Emerging people challenges in the manufacturing sector
Our recently launched Make UK/BDO Manufacturing Outlook Report showcases the multitude of challenges being faced by the UK manufacturing sector, from supply chain disruptions, the changes being driven by technology and digital transformation, managing cashflow with rising prices and worsening margins, and driving growth whilst navigating long standing sector challenges of skills and talent shortages in the manufacturing workforce.
Primary labour market challenges in the UK manufacturing sector are well documented and are highlighted in our report “Two quarters ago the sector’s hiring activity was tantamount to a hiring freeze. This was brought about by a sudden shock to the sector as to just how intensive interest rate pressures would become in the middle of 2023, but this hiring aversion has eased since then and this quarter’s data illustrates that well. Nevertheless, vacancies in the sector still remain high relative to their historical average, indicating that a labour shortage persists in the UK industry.
Employment, however, reported more positively at +12% which is double the balance reported in Q4 2023. Though rising interest rates may lead to an increase in unemployment, manufacturers are showing little signs of willingness to cut back on staffing. Some cutbacks may inevitably take place but demand for labour remains strong. Investment intentions have also improved on balance to +15%, indicating that manufacturers are investing in building capacity despite falling orders, which suggests there is a belief the opportunities for growth exist.” *
Manufacturing workforce challenges in 2024
This blog takes a closer focus on the people-related challenges that the manufacturing sector faces in 2024.
We have identified two dominant challenges for the sector as a whole and three others, not-so-new but persistent issues that are re-emerging in a new context. The two drivers are technology and demographic issues; the three “evergreens” are the ageing workforce in manufacturing, health and safety and diversity, and equity and inclusion (DE&I).
1.???? Technology and skills disruptions
Measures were announced to fund apprenticeships in growth sectors to upskill the workforce and smooth the adoption of beneficial technologies, while others try to encourage people back into the workforce. The sector had made calls for the government to go further, including a full review of the apprenticeship levy and tax reliefs for investing in apprentices and training.
“The investment intentions metric, which measures manufacturers’ plans to invest in human and/or physical capital over the coming 12 months, has improved since last quarter. The balance figure increased from +10% in the final quarter of last year, to its current balance of +15%. The positivity exhibited in investment intentions for the year ahead bodes well for the sector, even if the shorter-term metrics are less celebratory. This intention to invest over the coming year, and the growth in its sentiment, is indicative.” *
The manufacturing industry is transforming digitally with the rise of technologies like artificial intelligence, robotics, and data analytics. This requires a workforce equipped with the digital skills to operate and optimise these technologies. Therefore, the sector faces a significant skills gap, particularly in areas such as engineering, advanced manufacturing, and technology. With rapid advancements in automation and digitalisation, there is a growing demand for skilled workers who can operate and maintain these technologies. With rapid technological advancements and changing industry requirements, continuous training and upskilling of the workforce are crucial to remain competitive. Providing employees with opportunities for professional development and upskilling is a vital challenge for the manufacturing industry. The increasing adoption of automation and robotics in manufacturing can lead to concerns about job displacement. Industry leaders need to address these concerns by redefining roles, reskilling workers for higher-value tasks, and creating a workforce that can work in collaboration with automation technologies rather than be seen only as a job threat.
2.???? Demographic and talent disruption
“As of January 2024, there are currently 68,000 (to the nearest thousand) live vacancies in the UK’s manufacturing sector, which is a slight decrease from the 69,000 reported in the previous edition of this report. As a ratio, that is for every hundred jobs in the sector, 2.8 are vacant, which is the same ratio that was reported last quarter. This figure is approximately 50% higher than the long-run average for the twenty years prior to 2020, illustrating the consistently elevated demand for labour in the sector since the pandemic.” *
Manufacturing firms often struggle to attract and retain top talent, particularly among younger generations. The industry's reputation and perceptions of repetitive or low-skilled work can make it challenging to attract the best talent. Companies must focus on demonstrating the potential for career growth, innovation, and advancement opportunities within the sector. Manufacturing processes can have a significant impact on the environment. Addressing environmental sustainability challenges and transitioning towards greener and more sustainable practices is essential for manufacturing companies from a sustainability point of view and a key to remaining a viable alternative to young, tech-native talents.
The UK's departure from the EU has created uncertainty for the manufacturing sector regarding supply chains, trade agreements, and access to talent. Understanding and adapting to the changing regulatory and immigration landscape post-Brexit is critical for companies in the sector and agility to adapt to new employment models.
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"The sector reported a balance figure for employment of +12% this quarter, which is an increase of 6 percentage points compared to the fourth quarter of last year, indicating that manufacturers are making some progress towards filling vacant positions. Expectations for improved employment balance figures next quarter are present also, with a figure of +14% expected next quarter.” *
Evergreen issues are back in a new context: the technology mentioned above and the demographic landscape. DEI, HSE, and the ageing workforce have been sector-specific challenges for years, but the pace of required adaptation has increased. Not responding to these challenges might jeopardise talent and skill competitiveness, which could lead to growth limitations.
3.???? Health and safety
The manufacturing sector can mainly involve high-risk operations and hazardous environments. With more automation and less manual work, the physical risk may be lower, but complex technologies can also imply higher risks and more difficult controls over the hazards.? Ensuring the health and safety of workers is a critical challenge that requires proper training, risk management, and adherence to strict safety regulations, which is a cultural/behavioural challenge rather than a policy one.
4.???? Ageing workforce
Similar to the energy domain, the manufacturing sector also has an ageing workforce. Many experienced workers are nearing retirement age, which creates a knowledge and skills gap. Ensuring knowledge transfer and attracting young talent is crucial to address this challenge. Emerging technology skill requirements accelerate the perceived “ageing” – people at perfect work-capable ages may lose their skill edge and become unemployable.
5.???? Diversity, equity and inclusion
The sector has historically faced diversity and inclusion challenges, with low representation of women, ethnic minorities, and individuals with disabilities. Promoting diversity and inclusion in the workplace enhances innovation and creativity and helps address skills shortages. Opening up to new workforce segments, immigrants, reskilled workers, and labour market re-entrants might help the skill and diversity balance simultaneously. The five sectors' people's challenges are not weighted equally – depending on subsectors, regions, economic cycles, and additional factors.
For example, Electronics and Pharmaceutical manufacturing are disproportionately exposed to technology and skill issues. The Food and Drink and Paper Products industries are more exposed to environmental and sustainability aspects. Mechanical Engineering and Chemicals are threatened by health and safety challenges. Textiles are exposed to the ageing workforce. Metals and Automotive are challenged by diversity. Of course, these are general, indicative trends, and specific challenges may emerge by geolocation, history, technology and other differentiating factors.
However, in summary, it is safe to say that a specific weighted combination of the five factors above is likely to describe the systemic people challenges manufacturing firms face now and in the near future.
·?????? What are the significant people challenges being faced by your manufacturing business? We would be keen to hear about these and our poll:https://forms.office.com/Pages/ResponsePage.aspx?id=soLW_7avskucn1c6EL8YvmOhd6mBdAhIoZ_YyKTtgwVUMUhQUFhUVUQyMzA4SERZV1VTVTdKOUdZSi4u
·?????? Read more about the people challenges and the and possible solutions available here or contact me for more information.