If you manufacture a product then the world is a tough place to do business wherever you are located. There is no perfect location to make a product, a lot depends on the product. How much labour, raw material and energy are used in its manufacture and whether there is tariff-free access to the market you wish to sell the product to, is now also a factor. For decades the UK has been completely unable to compete with likes of China on any type of energy intensive business. This is likely to remain the case for the next ten years at least. China have invested in massive coal plants and are building two more every week. I live within a few miles of the UK’s last remaining operational coal-fired power station plant, Ratcliffe-on-Soar, which is due to close in September 2024; therefore, we can reasonably predict that it’s doubtful energy-intensive heavy manufacturing industry will return to our shores any time soon.
For light engineering sectors the equation is more marginal. According to MAKE UK the UK is actually increasing its competitiveness as a global hub for manufacturing, despite high energy costs and a shortage of workers. If UK manufacturers are to be successful, they need a clear strategy to address these problems; the largest being the rising cost of labour.
At the time of writing, the hourly minimum wage rate in the UK is £11.44 per hour which has increased significantly in recent years. If labour rates continue to climb, they are going to be by far the biggest problem facing all UK manufacturers. The new Labour government has pledged to build 1.5 million new houses with the manual labour required totalling approximately 3 million man-years to be drawn from an already small UK labour pool. It’s not hard to understand that the UK manufacturing sector could be facing an imminent crisis due to the considerable increase in labour costs.
The Solution......Automation
The cost of capital versus the cost of labour has always been an integral part of the calculation in the manufacturing sector, and it’s true the costs of capital have increased in recent times. However, these costs pale in comparison to the rising costs of labour. It has been said “If you need a robot and don’t buy one, then soon you will have paid for a robot but won’t have one”. The phrase highlights that when you pay labour costs you get nothing in return, but if you are paying finance on a robot then you own the robot at the end of the finance agreement. Add to that the exponentially increase in the cost of labour – what will your labour costs be in 5 years? 50% more? What will a robot cost you over 5 years? The same? Or nothing at all if the finance is already paid. Maybe a small maintenance cost.
If you need a robot and don’t buy one, then soon you will have paid for a robot but won’t have one.....
The technology to automate many tasks is now available even for relatively low-volume work and is becoming simpler and easier to operate. Companies that fail to invest in automation and continue to use evermore expensive labour are risking bankruptcy….and there could be many casualties. Companies that do invest will likely see dramatic productive gains. Automating problematic tasks such as component loading, means that even high-volume production could again return to our shores from China. Once a component has been automated you never need use labour again to produce that component. Think about that for a moment! Even if labour rates do rise, the cost of producing the component will remain largely unaffected.
My advice to all OEM manufacturers is this – don’t keep moving the production of your product around the world to wherever labour rates are cheapest – this may have worked in the past, but it’s no longer a good strategy, and you will end up making your product in the Amazon rain forest and/or possibly facing large tariff barriers! Think more strategically…..there is another way – forget about labour rates – it’s not the be-all and end-all – focus on taking the labour content out of your production. The technology to automate exists. If you don’t have the expertise in-house or the volumes required, then outsource the components to a UK supplier that has the technology and is investing in automation to keep their prices stable.
In summary, technological improvements, particularly in automation are causing a modern-day revolution in manufacturing. These technologies are capital intensive but the UK has a highly efficient banking sector with deep capital markets, so is well placed in this regard. If businesses can raise enough capital to invest in these technologies, then with the right mindset and a bit of employee re-training, manufacturing businesses in the UK can be more competitive than at any time since the first Industrial Revolution across a variety of sectors.
Paul Cobb
Managing Director
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