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Can automation offset wage inflation?

28th January 2019

Can automation offset wage inflation?

Wage increases continue to erode margin. We report on how fabricators are adapting to control costs without losing the ‘personal touch’.

The key challenge for fabricators at the start of 2019 are the same as those which afflicted the industry throughout the last year – costs, skills and security of supply. And of course, Brexit. That’s because regardless of the shape of the UK’s final trading relationship with Europe and the rest of the world, it’s had an impact on demographics. 

According to the Office for National Statistics (ONS) the difference between the number of EU citizens entering the UK and the number leaving sank to 87,000 in the year to March, its lowest level since the year to December 2012.

The shift according to the ONS, driven by both a decline in EU arrivals and an increase in EU citizens emigrating.

What is perhaps more significant is that net migration to the UK from the A8 countries - including Poland, the Czech Republic, Hungary and Lithuania - that joined the EU in 2004, was negative for the first time. This saw 45,000arrivals and 47,000 departures.

At the same time employment has hit a record high of 75.6% with 32.39million people in work. According to the ONS, it puts the unemployment rate at just 4.2%.

The Office of National Statistics reported in October that wages were 3.1% up in the three months ending in August, on the same time last year - representing the largest average wage increase since the 2008 economic collapse.

While analysts are predicting this year that worker in the UK are expected to receive a 0.8% real term salary increase in 2019, double the increase received in 2018. Calculated on the forecast nominal salary increase (3%) and inflation (2.2%), the average worker could see an extra £20 per month or £237.35 a year.

“People are always one of your biggest costs and recruiting the right members to your team in the current climate can be exceptionally challenging”, says Kush Patel, Operations Director, Emplas.

“The lower level of availability of labour that we have seen since the vote to leave the EU, plus increasing employment and consequential wage inflation is putting pressure on the many fabricators who have relied heavily on labour as a foundation for growth. This model is now looking increasingly unsustainable as we move forward.”

This is a point raised more broadly by analysts. They argue that UK manufacturers have failed to invest in automation of process, lagging significantly behind their European neighbours instead relying on labour to deliver increased capacity.

They suggest this leaves UK manufacturers highly vulnerable to increased costs created by wage inflation, while also contributing to the sector’s lower levels of productivity.

The McKinsey Global Institute argues that “UK investment was the lowest of advanced economies going into the crisis [2008] and fell further in the aftermath”, This means that its productivity growth has averaged at 0.2% since the 2008 economic crisis compared to 2% going into it. 

Emplas, for its part, has pursued a different course, committing to a more than £5m spend on new factory extension, machinery and infrastructure since April 2017. “We’re fortunate in that we remain a family owned business and don’t have to answer to investors, venture capitalists and lenders, which has allowed us to reinvest”, says Kush.

This has included a £1.4m spend on new machinery, including the purchase of a second Schirmer machining and cutting centre, multiple Rotox welders and saws, bringing its weekly capacity up to 3,200 frames across two shifts. 

The focus here has been firmly on automation of process and with it again, improved product quality, the second Schirmer giving the fabricator two fully automated window lines. This Kush argues increases consistency with 90% of products going through just two Rotox 8-head welders.

“Our investment in a second Schirmer gives us capacity but most importantly allows us to continue to improve product quality. This includes incredible precision in routing and cutting, which improves welds and the accuracy of fixings and which ultimately allows us to deliver a better product to our customers”, says Kush.

He continues: “This even includes prepping of pip holes so that when hardware is added it’s a precision fit – nothing is left to interpretation or measurement by an operative. Everything is set out at the start of the manufacturing process with exacting accuracy.

“The other advantage is that that our two main lines now mirror each other. This means if we do need to carry out maintenance production doesn’t stop, we simply bring in additional shifts, which guarantees our ability to fulfil customer orders.

“We have also recently invested in a new £100K sash welder with ‘floating’ blocks, which weld to a tolerance of 0.1mm. This not only provides efficiency benefits but also better consistency of finish on our sash welds.

“It’s about quality and controlling cost through automation of process – the flexibility and the cost controls that this delivers, in addition to consistent product quality delivering clear benefits to our customers.”

If Emplas has focussed on automation to bring increased control over costs and quality to its manufacturing process, it hasn’t underestimated the value of people as part of the trade supply process. “Machines are better at turning out consistent and high-quality product than people. That doesn’t mean that people aren’t absolutely key to what we’re doing here”, Kush argues.

This has driven an equally innovative approach to its management of people. With one of the industry’s most established apprenticeships schemes, 15% of its technical and customer services team are former or current apprentices.

“The skills shortage has been cited time and time again, as one of the key challenges facing our industry. Emplas is no exception. Finding the people with the right skills set is challenging, which is why we’ve shifted our approach”, says Kush.

“We’ve prioritized attitude and cultural fit - finding people who share our commitment to customer service. Skills and expertise are clearly important, but they can be developed.

“It’s not about cutting people out of our business but reducing our reliance on them in areas where we can deliver better product quality and control cost more effectively. This gives us a model, which is sustainable, and which supports us in our plans for long term growth well into the future.

“If your manufacturing process is reliant on labour, going forward the economic and population change that is currently happening within the UK, makes that increasingly unsustainable.”

For more information on Emplas visit www.emplas.co.uk email info@emplas.co.uk or call 01933 674880.

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