What challenges are facing London manufacturers?

What challenges are facing London manufacturers?

BDO recently held a Manufacturing Roundtable event with Make UK, the sectors key organisation championing British manufacturing, to discuss the impact of the rising costs of doing business and inflationary pressures.

Key challenges faced by manufacturers

Whilst the points raised were not surprising, it did highlight the shift in how companies are having to conduct their business.

Most importantly, cash flow continues to be a challenge and a focus of many companies. Key points that were discussed at the event included:

  • Orders are high, but there are significant delays in the supply chain and sourcing the components needed to finalise end products. This is resulting in significant stock/work in progress being held by companies, which not only means storage is at a premium but also generating significant cash flow issues.
  • As a result of the delays, there has been a significant shift in the market in respect to availability of end products and as a direct result, increasing number of contracts are being won based on availability and not price.
  • Price increases are being accepted as inevitable by customers. Whether this is due to fuel, labour or material costs, customers are (for now) seemingly accepting and absorbing these costs.
  • With the delays in the supply chain and the ever-increasing prices, a companies’ profit margins are inevitably taking a hit. As a result, increasing number of companies are having to rethink their pricing strategies to protect future profits, with a number of them adopting more dynamic pricing structures that enables price on delivery.
  • Labour continues to be a challenge – with Brexit resulting in +500,000 people leaving the UK and +250,000 people who are still suffering from long term Covid. This is not only impacting availability of key workers, but resulting in companies having to pay a premium.

How companies are tackling these challenges

To help combat the increases in costs, companies are focusing on several areas:

  • Increasing focus on Environmental, Social, Governance (ESG) agenda – effective ESG execution helps combat rising operational expenses such as raw material costs. It’s been reported that cost reductions from good ESG practices boost operating profits by as much as 60%. A good ESG score has also been attributed to top-line growth, minimal regulatory and legal interventions, high employee productivity and optimal investment and capital expenditure.
  • Reducing the reliance on fossil fuels – with the ever-increasing fuel/energy costs alternative, more sustainable/renewable energy sources are being sought. This is not limited to the more ‘traditional’ renewable sources but an increasing number of companies are looking into green-hydrogen resources. This will require development to retrofit hydrogen technology into existing assets.
  • Investment in automation – to improve efficiency and counteract the shortage in labour, companies are looking to invest in robotics and automate what would have traditionally been manual processes. This is resulting in manufacturers having to rethink their entire production process and undertake extensive development.

Importantly, the cost of undertaking these development activities can be off set through R&D incentives. BDO’s national R&D group has a team of over 70 individuals comprising scientists, software developers, engineers, finance and tax specialists, many with first-hand experience in manufacturing, product development and chemistry, covering process design and development, fine chemicals, food and drinks, pharmaceuticals, and software / application development to mention a few.

For help and advice on R&D relief claims and how these propose changes will potentially impact your claims, please contact Ece Akser or Eyad Hamouieh.


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