Manufacturers see productivity growth, but sector still flags concerns about lagging behind competitor economies

Steve Warren, North West Region Director at EEF

The Government is currently grappling with Britain’s productivity puzzle, but a new report out today reveals that UK manufacturing has a strong story to tell, with a healthy 64% of manufacturers achieving productivity growth in the past two years.

Despite manufacturers undertaking a broad range of productivity improvement measures and ingraining productivity growth into their business models, there are still concerns about UK manufacturing lagging behind global peers: 

• 64% of manufacturers have seen productivity growth in the past two years - 57% expect further improvements over the next two years 
• More to be done: despite outpacing other sectors in the UK, almost half of manufacturers (49%) agree that UK manufacturing’s productivity lags behind competitor nations
• Manufacturers reap main productivity rewards from making supply chain improvements (33%) and investing in plant and machinery (31%) – but over a quarter (27%) are being held back by uncertainty about the business outlook, while 22% are battling against a shortage of skills
• Over three quarters (77%) say that UK manufacturers should be more proactive in adopting major new advances in technology to boost productivity
• Less than half of firms (48%) say that output per hour is an adequate indicator of productivity – report urges Government and business to talk the same language and collaborate further.

Manufacturing has the potential to be a major driving force behind improving the UK’s productivity performance, but must also tackle its own concerns about lagging behind global peers, according to a report out today from EEF, the manufacturers’ organisation, and leading technology company, Infor.

The report – Productivity: the state of the manufacturing nation - reveals that over six in ten UK manufacturers (64%) achieved productivity growth in the past two years, while 57% expect to make further gains in the next two. Manufacturing’s productivity growth outpaced that of the service sector and the UK economy as a whole in the two decades to 2014, suggesting that manufacturing is not the source of the UK’s weak performance and creating a strong argument in favour of rebalancing the economy. 

Despite leading the way, almost half of manufacturers (49%) say that the UK manufacturing’s productivity lags behind competitor nations. This indicates that there is more they can do to drive their productivity performance up a gear, particularly as they are increasingly competing on a global stage.

When it comes to productivity, manufacturers are undertaking a range of actions and investments, but are particularly reaping rewards from making supply chain improvements (33%) and investing in plant and machinery (31%). At the same time, over a quarter (26%) say that increasing domestic demand has had a positive impact on productivity. Other productivity drivers are the opening of new sales channels (23%), lean initiatives (23%), investment in research and development (22%), new IT and technology (22%) and skills training (22%).

Productivity growth is not without its challenges, however. Over a quarter of manufacturers (27%) say they are being held back by uncertainty about the business outlook, while 22% are battling against a shortage of skills. Just two in ten firms (20%) say there are no barriers to increasing productivity.

The report reveals that manufacturers have become adept at not only undertaking a broad range of productivity improvement measures, but also ingraining productivity growth into their business models.

At the same time, there is mounting recognition that new technology and the advent of Industry 4.0 could result in a step change in productivity. Over three quarters of manufacturers (77%) say that the sector must be more proactive in adopting major new advances in technology to boost productivity. Indeed, over six in ten firms (62%) already plan to invest more in internet connected capital equipment in the next five years[1].

There is also a danger that official data only tells part of the productivity story as businesses measure and monitor a host of performance metrics - less than half of firms (48%) say that output per hour is an adequate indicator of productivity. The report makes the case for a comprehensive, long-term industrial strategy and says that Government and business must start talking the same language and collaborating more to ensure policies support firms’ productivity potential.

Steve Warren, North West Region Director at EEF, says: “While the UK economy as a whole has an issue with productivity, this report suggests that manufacturing is not the problem child. In the past two decades UK manufacturing has outpaced the rest of the economy for productivity growth and more than six in ten manufacturers have grown their productivity in the last two years. This is the strongest indication yet that a more balanced UK economy could also be a more productive economy.

“Many of our industry’s dynamic practices, such as continuous improvement, are clearly paying dividends. But it certainly is not job done. UK manufacturers are acutely aware that in a global economy productivity needs to be world-class and this means becoming even better at adopting and investing in major new advances in technology.

“Manufacturing has the potential to be a major driving force behind improving the UK’s productivity performance. But while business is the driver, Government is the enabler, and this report highlights the real need for policies and a long-term, comprehensive industrial strategy to support businesses as they strive to reach their productive potential.”

Lisa Pope, Senior Vice President at Infor, says: “This report suggests that manufacturing holds the key to unlocking the UK’s productivity puzzle. But, while leading the way on productivity within the UK economy, manufacturers are judging their performance globally and with an eye on the opportunities and challenges to come from Industry 4.0.

“As a result, there are two striking moments of truth where the sector acknowledges that it could do more and that technology will play a vital role. Support will be key, both from tech providers and early adopters from within industry. But there is also a big strategic role here for Government in ensuring that the right policy framework is in place to support manufacturing productivity and the sector’s successful transition to Industry 4.0.”