Q&A: What can automotive manufacturers do to improve productivity?
Q&A: What can automotive manufacturers do to improve productivity?
It's no secret that UK automotive manufacturers have been facing talent shortages for some time. Recent statistics from Make UK highlighted the average age of somebody working in the sector is 52, with manufacturers saying between 6%-20% of the workforce is set to retire in the next eight years. With high attrition rates and nearly 100,000 current job vacancies, could manufacturers be closing this gap with other initiatives to boost productivity?
BDO's automotive manufacturing leads Jon Gilpin and Stephen Cooney, alongside Ryan Pring, an Associate Director in Digital Risk Advisory Services, consider how the UK automotive manufacturing industry is dealing with challenges around productivity and ensuring their businesses are fit for the future.
- Productivity issues facing automotive manufacturers in the short-to-medium term
- Ways manufacturing businesses are improving productivity
- Digital solutions businesses are investing in to drive productivity
- Pitfalls in implementing digital productivity solutions and how to avoid them
- Key actions for automotive manufacturers
Stephen: The combination of high vacancies, a growing labour shortage and an aging workforce has left automotive manufacturers facing an industry-wide talent drain. This is effectively creating a productivity issue as there is a risk that the UK hasn’t got enough people to make the goods that we need. And it's only going to get worse because the more experienced, older people in the workforce that tend to remain loyal to employers and their industry are expected to retire within the next decade.
To enhance productivity, manufacturers need to make improvements so they can produce the same level of output with fewer people. In addition to the challenge of widespread retirement, there are fewer people entering the automotive manufacturing sector.
Jon: There is no longer the same pipeline of resources created by robust apprenticeship schemes. They still exist, but they're not proving as attractive to school leavers as they once did. So, you've got this crunch where the number of people coming into a business is diminishing or harder to achieve, whilst the number of people exiting with all their experience and loyalty is accelerating.
Despite increasingly competitive salaries being offered to attract new hires, manufacturing businesses are losing knowledge when more experienced staff are leaving, so the question is how to replace this and start to enhance processes or invest in technology and shop floor improvements.
Stephen: Traditionally, the first place to start with boosting productivity has been making improvements to the shop floor and improving processes. This might look like automating aspects of someone's role or making a task more efficient, requiring less manual input.
To retain staff, the future could require having two people earning (say) £15 an hour rather than three people being paid (say) £10 an hour, so it’s about making sure you can get the same output with less people.
Jon: In addition to the pressure on increasing output, manufacturers are having to maximise productivity because of the current costs burden. Rising energy prices mean a manufacturer can't afford to have machines running in an open factory if it isn't maximising efficiencies, so this may mean changes to working patterns. For some businesses, the change in energy bills over the past 18 months is the difference between being profitable or not.
Ryan: A lot of manufacturers are currently asking us how they can ensure they're measuring energy consumption accurately. This is driven in part by the need to improve ESG credentials because of consumer and stakeholder expectations but without a doubt, this has come into sharp focus because of increased costs. Businesses are now looking to invest in driving energy efficiencies as well as measuring and reporting on this.
What kind of digital solutions are businesses investing in to drive productivity, and what are the benefits?
Ryan: Most manufacturing businesses currently have some form of digital transformation project in progress as the industry moves towards Industry 4.0. However, there’s a large volume of legacy systems and technology, especially when companies have grown through acquisitions, so there may be multiple platforms and outdated systems.
When it comes to investing in digital, the most common place to start is investing in an Enterprise Resource Planning (ERP) system. This allows management teams to be able to have more robust planning and controls in place and crucially it increases the visibility of current and accurate data across the business, which leads to better decision-making. Manufacturers can also invest in specific software enhancements to bolt on to an existing effective ERP system, which is bespoke to their objectives. This could be shop floor data capture, scheduling, capacity planning software or inventory management software. This can help reduce things like obsolete stock with better management information and the flexibility to be able to make changes to products or volumes.
Jon: One of the driving characteristics of the automotive sector in the last couple of years has been an unpredictability of demand from their customers, and that's been incredibly hard to manage for organisations, especially smaller ones, who don't have the inherent flexibility or deep enough pockets to manage such a variance in their order book.
Because of this, stock management has become incredibly critical, especially at times when cash is often not plentiful. Manufacturers can’t have a lot of money tied up in stock that’s in a warehouse for another six months.
Stephen: That said, there are still businesses using spreadsheets, so they're not looking at current data and inventory traceability around the business supply chain is very poor. There's a huge opportunity for businesses to invest in more appropriate IT and systems to automate shop floor and back office processes to drive significant benefits. Examples include tracking individual manufacturing processes and measuring actual production costs versus standards - this allows businesses to drill down into key exceptions and implement targeted improvements quickly. This is especially important in a high inflation economy as a business can see where it is incurring excessive costs.
What are some of the pitfalls around implementing digital productivity solutions and how to avoid them?
Jon: The challenge for many boards when making the decision to embark on a significant project is that there’s a degree of financial uncertainty around the return on investment. There's a time lag before making any productivity gains, especially against a fast-changing backdrop, but value is being degraded in a business if they are delaying a project they need to do.
Implementing digital improvements to drive productivity can require significant, multi-year, multi-million-pound investments for a business which takes up significant resource and manpower before the company sees any benefits. Even more moderate upgrades or bolt-ons to current systems need careful management so these projects are not without their pitfalls if they're not well-managed.
Ryan: There are recurring issues manufacturers face. Running over budget or timeline for delivery before any benefits realisation is the most common. This could be because they don't have the technical or project management expertise to deliver a large-scale project like this. Often a business' circumstances and needs have changed in the project delivery period because of many reasons - trading conditions, new acquisitions, personnel changes - and if not managed carefully, this can create significant delays and cause projects to veer off track.
To avoid these pitfalls, manufacturers should set up an effective governance programme to oversee the delivery of a project and look to outsource or co-source technical and implementation activities to ensure sufficient implementation resources are present. To ensure success, there also needs to be an effective delivery plan in place post-implementation with a clear communications strategy and training programme.
Stephen: Finally, business leaders must remember one of the objectives of implementing new systems was making the same volume with fewer people, which may involve making redundancies. It's crucial that you follow through with reducing headcount to realise profitability and productivity benefits of the investment.
- Ensure you've maximised all efficiencies through improving processes, automation and rethinking job roles to reduce manual input where possible
- Develop a digital transformation strategy so management teams can realise benefits such as access to real-time data to make timely commercial decisions
- Consider the risks to ensure a successful implementation by ensuring you have the necessary techpertise and project management capabilities.