Life after coronavirus: manufacturing and automotive

Richard Hill, head of manufacturing and automotive, looks at how the sectors are adapting in the context of a new report by the bank’s group principal economist, Stephen Blackman, into the areas of our lives most impacted by the global pandemic.

In a few weeks, the group were manufacturing an advanced machine to a known design from scratch, building a new facility and equipping it with tooling and people.

The collaboration of the Ventilator Challenge showed us what is possible commercially for our sector, and how this approach could be reproduced in future, with large OEMs (original equipment manufacturers) working together on major developments in areas such as electric mobility, energy or defence.

In his research, Time, Trauma And Transformation: how Covid-19 is reshaping the world, Stephen Blackman refers to the pandemic as a ‘time machine’, propelling us into the future more quickly than we expected. This has certainly been the case in manufacturing. Although huge disruption was already under way – automation, digitalisation, electrification, Brexit and shortening supply chains – the pandemic accelerated all of this.

Whether these changes become a threat or opportunity comes down to leadership. Manufacturers have to manage the daily workload and operations with making space for a vision to take their company forward at pace, understanding how to pivot from one business model to the next, and create a sustainable future.

Nation & Society

The effects of the pandemic cannot be understated, and there are calls for a new social contract between government and business to reduce its impact, including incentives for businesses to avoid passing the costs of the crisis on to their supply chains and those companies’ employees. Closer government collaboration with manufacturing in the past 10 years has been fruitful, and we hope this will continue.

The Manufacturing Made Smarter Challenge – a new £300m government and industry funding package to support businesses in implementing technology that boosts productivity and creates jobs – is an example of this.

SMEs have also been encouraged by the prospect of reshoring, as businesses diversify their supply chains to gain greater control of components and include more local suppliers. Julia Moore, chief executive of trade association GTMA and head of Reshoring UK, told The Engineer this is driven by “the flexibility of local supply, quality issues, lead times, volume demands and easier face-to-face personal contact”,

The November 2020 EY UK Attractiveness Survey, which tracks the UK’s appeal as a destination for foreign direct investment, found 32% of manufacturers were considering reshoring activity to the UK. This could create opportunities for suppliers in the UK to grow and level up the economy if they are based in the regions.

Work & Play

Digital technologies have enabled operations to continue safely and efficiently during the pandemic and facilitate new products and services. Whether it’s smart technology to monitor operations remotely or videoconferencing, digitisation is enabling manufacturers to adapt, improve work-life balance, and respond to consumer behaviour.

Blackman describes the business model for the future as “resilient, adaptable, flexible and modular”, and the businesses that have performed better during the pandemic have coupled agility with technology, while reducing their footprint and headcount.

One example is Megger, a British manufacturer that produces electrical test equipment. It accelerated its digital transformation to move its global sales operations online and set up a virtual product-training centre. By creating 60 webinars in nine languages, it enabled existing customers to stay abreast of industry challenges and solutions, and forge links with new customers.

Place & Community

Sustainability concerns are a sign of the appreciation for locality that has emerged during the pandemic. Where manufacturers source components from reflects this trend and the growing interest in reshoring. Our previous research from 2018 found that, even before coronavirus, more than 80% of what we identified as ‘trailblazer’ manufacturers believed more collaboration would help them adopt a greener business model.

What’s more, reshoring and diversifying supply chains could have the potential to create skilled jobs in significant numbers. Jobs and the longevity of them knit communities together. For regional growth outside the South East, manufacturing has always played a strong part and will continue to do so.

Nissan’s announcement that it will be expanding its battery plant in Wearside, Sunderland, to take advantage of new ‘rules of origin’ has been welcomed. Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), said it was “hugely positive and an essential step in the transformation of the automotive sector to electric motoring”, adding: “The Road to Zero will require a rapid acceleration in the take-up of these new technologies and massive investment in infrastructure and local capability.”

Communities reliant on large automotive employers will need to adapt as electrification rolls out. Leaders who prioritise innovation will be important in developing the products people need. Increasingly, this is moving towards individuality in consumer products, pushing opportunities in mass customisation.

Economy & Finance

The growth of public debt exacerbated by the pandemic could lead to nationwide liquidity issues for businesses and consumers, and there will be pressure to raise taxes to pay for record borrowing in 2020/21.

Manufacturing has been spared a no-deal Brexit, and efforts to reduce the impact of further disruption and create resilience could drive servisation – monetising products as services. This kind of service provision is often more localised, boosting local employment, skills and economies.

SMEs have been encouraged by the prospect of reshoring, as companies diversify their supply chains to gain greater control of components

The shift to electrification, boosted by the government’s Ten-Point Plan for a Green Industrial Revolution, is creating opportunities in renewable energy and electric vehicle (EV) manufacture and infrastructure. The UK has a long heritage of innovative motor manufacturing, and electric van and bus manufacturer Arrival is another business proving the UK is a good place to manufacture EVs in volume.

We believe automotive OEMs need to support their supply chains more than ever. We trail our EU peers [Germany, France] in automotive sector support, so more government and business collaboration will also be essential in the post-Brexit/coronavirus world.

Health & Meaning

Greater awareness of the environmental damage of some industries and transportation is driving change from government, consumers and manufacturers. As part of its Ten-Point Plan, the government has brought forward its ban on the sale of internal combustion engine (ICE) cars and vans to 2030.

The UK’s use of renewable energy has grown in recent years, and the plan sets out goals for quadrupling offshore wind power and investing in carbon capture initiatives and hydrogen production. Amid signs there is less public resistance to onshore wind farms, it appears the public broadly supports this shift to a cleaner, greener Britain.

Megatrends: five essentials for the manufacturing sector

  • Government and industry need to continue to forge more initiatives in support of future collaboration.
  • Accelerating digitalisation can provide solutions to manufacturers coping with Covid-19 disruption and enhance work-life balance.
  • Developing local supply chains will protect OEMs from external shocks and create jobs and growth.
  • The UK has a great opportunity to develop its electric vehicle sector and infrastructure.
  • More sustainable manufacturing and renewable energy will boost industry, innovation and jobs while addressing climate change.

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