The Inside Scoop on the Impact of Brexit

Joe Booth, Altus Business Development & Marketing Manager

It is impossible to listen to the news and not hear what impact a ‘No Deal Brexit’ could have on the British economy. However, the messaging and information given to the population is confusing, contradictory and takes considerable effort to decipher the truth. Here we examine the impact so far, the effect on purchasing decisions when it comes to capital equipment, and investment in the UK.

Regardless of your vote in the referendum or how the UK decides to move forward over the coming months, the impact of the decision and its implementation will have a substantial impact on generations to come. The one positive consequence is that the news has seen a huge boost in advertisement revenue as broadcasters across the nation update their drooling viewers on every twist and turn. This has further divided audiences and the nation rather than encouraging compromise and holding the middle ground. Although consistently in the news, one area with little mention is the impact on manufacturing and how it has already affected several areas.

It has been reported that UK manufacturing output witnessed its sharpest monthly slump since 2002, a drop of 4.1%. The uncertainty is having a huge impact on industry in every sector from car manufacturers to steel producers. It is however difficult to blame Brexit alone for this figure because many of our automotive manufacturing is heavily influenced by the German car sector that is entering a technical recession as we speak.

A Dwindling Currency

The impact of the UK’s weakening pound against several significant currencies globally is causing a huge effect on the supply chain of manufacturers in the UK. Currency depreciation against the Euro is around 20% which for a country that imports most of its component parts is a significant added pressure to profitability. This 20% is either eating away at company margins or is being passed on to the end user of the product. For those making goods for the national market this makes the situation very difficult as you can imagine. That being said, if you are manufacturing products and selling them to the international market, it may have the opposite effect, with many companies benefiting from increased global orders for their products because of 20% discount from currency. I have heard that some companies are up on sales by as much as 30% in the last year… no wonder people are still making significant investments, preparing for the currency to rebound which could see the situation becoming quite challenging.

Another significant impact of the currency shift is on staff availability as the UK’s highly skilled pool of employees move away. We are seeing that workers are considering returning home or moving to another country as the value of the pound is now a comparable currency.

Perhaps people are unaware, but when the crash happened previously, UK engineering saw a domino effect of factory closures, meaning that there were no jobs available in this area. This resulted in fewer people studying engineering, fewer people moving into this sector and a gulf of home-grown talent in the electronics industry and wider manufacturing disciplines in the UK.

At the same time, multinational companies boomed in Eastern Europe, offering training and jobs to citizens albeit with a low wage. These workers became highly skilled and moved to the UK seeking a better wage. It was here that they found work due to a lack of talent and a declining skilled workforce. These workers are now our managers and process engineers up and down the country. In the meantime, salaries in Eastern Europe have slowly been increasing. To use Hungary as an example, wages have approximately quadrupled in this country in the last 10 years. This is evident as manufacturing slowly moves south or east in order to find a new group of low paid operators to utilise.

The desire to live in the UK has diminished. This can be seen when considering manufacturing in the UK electronics’ industry. It is difficult to find a CEM or OEM that does not have an open vacancy or many open vacancies currently. There is not the pool of skilled personal available, and of those that are residing, they are demanding higher wages.

Lastly, and rarely mentioned in the traditional media, is the state of the automotive sector. Autonomous cars will increase the amount of car-sharing and together with growing environmental pressures, much of the younger generation is not concerned with obtaining a driving license. Bosch has projected a significant decline in car sales by 2030 and hence a large shift of focus to innovative products and IoT based solutions to generate the forecasted lost revenue. New car sales are currently dwindling due to the political uncertainty with a snowball effect on the German economy as they enter a technical recession period.

Looking on the Bright Side

On the flip side, it is not all negative. Companies are looking at approaches to overcome the challenges of operating in 2019 and making the most of the currency slide and new customer opportunities with great success. If I am honest, we thought that this year would be very, very difficult in terms of machines sales. We anticipated budgets being held closely, waiting for a decision and delaying investments due to the unknown. The truth is it has been the opposite as people look to make smart investments to mitigate against competitive and political risks of recent and future times.

Clearly, the first and largest demand when staff numbers are not available is a drive to significant automation. Companies that have island machines for SMT are finally taking the crucial step to form an automated process. Firms that have large manual soldering and placement requirements for mature products are investing in odd form placement alongside selective soldering or robotic soldering. Companies with difficulty managing component handling are investing in smart retrieval systems and automatic communication capabilities. The uplift in final assembly, testbed and routing solutions also more than speaks for itself. What Altus has seen from Brexit so far, is an increase in the pace to achieve the ‘lights out factory of the future’. The aim is to reduce labour and drive down operating costs to mitigate the further challenges that a company may face from political and global economic uncertainty.

Compensating Through Capital Equipment

The two main processes that are being tackled to compensate for current change are board handling to automate an SMT line and odd form and selective/robotic soldering processes to automate the assembly and soldering of THT products.

When it comes to board handling, companies across the country represent a range of development in SMT. There are many using island style processes and manually handling PCBs between each. There are those in a line but without loaders and unloaders, and there are those that use unloaders and loaders, together with AGV robots to handle full magazine racks on and off the line. For either stage in development, the next level of investment is significant.

Looking at a recent example, Altus sold a multimagazine loader and multimagazine unloader (both 5 rack capacity) to a partner who traditionally did not use handling at the start or end of line. The company produced a product every 45 seconds with an operator having to manually load a bare board and unload a populated board each time. This gave them very little time to focus on inspection, resulting in mistakes and poor yield. By investing in a loader and unloader, boards could be loaded for an entire day and unloaded for an entire shift without human intervention. The operator could focus on kitting the P&P and operating the Koh Young AOI and SPI equipment. The increase in production, profitability and ROI were significant.

Concerning THT and the placement and soldering of products, you would find it difficult to find a manufacturing site in the UK that doesn’t have hand soldering stations and products going through a manual process. This is hugely expensive for a company and drives up the cost of production with human operator error. Odd form and selective soldering offer an automated placement and soldering process for large quantities of components. This method is highly consistent and reliable and increases production. Typically, speeds are faster, yields are higher, and firms see ROI well within the 4 year benchmark. A prime example was the recent deployed of a robotic soldering (semi-automated) system. It offered a 2.5X output increase in comparison to a human operator with the first unit. The firm has now purchased a further 4 systems, and 98% of soldering goes through the semi-automatic soldering process. Manual operators have been reassigned to value adding processes in the production workflow.

In summary, the effect of Brexit has already been costly for many. The situation is still not clear, and the future challenges faced by us all are not either. British business leaders however have and will continue to find solutions to mitigate against these challenges and continue as a leading force in global technology and its future. For now, the answer lies in a fast track to automation and the smart factories of the future of which Altus is at the forefront and ready to assist.

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