This year will inevitably be challenging for many British manufacturers. Q1 will see businesses up and down the country preparing for when (or if) the UK finally leaves the European Union, but what other challenges lie in wait for food manufacturers? John D’Arcy, Partner at Newton – a specialist in operational improvement – gives his views.
Labour availability and talent acquisition
Labour availability will no doubt be one of the biggest challenges facing manufacturers once we leave the EU. There are already constraints on low skilled labour – particularly in those areas of the UK relying on an Eastern European workforce, rather than second or third generation (typically South Asian) migrants. As this labour becomes more constrained, cost per hour is rising and availability is dropping, requiring many companies to put more staff onto permanent contracts at higher cost and reduced flexibility.
As this labour becomes scarcer and more expensive, more marginal capital projects will become financially attractive and have an additional risk mitigation impact – we’re seeing automation that couldn’t be justified five years ago now have a payback. This trend is likely to continue as both the minimum wage increases and more jobs are able to command a premium over the minimum wage.
Despite this renewed focus on the efficient use of labour, we are still typically finding opportunity to reduce direct labour cost by 10 – 15% in the businesses we work with through optimising shop floor operations.
As supply chains become more complex, more senior clients are recognising both the need and difficulty of recruiting and retaining top talent. I believe the market-leading graduate recruitment schemes of Aldi and Lidl (across the whole market, not just grocery) are a key reason for their continued success. As a sector, grocery needs to increase its attractiveness to top talent, it’s an industry full of fascinating, complex and challenging roles that we do not market well.
Sustainability and waste management
Sustainability will continue to be on the agenda next year because the populous has demonstrated a clear concern in the issue. However, I see this as an evolution rather than a revolution.
It will be interesting to see how far shoppers’ ethical considerations go. There will be some obvious quick wins where ethics and lower costs combine, but what about when it adds costs, or reduces functionality or shelf life?
Commodity prices and the supply chain
With 50% of food imported – and 60% of that from the EU – it’s difficult to predict what will happen in this area amid the uncertainty of Brexit. There could be no change, or it could mean food rotting on the back of lorries. Irrespective of this, the continued push for quality at lowest cost will continue, driven by the increasing competitiveness of the retail market.
SummaryIt’s likely that 2019 will see the greatest year of change in living memory. However, those companies who win will be those that continue to execute the basics successfully. This will mean shrewd capital decisions; excellent NPD; appropriate capacity; and operations that make best use of available labour and raw materials, striving for the next improvements in efficiency.