Sector trends

The outlook for manufacturing

This year’s Smart Factory Expo was a chance for the whole sector to discuss solutions to the challenges and opportunities it faces. Get our top takeaways here.

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These challenges include:

  • the transformational potential of the digital revolution known as Industry 4.0
  • coping with the transition to a low-carbon economy and responding to the wider climate crisis
  • low productivity and an ongoing skills crisis.

“Many of the big challenges facing the sector – from reducing its carbon footprint or enhancing productivity for example – are only likely to be solved by working collaboratively across the entire sector,” says Tom Smith, Head of Sectors at Lombard. 

1. How well the UK is innovating

A useful context-setting presentation came from Dr David Leal-Ayala, Deputy Head, Policy Links Unit at the Institute for Manufacturing, University of Cambridge. He explored the UK’s recent track record on innovation, reporting on R&D expenditure and investment across the private and public sectors in the UK.

The key findings from the Institute’s UK Innovation Report 2023 show that:

  • The expenditure on R&D funded by the UK Government was 0.46% of GDP in 2019 (27th place in the OECD ranking), below the 0.60% OECD average and comparator countries such as the United States (0.66%), Germany (0.88%) and South Korea (0.96%).
  • This is despite a change in the Office for National Statistics reporting methodology, which has resulted in the estimated UK gross domestic expenditure on R&D as a share of GDP jumping from 1.7% to 2.7% in 2019.

2. The race for more sustainable manufacturing

A focus for many manufacturers is how to switch to more sustainable production methods and processes – as underlined by a session on Warwick Manufacturing Group’s (WMG)  Business Energy Aid Toolkit (BEAT).

“Sustainability is so high on the agenda for manufacturers as it touches on so many parts of the business,” says Laura Capper, our Head of Manufacturing & Construction. She adds that earlier in 2023, NatWest Group announced £1bn in additional lending to UK manufacturing to support net zero transition, and that it is partnering with WMG to pilot with customers the opportunity to join BEAT.

3. Reshoring, nearshoring and rightshoring

Professor Jan Godsell, Dean of Loughborough Business School, admitted that the need to both increase resilience (as highlighted by the Covid-19 pandemic) and reduce carbon footprints has led manufacturing leaders to look at shortening supply chains, bringing previously outsourced and offshored bits of the supply chain back to this country (so-called reshoring).

For Professor Godsell, the key question regarding resilience should not be location, but simpler factors, such as accurately mapping and matching supply and demand. 

“The two key issues are still what they have always been – flow and buffer,” she said, adding that resilience was about keeping products flowing through supply chains and having the necessary buffers was essential to this. 

4. The dawn of Industry 5.0 may be here

The better use of data is one part of various digital technologies often referred to as Industry 4.0. Brian Holliday, Managing Director, Siemens Digital Industries and co-chair of industry body Made Smarter, gave a presentation on where manufacturing might head next, and what Industry 5.0 would entail.

He admitted that large parts of the sector were still getting to grips with Industry 4.0, let alone worrying about what’s next. As a broad characterisation, he explained that:

  • Industry 1.0 referred to mechanisation
  • Industry 2.0 brought electrification
  • Industry 3.0 meant automation
  • Industry 4.0 refers to digitisation, driven mostly by enhanced data collection and interpretation, which has opened new possibilities, including the next wave of automation fuelled by artificial intelligence (AI) and digital twins. 

5. Manufacturers face a complex future

This combination of automation and digitisation was an ever-present theme among exhibitors, including along Innovation Alley, a section of the show organised by Made Smarter. It featured an impressive showcase of pioneering, innovative young start-ups looking to transform the sector and in the variety of technologies included there, highlighted the complexity of predicting future innovations at a time of such rapid technological change.

The products and services on offer covered everything from automation, AI and machine learning, to better use of data to improve supply chains, workforce safety and product authentication. There were also stands for new solutions in virtual and augmented reality and several broader digital consultancies.

Laura Capper said: “If there was one message from Innovation Alley, it was how many start-ups are focused on helping to fight the climate crisis and have responded to the need to help manufacturing and industry achieve net zero.” 

6. Focus on people, skills and the power of the metaverse

Automation was the feature of Industry 3.0, but now a new wave of digital automation and AI in manufacturing is taking hold. Technology is now replicating mental effort rather than just physical effort. Holliday said this would mean greater uncertainty and insecurity for a new wave of workers in manufacturing. The management of these white-collar manufacturing workers, previously unaffected by earlier waves of automation, required careful management by companies.

Holliday added that in some ways this is just part of the complex picture of managing a modern workforce. While there was currently a shortage of skilled staff, which he agreed was holding back productivity, he felt education needed to keep up to speed with emerging technologies.

7. Embracing the industrial metaverse

As part of his interrogation of the concept of Industry 4.0, Holliday raised the question of the industrial metaverse and what such technologies could offer. There are genuinely powerful use cases across industry, with several exhibitor stands, presentations and talks discussing the benefits of “digital twins”.

These are life-like simulations of products and processes being used for a range of purposes from training staff to building predictive maintenance systems that use large data models to accurately map systems and anticipate when repairs or restoration of parts may be needed.

“We hear a lot about the dangers of AI at the moment,” says Tom Smith, “but we have to understand that deploying the technology isn’t a zero-sum game. There are tremendous use cases for this technology, but it works best when humans and technology work together.”

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