London, United Kingdom – At the beginning of 2020, the UK manufacturing sector experienced its sharpest decline in output since 2013. For years, trade bodies such as Make UK have been raising the alarm about the sector’s Brexit-fuelled negative outlook, worried that new regulations could stymie growth or lead to a decrease in international trade, but the coronavirus is changing everything.
“For the last couple of years, it’s been tough for the manufacturing sector – firms have been holding off spending on long-term hiring, investment, recruitment and machinery,” says Seamus Nevin, the chief economist at Make UK. “A degree of certainty was starting to be restored this year. But this pandemic has created a whole new set of uncertainties. It’s disrupted supply chains [and] customer demand.”
Keep readinglist of 4 items
In April, as the novel coronavirus took hold in the UK, reports of shortages of personal protective equipment (PPE) started to emerge at hospitals and National Health Service (NHS) trusts. By mid-March, Matt Hancock, the health secretary, called on the UK’s manufacturers to produce 10,000 ventilators to deal with growing pressures on the UK’s NHS. The call triggered a wave of retrofitting, innovation and retooling among manufacturers. It was all coordinated at a level that would have seemed impossible even a few short months ago, leading many British companies to consider whether it will have long-term benefits for their country’s manufacturing sector.
The coronavirus shapes UK manufacturing
The virus is not only impacting demand for UK goods but it is also testing the resilience of its supply chains, the willingness of its companies to cooperate and how well the government communicates with its businesses.
In March, the coronavirus and related mitigation efforts led UK manufacturing to contract to its lowest level since 2012, according to a joint report by the Chartered Institute of Procurement & Supply and IHS Markit. The situation may even get worse if social distancing continues for an extended period. “The long-term trend in jobs in manufacturing is down, because of productivity improvements and automation,” says Steve Coulter, a visiting fellow at the London School of Economics. “If anything, COVID will hasten this trend.”
Design and architecture firms, agrifood giants and brands such as Burberry have also taken similar steps to answer the government’s call. This lesser-known category of manufacturers has been producing masks, hand sanitiser and face shields to address the shortages of PPE for front-line workers. In a growing number of cases, former competitors are working together to produce protective equipment for first responders.
“They are recognising that they want to share knowledge, insight [and] help each other – and in many cases, the supply chains are so integrated that firms are converting their warehouse spaces, seconding staff to each other,” adds Nevin. “Product development has been really rapid but this level of flexibility demonstrates how important it is to have a robust manufacturing base when these challenges arise.”
The demand created by efforts to slow the spread of the virus may also alter how companies are structured. “Companies may look at forming more flexible groups to make products, breaking up existing rigidity,” says Jeroen Bergmann, an associate professor of engineering science at the University of Oxford.
Another effect could be an emphasis on resilience in supply chains and production. Supply chains in the UK have often been optimised for efficiency and cost – such as sourcing component parts for electric equipment from abroad because it works out cheaper.
“This whole episode will lead a lot of organisations to question the wisdom of complex interdependent supply chains,” says Nick Oliver, a professor of management at the University of Edinburgh’s Business School. “It’s similar to how the supermarkets ran out of food but the corner shops didn’t.”
Corner shops are not typically places where people go to buy food in bulk, and many do not try to compete with massive chains on price. “On a system level, changing those [supply] chains may be less efficient but it’s more resilient and that’s going to be crucial,” said Oliver.
One major X factor in the future of UK manufacturing is confusion about the British government’s current strategy and whether it rejected offers to join a European Union-wide medical equipment production scheme.
“In those early stages [of the outbreak], we had an unrealistic strategy, coupled with an ideological overtone: let’s show how independent and resourceful British manufacturing is,” says Oliver. Early in the pandemic, several British news outlets reported that when UK firms offered to help with testing for COVID-19 or production of PPE, the government rebuffed or ignored them. The accusations have led to concerns that medium-sized firms will not be offered government contracts and may have to lay off employees.
The myth of the wartime footing
UK Prime Minister Boris Johnson, health secretary Hancock and other British politicians have referred to the current state of affairs as a “wartime footing”, in reference to the last time that there was such widespread retooling and retrofitting. The UK government realised during World War I that it was woefully underprepared for another global conflict, so it started to draw up plans for what it would do in the event of another major war. Those plans were used during World War II when factories and warehouses around the UK were repurposed to manufacture bombs and other weaponry.
“In the 1930s, the British government was making detailed plans for ramping up the production of armaments and that just isn’t the case in this scenario,” says David Edgerton, an historian at King’s College London. “They didn’t see the need for tests on a large scale, nor did they anticipate the need for ventilators, even though they were warned that this was happening.”
“It’s interesting that people go straight to this war analogy,” says Edgerton. “But the reality is that you can only ramp up production of things that already exist.”
Case in point: the most successful ventilator consortiums have been those that worked with existing manufacturers of medical equipment, to ramp up their production instead of creating completely new designs.
“The similarity [between the coronavirus and World War II] is that there’s a clear need for switching priorities: the public takes precedence over everything else, which means overriding private interest,” says Mark Harrison, an economic historian formerly at the University of Warwick.
The Brexit threat, for which the government has recently said it will not request an extension, looms closer, too. Big businesses – particularly those that had significant links with the EU – were already worried about how their supply chains would have to shift or adjust with new tariffs, regulation and a different business environment. Negotiations should be finalised by December 31, but the virus’s disruption to supply chains is significantly affecting proceedings, says Oliver.
Data from Make UK shows that firms are unlikely to return to anything resembling normalcy soon. Remote working may become increasingly desirable, driving down demand for new cars but increasing pressure on computing infrastructure.
“Big crises like this have a tendency to disrupt established patterns and hasten new trends,” adds Coulter. “It may encourage reshoring because of problems with supply chains.”
However, reshoring rarely works exactly in reverse. “It doesn’t happen often that manufacturing is reshored in the same method as it was before,” says Jostein Hauge, a research associate at the Centre for Science, Technology and Innovation Policy at the University of Cambridge.