAL
IN UK MANUFACTURING
ENTERPRISES
£125bn
UNTOUCHED CASH
RESERVES ON UK
BALANCE SHEETS TOP
Research by RSM
40%
OVER
OF THRIVING COMPANIES
CLAIM TO WEAVE
INNOVATION INTO THEIR
BUSINESS CULTURE
The UK manufacturing industry is resilient, but can companies tap into rising economic confidence and
deliver on improving forecasts?
Innovation matters
Manufacturing needs an innovation
boost if it is to maintain and improve its
status within the UK economy.
By injecting a culture of innovation
into the business, management can
capitalise on the ideas and enthusiasm
of employees, encouraging them to
contribute to new ways of working and
to product development of the future.
Funding growth and becoming
more profitable
Access to money is a challenge for UK
manufacturing. Banks are less willing to
lend money, so companies are looking
to fund their growth through their
balance sheets.
By exercising improved working capital
management and tackling issues such
as lengthy customer payment terms and
cash tied up in inventory, manufacturing
companies can free up capital to invest
in people, process improvements and
infrastructure.
Government funding
Given the importance of innovative
manufacturing to the UK economy,
the government continues to provide
direct financial stimulus through
generous tax reliefs and a range of
direct grants including:
• R&D Expenditure Credit: Available
to large companies and small and
medium-sized enterprises.
• Patent Box: a tax incentive that
allows companies to apply a lower
rate of Corporation Tax.
• Super Deduction R&D Scheme:
To encourage innovation, the
scheme allows SMEs to make
an additional 130 per cent super
deduction on R&D expenditure
for qualifying projects.
• Capital grants: For new capital
expenditure projects that create
or safeguard jobs, grants are
available, subject to location and
size of company.4

5. HOME? AWAY? OR SOMEWHERE IN BETWEEN?
For the past 20 years or so, manufacturing businesses have been off-shoring production to low-cost
labour destinations. Now is time for a rethink.
Withreducedpotentialforcostsavings;
continualfluctuationsinexchangerates;
stringentregulatoryandtraceability
requirementsandreputationalrisks
associatedwithsupplychainworkersin
somejurisdictions,manycompaniesare
reversingoutofoffshoreventuresand
lookingclosertohome.
Aswellascostefficiencies,
manufacturersfindthattheycanexercise
greatercontrolandarenotconstrained
bytime-zonedifferencesandencounter
fewerculturalissues.
Strengtheningsupplychains
Bybeingableto‘see’demand,ratherthan
predictit,companiescanoperatemore
efficientsupplychains.Theycansecure
accesstotherawmaterialstheyneed,in
thequantitiestheyneed,whentheyneed
them,andstillachievebestvalue.
Manufacturers are experimenting with
technological solutions that integrate
their procurement activities with
supplier systems meaning that deliveries
can be made direct to the production line
to fulfil orders as they come in.
According to the CBI, increased
competitiveness in the manufacturing
supply chain could boost the UK
economy by around £30 billion by 2025.
Serve clients better
One of the ways in which manufacturers
are growing and achieving improved
customer service is through
Servitisation – the process by which
a manufacturer changes its business
model to provide a holistic solution to
the customer, helping the customer
to improve its competitiveness, by
delivering services rather than just
engaging in a single transaction through
the sale of a physical product or asset.
Condition-based monitoring;
remote and predictive maintenance;
product installation and whole-life
asset management are among
the servitisation approaches that
manufacturers are taking.
By adopting an innovative servitisation
business model, companies are
achieving improved customer service
and retention, increased market share
and profitability and reduced operational
risk from a more diversified product and
service offering.
BY 2025
ACCORDING TO THE CBI, INCREASED
COMPETITIVENESS IN THE
MANUFACTURING SUPPLY CHAIN COULD
BOOST THE UK ECONOMY BY AROUND
£30bn
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6. THE FUTURE IS INDUSTRY 4.0
Industry 4.0 is relevant to manufacturing companies of every size and type.
Industry4.0
Industry4.0orthefourthindustrial
revolutionischangingtheway
manufacturersworkbyenablingthe
‘smartfactory’wheremachinesare
connectedoverthewebInternetof
Things(IoT)andprocessescanbe
monitoredandmanagedremotely.
CarmanufacturerChrysler,forinstance,
connected246robotsto60,000devices
atitscarplantsintheUK,allowingitto
buildanewJeepWranglerbodyevery
82seconds.Smallerbusinessescan
useIndustry4.0totrackitems,manage
energyconsumption,monitorprocesses
oranalysecustomerbehaviour.
Companiesyettoexperimentwith
thedigitisationofmanufacturingand
productionprocessescouldmiss
outoncostefficienciesandproduct
improvementsand,significantly,asharein
thepredicted$2.3trillioneconomicuplift
predictedforthesectorby2025.
Cyber defences
Theriskofdigitisationisincreased
exposuretocybercrime.Amajorstudy
bytheOfficeforNationalStatistics
foundanestimated2.5millionfraudand
cybercrimeincidentsintheUKin2015.
Worryingly,almost63percentof
manufacturingcompaniessurveyedby
RSM admitthattheyare‘somewhat’
or‘notatall’confidentintheirability
tomonitorandsafeguardsensitive
customerdatafromunauthorisedaccess.
Reputationsandcompetitivenesscould
beatstake.Manufacturingorganisations
needtotestandtightenupvulnerabilities
intheirinternalandexternalnetworks
whichcouldexposethemandtheir
customerstocyberrisksanddatatheft.
Big Data
Industry,commerceandsocialmedia
createmoreinformationeverytwodays
thanwedidinourentirehistoryupto
2003.Morephotographsweretakenin
thelast12monthsthanintheprevious
200yearsandmoredataisontheway
withtheestimatethatdataproduction
willbethreetimesthecurrentlevelsby
2020.Muchofthisadditionaldatawill
beunstructured,asalmosteverydevice
whichconsumespowerbeginstohave
anonlinepresenceandtheIoTbecomes
thenorm.
Theavailabilityofmassivedatasets
andtheaccesstolowcostcloud
serviceshasmadeanalysisofthisdata
trulyaccessible.BigDataoffersthe
opportunityfororganisationstobetter
understandhowtheyoperateand
interactwithcustomersandthewider
environment.
THE UK GOVERNMENT’S
OFFICE FOR SCIENCE SAYS 25%OF GLOBAL MANUFACTURERS ALREADY
USE INDUSTRY 4.0 TECHNOLOGIES AND
THAT THIS WILL ROCKET TO
INDUSTRY 4.0 IS PREDICTED TO UPLIFT
THE MANUFACTURING ECONOMY BY
$2.3tnBY 2025
80%BY 2025
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7. KNOW HOW TO USE YOUR KNOW-HOW?
People are key to the future of manufacturing. Protecting, identifying and enhancing the workforce is now a
key consideration for many companies.
Engage your employees in the business
Do your employees understand the
significance of what they do to overall
business strategy? Do they know who
their customer is?
In manufacturing, a customer is not
always the end customer. By knowing
where their customer fits within the
overall delivery chain, employees can
better understand the contribution they
make to business strategy and how
they might make changes that improve
the way things are done.
The engagement and empowerment
of employees to do what they do
better, faster or more efficiently, can
influence directly innovation, customer
service and retention and, ultimately,
profitability.
Education and training
Twenty-eight per cent of small-
to-medium-sized manufacturing
enterprises consider ‘recruitment
issues’ their biggest barrier to
expansion, according to a 2015 report by
Lloyds Banking Commercial.
Training and education are critical to
ensure that employees:
• Are appropriately trained and
skilled to perform their jobs
• Have the skills to identify and
deliver ongoing improvement
• Understand who their customers
are and how they, as employees,
contribute to the success or failure
of the organisation
• Bring insights and ideas to the
organisation.
Aging Workforce
Manufacturingcompaniesarefacedwith
twosetsofchallenges,first,there’sthe
battleofattractingnew,youngemployees
andthengroomingthetalenttobecome
thenextgenerationofleaders.And
second,manufacturershavetofacethe
realitythattheexperiencethatmake
thingsrunsmoothlyontheshopflooris
atahigherriskofbeingretiredratherthan
transferredtothenextgeneration.
28%OF SMALL-TO-MEDIUM-SIZED
MANUFACTURING ENTERPRISES
CONSIDER 'RECRUITMENT ISSUES'
THEIR BIGGEST BARRIER TO EXPANSION,
ACCORDING TO A 2015 REPORT BY
LLOYDS BANKING COMMERCIAL
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© 2016 RSM UK Group LLP, all rights reserved. 1831
rsmuk.com
For more information, please speak to your local RSM adviser or contact:
Mike Thornton
Head of Manufacturing
T +44(0)113 285 5160
michael.thornton@rsmuk.com
ARE YOU READY TO DO BUSINESS DIFFERENTLY?
As the national economy starts to improve, manufacturers have an
opportunity to grow their businesses by doing things differently.
Innovation takes commitment from senior management and engagement from
employees who best understand the issues and can pinpoint where change is needed
and how to make it work. Innovation is not just about the products, but the structures,
processes, systems and customer service that make the products possible.
To keep pace, focus on:
• Technology – use it to increase intelligence across the business, reduce
downtime and highlight potential issues before they create damage.
• People – empower and incentivise your employees to collaborate and share
ideas. The next big breakthrough for your business might already be taking shape.
• Processes – whether creating a new product, sharing insights with your supply
chain or measuring project success, processes are an important part of the
creative ethos.
• Servitisation – get closer to customer needs by providing an all-round rather
than product-driven service and benefit from a more robust revenue stream.
• Customer service – it is not just the responsibility of the sales and marketing
team but everyone who has contact, direct or indirect, with the customer base.
• Access to funding – reinvigorate your innovation potential with increasing
opportunities to access funding.
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