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Preparing for the smart manufacturing era - a banking perspective

02 February, 2017

Aaron Blutstein spoke to Dave Atkinson, UK head of manufacturing, Lloyds Bank Commercial Banking, about the key issues facing UK manufacturing, Industry 4.0, investment and Brexit.

With the growing push for businesses to aspire to an industry 4.0 vision, the heralding in of this new period of smarter production, supply chains and products will boost the number of high-skilled jobs in the UK, but UK manufacturers will also need to be conscious of the speed of change, which the EEF says will be unprecedented, leaving little room for complacency. Without industry and supply chain leadership, coupled with a supportive industrial strategy, the UK could be left behind.

Industry awareness is growing, just one in ten (based on a recent EEF report) say that the UK is geared up for this crucial next industrial age. This suggests that in terms of being Industry 4.0 ready there is still some way to go.

With up-coming Brexit negotiations due to take place later this year, it arguably more important than ever that British industry takes advantage of the opportunities that can be realised through transforming to a smart engineering future. But in order for UK manufacturers to realise a smart vision, it is also important to understand the barriers, challenges and opportunities facing UK manufacturing today.

Dave Atkinson, UK head of manufacturing, Lloyds Bank Commercial Banking, believes the three biggest challenges for UK manufacturing are the skills shortage, rising production costs and on-going economic uncertainty: “The national skills shortage is perhaps the biggest of these challenges. Our report ‘Understand the Puzzle’ explored productivity in the UK and revealed that firms recognise the skills shortage is hindering their productivity. One in five report that recruiting skilled staff is the main barrier to their growth.

“Recognising these challenges we have invested £5m over 5 years through the Lloyds Bank Advanced Manufacturing Centre at Ansty Park in Coventry to train the next generation of engineers and technicians. Our £5m contribution to the centre will support more than 1000 apprentices, graduates & engineers by 2020.”

He says the next challenge is the rising cost of production: “Nine in ten firms said they expect the cost of production to increase this year with firms citing rising raw material costs and wages. Through our local, Warwick Manufacturing Group (WMG) accredited relationship directors we’re working with firms to understand the impact of production costs and what we can do to help them maximise cash flow through Working Capital management efficiencies.

“Finally, the economic uncertainty cause by the events of the past year is also a huge challenge for UK manufacturers. While the sector is no stranger to managing uncertainty, we’re on hand to advise firms as they adjust their long and short term goals in response to the changing economic landscape.”

Atkinson also highlights that despite the challenges the sector is optimistic. The latest manufacturing data show outputs in the latest Manufacturing PMI survey hit 56.1 in December, a two and a half year high.

Lloyds carries out annual research into manufacturing to better understand the opportunities in the sector. Through these reports the bank learns about the challenges and opportunities facing businesses, as well as their ambitions.

Industry 4.0

Atkinson says manufacturing is a constantly evolving industry: “From investments in technology, automation and digitisation through to improvements in productivity and products, the sector never rests on its laurels.” But he believes it could do more to gear up to the opportunities presented by Industry 4.0: “Creating awareness of opportunities and just what it actually means will help generate enthusiasm & action.

“While the understanding of Industry 4.0 is improving, it is still relatively low. Almost three quarters of the industry don’t understand what the term really means for them. Firms are working towards the same goals by investing in automation, robotics and other new technologies and manufacturing processes such as 3D printing. Many businesses, particularly SMEs, don’t have the time or experience to get their business ready for smart factories and some new technology. They risk falling behind but getting expert advice and encouraging them to explore opportunities can help.”

Atkinson comments that Lloyds see firms invest in technology and automation everyday but this doesn’t always relate to specific Industry 4.0. The challenge, he explains, isn’t just encouraging investment but helping the sector to understand the meaning of Industry 4.0 and what the fourth industrial revolution could mean for their business: “We’re working with the MTC to create awareness of how firms can invest in automation and new technology developments and release the benefits it could have for them. We’re also supporting the Future of British Manufacturing Initiative for a second year running which is helping companies investigate how they can explore their readiness for Industry 4.0.”

Atkinson says Lloyds is acutely aware of the issues facing UK manufacturers wanting to transform to a smart manufacturing era: “Whether that’s exploring how to digitise practices or understanding how to finance a change. Our local relationship directors are constantly talking to businesses to understand the challenges they face and carry out more than 40 hours Continued Professional Development each year to ensure they are abreast of the latest sector news. We also work with industry bodies like the MTA and EEF to make sure we’ve got the knowledge to support manufacturers.”

He explains though that transforming the sector won’t happen overnight and the bank is working with companies to understand how best the evolution into smart manufacturing can take place.

Investment

The importance of the SME sector is paramount if the UK is to successfully make the transformation to a smart manufacturing era, but this in turn means investment. Atkinson says generally, Lloyds finds that manufacturers recognise the need to invest to grow: “Over the past year the appetite for financing has been strong, and we’ve been able to support a fantastic range of businesses as they take the next step in their growth & diversification. As well as bank finance we’re also seeing the sector use their cash reserves to fund growth, and many firms are looking at joint ventures as a way to reduce risk as they develop.

“Manufacturing has always been a key sector for Lloyds and will continue to be one of our key areas for investment. We’ve made a commitment to £1billion per annum in new funding for the sector, a promise we’ve made and delivered for the past three years and have made again this year.”

Atkinson highlights that research shows that firms have a positive approach to investment, with most businesses confident they could secure funding if needed. However he warns that the sector can’t rely on confidence alone: “Firms need to have a robust plan in place that details strategy and how finance will enable them to pursue their goals.”

Atkinson says that Lloyds has a dedicated team of WMG-accredited local relationship directors on hand to support manufacturers: “From the moment a business approaches us for finance we have someone by their side who understands their sector. There is also a specialist working capital tool that we have developed to support businesses which allows us to analysis the working capital cycles of firms, benchmark them against their peers and identify opportunities and potential challenges.

“We support the ambitions of manufacturers, whether that might be funding for new machinery or equipment, investment in new product development or growth into new markets, and help our clients with strategy, advice and sector knowledge as they grow.”

Brexit

From start-up SME though to a large established business, Atkinson highlights that the manufacturing sector has always had to adapt to changes.

He highlights that while evidence suggests the build-up to the EU Referendum may have negatively impacted investment levels, since the result firms have bounced back. Atkinson comments that while most accept that the year ahead will contain uncertainty investment intentions look healthy and companies are looking to grow.

He believes that British manufacturing is a shining example of Britain’s success: “It is resilient, agile and ambitious with a worldwide reputation for engineering excellence & quality. I am confident that it will have a long and successful future helping Britain to rebalance its economy and my team at Lloyds Bank and Bank of Scotland feel very privileged to work alongside such world-class businesses in the sector.”

Dave Atkinson

Dave has almost 30 years’ experience in the banking industry, having joined Lloyds Bank in the late 80’s and has since held various client relationship management and senior leadership roles within the organisation.

Before being appointed to lead the Manufacturing sector across the UK he was a regional director for the Commercial Banking division where he led a large team of managers supporting around 13,000 commercial clients across a wide variety of business sectors.

He was also previously chairman of the Banking & Finance Committee for the Gloucestershire LEP during his time working in the South West Region.

In his current role as UK head of Manufacturing he has 13 dedicated teams across the country who have been trained and accredited through a University of Warwick programme in conjunction with the Warwick Manufacturing Group to support and help businesses in the Manufacturing and Engineering sectors.

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