2023 manufacturing trends and challenges

During 2022 all manufacturers experienced challenges around the rising costs of energy, labour issues around hiring, retention and wages, inflationary pressure on margins, supply chain delays and disruptions and working capital management. These trends will continue into 2023, which is not helped by declining growth in the UK manufacturing sector. This will be exacerbated by the fact that UK government has not provided the same level of energy support to energy hungry manufacturers as is the case in Germany, therefore placing our manufacturing sector at a competitive disadvantage in tendering for new business.

What should we expect in the sector for the year ahead?

Labour is likely to remain an uphill battle in 2023: This is an aging industry with much of the technical know-how being with employees at the age of 55 and over. Many of these people opted out of the sector during the pandemic due to the sector remaining open and as a result falling ill was a risk. Many of this cohort of employees have not returned to the sector and as a result there is a now a critical skills shortage. Therefore in 2023, there needs to be a drive to attract, hire and retain key talent among younger generations. To do this leadership may need to change their mindset from a historic top down leadership style to a much more collaborative broad based and empowered leadership structure. Teams will be encouraged to explore new technologies and solutions that foster growth, profits, sustainability and community engagement.

Employees will seek better working conditions: Employees in this sector have more leverage than ever before. The sector is stereotyped as ‘mucky and dirty’ and employers are now having to consider how to change this perception to attract younger generation employees. Better workplace environments with modern premises will be important, flexible hours including hybrid working where possible, transparent career enhancement opportunities, higher wages and benefits, wellbeing programs and improved work/life balance are all big considerations.

Industrial Internet of Things (I.I.OT): The I.I.OT is very much being extended into industry, including manufacturing, but I would suggest that this is largely prevalent in large corporations with SME’s lagging behind. The concept of I.I.O.T includes the linking of devices on an existing internet system or infrastructure. Automation will continue to be the theme. Artificial Intelligence (AI) will be used to help company data-bases to become predictive and intelligent i.e. predicting machine maintenance and repairs by triggering early alerts.  This will enable manufacturers to make strategic decisions by interconnection with customer requirements and supply chain in real-time using up to date data.  This will achieve cost reduction, enhanced efficiencies regarding production and working capital management and improved innovation.

Reponses to supply chain challenges: We are all aware of the supply chain challenges that have prevailed over the last 3 years and unfortunately these challenges are here to stay for 2023 at least. My experience of client manufacturers is that they are a resilient group who are determined to make the best out of a bad situation. Many manufacturers are phasing out the traditional multi-faceted sales model which comprised the manufacturer, wholesaler or distributor to the end customer with a direct to customer model. This eliminates middlemen, enhanced margins and profits, allows more control over marketing and brand and building stronger relationships with their customers through direct communication. This can also be applied to suppliers creating a more inter connected supply chain.

Company community and sustainable impact: Consumers, and in many cases younger generation consumers, are thinking carefully about where they spend money and where products are sourced. The need for higher levels of product quality and transparency will continue into 2023 and beyond. Consumers are much more discerning and will require sight of environmental progress. Simply disclosing net zero commitments in the future is not the growing trend, consumers want proof of action not only internally but extending to suppliers and their environmental impacts and commitment for improvements.

The above trends will mean businesses need careful planning and financing as the stark reality is that these trends and pressures come against a backdrop of a UK and world economy that is slowing down. Therefore careful budgeting of the potential costs and ensuring business continuity is paramount. Conversations with advisers including company accountants and finance professionals should be sought.

Should you need any assistance with the matters outlined, please contact Rodney Sutton, Head of Manufacturing at Kreston Reeves LLP on rodney.sutton@krestonreeves.com