Brexit Fuels U.K. Manufacturers’ Industry 4.0 Adoption

For manufacturers in the United Kingdom, 2021 will not only concern managing the effects of the ongoing pandemic, but also a more long-lasting challenge—configuring operations to accommodate the impact of the United Kingdom leaving the European Union (EU).

The U.K. government and the EU have now agreed to the terms of the United Kingdom’s exit. For U.K. manufacturers, engagements with firms based in the EU will be subject to the EU–UK Trade and Cooperation Agreement, which falls under the European Union (Future Relationship) Act 2020 that was approved by Members of Parliament and the House of Lords in the final days of 2020.

The new UK Global Tariff (UKGT) replaces the EU’s Common External Tariff. In order to trade with firms in the EU, U.K. manufacturers will need to have an Economic Operator Registration and Identification (EORI) number from the U.K. government, seek advice from Her Majesty's Revenue and Customs (HMRC) department regarding the correct commodity codes to use, and be up to speed on the relevant certificates and labeling required. Furthermore, U.K. manufacturers need to familiarize themselves with new customs procedures, including the disclosure of the full origin of their goods to demonstrate that they are local to the United Kingdom and, therefore, not subject to tariffs or quotas. Goods will need to be inspected by both U.K. and EU organizations. In addition to adjustments for physical goods, manufacturers will also need to adjust their processes regarding the collection, storage, and transfer of data.

Beyond the dealings with the EU, U.K. manufacturers will need to track the progress that the U.K. government makes in replacing the 40 trading agreements the EU has with countries around the world or whether the arrangements will simply revert to the policies set out by the World Trade Organization.

According to Make UK, the U.K. manufacturing sector is the ninth largest in the world, employing 2.7 million individuals producing an output worth £191 billion in 2019. The largest manufacturing sectors are, according to Trade UK and the Office for National Statistics, the food and drink (7.2% of manufacturing exports and 16.5% of U.K. manufacturing’s Gross Value Added (GVA)), the transportation (22.1% of exports and 13.9% of GVA), and the chemicals & pharmaceuticals (14.5% of exports and 13.8% of GVA) sectors. The Society of Motor Manufacturers and Traders Ltd (SMMT) reports that the automotive industry in the United Kingdom has a turnover of £78.9 billion, with more than 2,500 suppliers, and more than 840,000 employees.

An immediate concern of leaving the EU is the ability of U.K. manufacturers to recruit skilled individuals from the EU. The challenges of the new operating environment will be keenly felt in the food and drink industry in which 25% of the workforce hails from the EU, with the sector already reporting labor shortages in both high- and low-skilled jobs. The Food and Drink Federation reports that 96% of the 7,400 businesses in the sector are Small and Medium Enterprises (SMEs), so labor shortages jeopardize many businesses’ futures.

The pandemic and now Brexit have brought into sharp relief the role that digital transformation can have in enabling manufacturers to first cope and then thrive in periods of upheaval. ABI Research forecasts that spending by U.K. manufacturers on technology will top £13 billion in 2025, up from £7 billion in 2019.

The new declarations required to trade with the EU will drive investments in Enterprise Resource Planning (ERP) systems and Supply Chain Management (SCM) software, both brand new purchases as manufacturers appreciate the need to have visibility of flows of raw materials into the facility and goods reaching customers, as well as making adjustments to existing systems. System integrators will be commissioned to tweak existing applications to adjust customer systems for the new operating environment and professional services will be engaged to advise on developing new processes to handle the uncertainty. In addition, integrators will be required to help large and small manufacturers share information up and down their supply chains. Enabling supply chain visibility will be location technologies that support track and trace of goods; especially those manufacturers trading in perishable goods or supporting just-in-time manufacturing.

It is debatable whether manufacturers will alter their operations from just-in-time to holding more inventory as a hedge against disruptions in their supply chains. In the run up to the United Kingdom leaving the EU, manufacturers were stocking up on inventory, but that is running out and not an option for those trading perishable goods.

Technologies that hitherto have largely been ignored should now be evaluated. To avoid waiting for parts that are stuck in transit, manufacturers should examine whether the parts could be produced by Three-Dimensional (3D) printers. Manufacturers that relied on cheap labor from Eastern Europe need to automate their processes with the aid of robotics on the production line and Automated Guided Vehicles (AGVs) in the warehouse. Machine learning underpinning machine vision solutions should be considered to help ensure each consignment meets the regulatory standards.

U.K. manufacturers need to become data savvy and invest in analytics to help them perform scenario planning and assess their impacts on their operations; technologies to perform these tasks include Product Lifecycle Management (PLM) software and manufacturing execution systems. Manufacturers will increasingly look to create digital twins of their entire operations to help plan for future events. The challenge will be recruiting and retaining staff with the requisite analytics expertise.

Finally, U.K. manufacturers should not let their guard down when it comes to cybersecurity. Nefarious actors will be on the lookout for opportunities to obtain sensitive information regarding production performance, customer data, and commercial information.