Industry 4.0 still unknown territory for the majority of UK manufacturers

27 June 2016

While the globe’s major manufacturing hubs are moving towards Industrial 4.0, a survey of UK manufacturers finds that many lack explicit knowledge of the benefits of the technology on business outcomes and few have strategies in place to upgrade their value chains.

Industry 4.0 is projected to bring with it considerable increases in productivity, cut down on costs as well as increase flexibility. Germany is one of the forerunners of the technology, investing €140 billion per year until 2020, while globally businesses are sinking a total of $4.5 trillion to 2020 into the rollout of the technology. While Industry 4.0 has a variety of meanings, Strategy& defines it as “the availability of all relevant information in real time by connecting all instances involved in the value chain.” In the context of manufacturing, both the vertical and the horizontal value chains become integrated: with the connection of people, things and systems creating dynamic, self-organising, real-time optimised value added connections within and across companies.

In a new report from BDO UK and the Institution of Mechanical Engineers (IMechE), the authors explore trends around the adoption of Industry 4.0 in the UK. The survey involves 318 respondents, from engineers in management-level and director level positions across a wide spectrum of industry sectors and geographies across the country.

Survey participants

Industrial understanding 4.0
While industry 4.0 is touted to be where the industry is heading – due to the significant improvements in productivity, cost, flexibility, customisation and consistency of quality, among others, – many UK manufacturing companies are not on the ball regarding the technology. The study reveals that 34% of respondents have little understanding and 22% have no understanding of Industry 4.0. 8% have a significant understanding of the technology and its potential.

In terms of region, Yorkshire has the highest significant understanding of Industry 4.0 (24%), followed by London, East Midlands, North West and West Midlands. Few sectors have a robust understanding of the technology, with even aerospace and automotive having fewer than 50% of respondents with some or significant understanding.

Awareness of industry 4.0 in the UK manufacturing arena

Additive value
The respondents were also asked to indicate how they believe introducing Industry 4.0 into their businesses would potentially improve a range of operational facets. The top in responses is the belief that it would boost productivity, at 51%, followed by providing insight into the manufacturing process at 47%. Other potential benefits cited by respondents include increased competitiveness, cited by 46%, lower manufacturing costs, cited by 44%, and improved product quality, cited by 42%. The categories cited the least by respondents include ‘lower staff costs’ at 22%, and ‘right-shoring operations’ at 6%. 20% said it would provide benefits not defined within the scope of the question.

The benefits of industry 4.0

Strategy and investment
The survey also asked respondents to indicate in how far they have strategies in place to work with Industry 4.0 within their respective manufacturing businesses. The vast majority have no strategy in place, at 67%, although 48% of this group say they need to look into it. 13% say they have a strategy, but still need to implement it, while 18% say that they have a strategy which they are in the process of implementing.

Regionally, the largest group to claim they require no Industry 4.0 strategy comes from Wales, at 40%, followed by the North East (34%) and Scotland (33%). Of those who have no strategy in place but said they needed to look into one, the highest proportion came from Northern Ireland (67%), followed by Wales (60%) and the North West (60%). By industry activity, defence has the highest proportion of detractors, 41% saying their company do not need an Industry 4.0 strategy.

Industry 4.0 strategy

The research further finds that around one-third of respondents’ companies had invested no money in automation systems and Industry 4.0-related technology in the last 24-months, and about a quarter (24%) said they do not plan to invest in this capex in the next 24-months. According to the respondents, one of the main reasons for not investing in Industry 4.0 technology is a lack of understanding (44%). Only 5% said it was due to lack of external finance or grants, and just 8% said their infrastructure was unsuitable.


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UK manufacturing sees orders slow amid Brexit anxiety

11 April 2019

Manufacturing in the UK saw negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months at the start of 2019 which saw continued softening in orders. With uncertainty still hitting the sector ahead of Brexit’s deferred deadline, the industry faces a difficult 2019.

Despite a perpetually changing economic landscape, manufacturing remains a keystone industry in the UK. Optimism in the industry has been riding high in recent years, reflecting the perceived potential of automotive technologies, but last year saw a slight dip in business performance, ahead of what seems set to be a turbulent period for British manufacturing. Ordinarily, the sector might have expected to recover its footing relatively quickly, but with the looming spectre of Brexit making the economy’s future completely uncertain, this has not been the case.

The uncertainties of Brexit have continued to create headaches for companies on both sides of the channel. As contingency planning continues, new analysis from BDO and the Make UK explores how manufacturing – a segment likely to be hard hit by Brexit – has fared in the final quarter of 2018.

Output balance stable

Manufacturing remains a key industry in the UK, generating around 10% of total economic output and supporting around 2.7 million jobs. Yet while the industry has seen a number of years of strong optimism as well as demand, Brexit is set to throw a spanner in the works, with a range of manufacturing companies leaving the UK, or considering it. Indeed, UK manufacturing’s output currently sits at a 15-month low as the industry anticipates a cliff edge Brexit.

In terms of growth for various parts of the UK economy, a slowdown was noted in the final quarter of 2018 compared to Q4 2017. Manufacturing, in particular, saw growth declines coming in at almost -1%, with a similar trend in production. Construction saw a sharp contraction, falling 2 percentage points to below 0% growth in December 2018. Only services managed to have positive % growth in the final quarter. The final quarter as a whole saw growth of 0.2% in the UK economy – the lowest level in six years.

Output across most sectors in the industry remains positive, with the percentage balance of change in output at 22%. The result is the tension quarter of positive percentage balance of change, with stagnation on the final quarter of 2018. The firm is projecting a slight softening of output going into Q2 2019. The firm notes that there is some stockpiling taking place, with orders and outputs unaligned going into 2019.

Order balance remains positive but dips further

While there is a broadly positive picture for output, the firm does note considerable differences between subsectors. Basic metals for instance, saw a net 24% fall to -18% over the past three months. Metal production is also seeing relatively poor performance as demand from the automotive industry enters a period of acute uncertainty. However, most industries are to see improved output on balance, with rubber & plastic increasing from a net 11% to net 56%.

Export trade

Having been buoyed by the lowered value of the pound, UK export orders are up slightly on the previous quarter, but remain well below the most recent peak in Q3 2018. Domestic orders were relatively strong, with a year between the most recent peaks for the segment. However, Q2 2019 looks to see domestic orders fall sharply, to half Q1’s result, while export orders too are set to see declines.

The decline reflects a decrease in basic metals, possibly a reflection of changes affecting the auto industry. Meanwhile, export orders are down due to Brexit cross-border uncertainty – the effect of the sterling devaluation unable to continue to buoy the market. Basic metals and metal products are both in negative territory for the coming three months.

Investment and employment intentions

UK employment figures reached new milestones, with total unemployment down to 3.9% while participation rates hit record highs. Employment planning continues to be in net positive territory, with a net positive balance of 22% in Q1 2019. The coming months are projected to see a slight dip, again, largely resultant from uncertainties around Brexit. Basic metals is the sector most likely to see a negative trend, reflecting the expected decline in orders.

Investment intentions meanwhile continue to be in positive territory. However, again, the now acute uncertainty about Brexit – the UK government has boxed itself into a corner – mean that confidence around investment could wane rapidly.

Commenting on the wider economy, Peter Hemington, a Partner at BDO, said, “Manufacturing firms have been ramping up their preparations for a disorderly Brexit, in large part through the stockpiling of imported goods. This has had the effect of inflating activity levels… It’s too late to do anything about this now.  But a disorderly Brexit would be far worse than the current relatively mild slowdown, possibly disastrously so… We are concerned it looks more likely than ever that we will exit the EU without a deal.”