It is becoming abundantly clear from conversations we are having with manufacturing in the UK, that the governments legislation to increase the minimum working wage every year upto 2020 is having a dramatic effect on the strategies of large manufacturing companies.

We have been a proponent of automation for many years, but the large capital investments and the lack of flexibility that these investments had, made the conversations difficult to have. In one move, the government has opened the doors to all of these conversations in the UK. The truth is that any manufacturing business that requires large numbers of shop floor employees will not survive in their current state unless they automate. 

The implications of this are huge. Strategically this forces manufacturers to specialise and focus on volume. These two elements are fundamental to the payback equation needed for inward investment. Having spent much of the last 5 years pulling investment cases together for manufacturers, We can honestly say that volume and scale are the 2 key ingredients for pulling together a successful CAPEX.

Neither the supply chain, nor many of the actors within have yet to fully understand the implications of this new legislation and as a result there are a large number of manufacturing businesses which are slowly drowning through complexity, low volumes, low margins and increasing fixed costs. The truth for many of these manufacturers is that they should have moved 15 years ago in terms of inward investment and commitment to the new models required for survival, and for many of them now, without substantial investment which will require equity release, there is no hope.

There are however options for these companies. Many of them can benefit from disaggregated business models and diversification, but this requires a radical shift in strategy and often a large pot of working capital to implement. There are options out there, but the longer they wait, the fewer those options will be.