Manufacturing is one of the highest consumers of power in the UK and steep rises in energy prices have put immense strain on margins. So too has the soaring cost of materials. The sector continues to be squeezed from every angle, facing pressure to be more efficient and sustainable in a more costly environment.

To be fit for the future, manufacturing businesses will require diversified and skilled workforces to meet demands of doing more with less, in an ever-competitive market. They will need to fight back against inflation by considering switching to greener energy sources, adopting more efficient working practices and investing in the latest technology to boost productivity.

According to our FutureFit research, based on a survey of businesses in the manufacturing sector as well as interviews with industry leaders, it is imperative they begin this journey now, if they have not done so already.

Laura Capper, our Head of Manufacturing, agrees: “Manufacturers have had to navigate seismic changes during the past few years, which has led to businesses having to adapt, reimagine and demonstrate real resiliency.

“Volatility within the energy markets and supply chain, and ongoing labour availability issues have driven the industry to think differently about how they drive sustained growth.”

Manufacturers are all too aware of the skills gap but uncertainty surrounding these issues means they are understandably cautious about drawing up long-term investment plans. Laura adds: “How do they plan and how do they invest when some are in survival mode? Add to this pressures such as wage inflation and increases in material prices, and there is only so much of these additional costs that can be passed onto end customers.”

Many firms are now paying more for their energy than they would have expected a few years ago. This has squeezed margins and put pressure on cash flow, which then saps the ability to invest.

Two-thirds of the manufacturers surveyed reveal they have been hit by rising energy prices, prompting nearly the same proportion (64%) to invest in greener energy. Nearly all have done so to make cost savings.

Energy savings are also prompting some manufacturers to adjust shift patterns around off-peak times of the day, when prices can be lower, observes Laura. Many are also redesigning workflows to deliver small gains in productivity that could add up to sizeable savings.

She says: “Companies are looking at where they store materials and the processes they use. They’re reducing energy consumption through better insulation and simple things such as labelling light switches to make sure only those that are needed are switched on. It's these minor things that add up in the long term.”

• Switch to greener energy, through solar panels, wind and biomass. It is an upfront cost but it will pay off in the long term by cushioning the impact against volatility in energy prices.
• Review factory layouts to ensure efficiency is maximised between each stage of production.
• Where possible, switch shifts to non-peak hours to reduce power costs.
• Tackle waste – can it be avoided? Can it be recycled?

Diversifying supply chains can both deliver greater resilience by reducing your reliance on far-off suppliers, while also cutting carbon emissions, if new suppliers are found closer to home.

Two-thirds of manufacturers surveyed agree that being truly sustainable requires a diverse supply chain. The same proportion reveal they are making more effort than in the past to build a more diverse supply chain.

Nevertheless, there is more work to be done. Cost is a barrier to picking more local suppliers, with 84% saying that choosing the cheapest option is important and only 48% seeing a reduction in supply chain carbon emissions as a priority (see chart below).

How important are the following when considering suppliers? (% of respondents)

This leaves the industry susceptible to a growing requirement among their buyers, and the public, for manufacturers to reduce their environmental impact.

“It’s understandable in the current economic climate why manufacturers might still be using the cheapest, far-off suppliers,” explains Laura. “It can be because of cost as well as a lack of alternatives.

“However, there's a real threat of losing contracts in the medium term if they cannot demonstrate their green credentials.”

Indeed, our research reveals that 86% of manufacturers are aware that not being able to display their sustainability credentials will lose them business. However, only 2% see it as risk in the next year.

For many, the ability to cut emissions is hampered by a limited choice of suppliers. Wastewater systems manufacturer Marsh Industries is a prime example. The business has gained ISO 14001 environmental certification to help reduce waste and lessen its impact on the natural world.

However, as co-founder Steve Boyer reveals, the materials it requires, such as glass fibre, are typically made by a handful of suppliers.

He has investigated buying recycled glass fibre but found the sales literature overhyped the quality of what is available. “There is a lot of pressure on manufacturers to be greener but many, like us, don’t have a huge choice of suppliers – they have to take what’s on offer,” he says.

“The main thing we’ve done is build a second factory that is closer to Wales and the Southwest than our other Northamptonshire base. We can fulfil orders to that part of the country from there with fewer transport miles and a reduction in our carbon footprint.

“We’ve also got rid of all packaging and pallets now – it’s all just paper that can be recycled. It’s practical steps like this that help you get your ISO 14001 certification.”

• De-risk your supply chain by not relying on a single faraway (perhaps cheapest) supplier. A diverse supply chain is essential for sustainability.
• Having a sustainable supply chain could provide competitive advantage and open up opportunities at home and abroad.
• Business continuity improvements are likely to offset any upfront cost of a more diverse supply chain.
• Measure and then reduce carbon emissions in your supply chain to help avoid losing customers who require partners to demonstrate green credentials.
• Set up a circular supply chain where waste and old products are recycled.

Another challenge for manufacturers is cutting costs by producing products at lower budgets and with less waste.

Make UK, the organisation representing manufacturers, estimates that unfilled vacancies are costing the country £21 million a day in lost productivity. The organisation advises companies to upskill employees so they have the technical ability to bridge this costly skills gap, as the sector moves towards a more digital and sustainable future.

Our research also highlights that the sector is investing in digitisation to automate production and boost efficiency. Some 62% identify an innovative culture that embraces technology is key to a sustainable business, compared with 49% across all sectors.

This is also why 60% say they have already invested in digitisation and have plans to invest more in either the year ahead or the next two to three years.  And a further 10% who have yet to invest, intend to.

Two-thirds have also invested in artificial intelligence (AI) and a further 28% who have not yet invested, will do so within the next two years.

Alex Stevens is Technical Sales Director at CJR Propulsion, which is taking a technology-led approach to preparing for the future. He reveals the business has had to move quickly to replace its steel suppliers in Russia and Ukraine while also spending £5 million on computer numerical control (CNC) machines and robots.

The robots are used to machine blocks of sand and resin, which are used in the casting process – resulting in a much faster, less labour intensive and ultimately much more accurate approach.

All CJR’s propellers are fully CNC machined meaning a much more accurate product but also the process reduces the amount of labour required to finish a propeller. This is hugely important, not only because it makes a more accurate propeller, but with staff shortages which have impacted the business, particularly since Brexit, it also reduces labour. The lead time for a propeller used to be about ten to twelve weeks but we can now make propellers in as little as two weeks when required.

“That’s a huge difference in downtime if, for example, you have a yacht that charters for tens of thousands of dollars per week.”

• Save labour costs, reduce waste, drive up efficiencies and boost productivity through digitisation and automation.
• Turn these gains into new business models, such as faster to market, better quality, longer-lasting products – all of which can provide a competitive edge.
• Find out what other companies are using and what academic breakthroughs may be out there, which could take digitisation to the next level.
• Digital technologies such as AI and machine learning can improve or create new processes and customer experiences that meet changing requirements. 

Manufacturers will play a vital role in the future of the UK economy and will be key to developing technologies, designing and making the products, and providing the services that will help the rest of the economy decarbonise. Digitisation and having diverse supply chains will be key to succeeding, says Laura.

“Most manufacturers and management teams spend their time getting to grips with the day-to-day business operations, so it can be difficult to focus on the short and long-term vision of the business.”

She adds: “Investing that time to devise a plan is crucial to becoming a long-term sustainable and viable business.”