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Introduction

NIS Ltd, Chorley

Source www.nisltd.com

Supplying largely non-electric capital goods and the components for such goods the machinery and equipment industry is a key manufacturing sector with UK annual turnover of about £35bn per annum of which about a third is exported. It is a highly diversified sector encompassing high quality mechanical and other skills that nationally employs about 290,000 people manufacturing products, parts and equipment for a host of other industries. These products include engines and turbines, pumps, compressors, valves and other mechanical power equipment; metalworking and other machine tools; construction and mining machinery; special purpose machinery for woodworking, paper products, printing trades, textiles, food processing, etc.; ovens and burners; lifting and handling equipment; industrial heating, refrigeration and ventilation equipment; farm and garden machinery; weapons and ammunition; and domestic appliances ("white goods"), including refrigerators and freezers, washing machines, vacuum cleaners, space heaters, cookers and small kitchen appliances, etc.

Employment

With a workforce in 2005 of some 6,900 in about 410 separate establishments, the machinery and equipment sector has a fair representation in Lancashire accounting for 6.7% of the sub-region's manufacturing employees jobs, though this is somewhat lower than the GB share of 9.1%. It is one of the manufacturing sectors with a higher than average proportion of full-time and male employment: men make up over 80% of the local workforce and 96% of jobs remain full-time (Table 1).

Figure 1 Machinery and Equipment Employee Jobs, Lancashire, 2005

Source ONS - Annual Business Inquiry

All parts of Lancashire have some representation in the industry. West Lancashire District with 15% of the local industry's jobs has the largest single representation whilst there is a sizable representation across a number of East Lancashire districts though the sector generally shows a far lesser geographical concentration than in former years (Figure 1).

Traditionally, some very large engineering companies employing hundreds or even thousands of workers dominated the machinery and equipment industry in Lancashire. This situation altered radically as restructuring and downsizing began to impact from the late 1970s onward and as the increasing specialisation demanded by the market tipped much of the competitive balance in favour of smaller companies. Today, the "average size" of company in the local industry is only 17 employees. Little more than 40% of the industry's workforce is still employed in companies with 100 or more employees and such firms these now make less than 4% of the business stock. About 84% of firms in the industry now employ fewer than 25 people (Table 2). Larger employers represented locally include Goss Graphic Systems (newspaper printing presses and associated equipment); Cobble Blackburn (tufting machines and ancillaries); Fort Vale Engineering (discharge relief valves and fittings); Addison-McKee Tube Forming (pipe bending machinery); Asco Joucomatic (solenoid central valves, pressure and temperature switches, etc.); NIS Ltd (integrated engineering systems and plants); Britannia Living (manufacturers of domestics cooking appliances); and Fairport Engineering (bulk materials handling equipment).

Figure 2 Machinery and Equipment Establishments, Lancashire, 2005

Source ONS - Annual Business Inquiry

Employment Trends

Machinery and equipment is an industry with very strong roots in Lancashire – even in pre-World War 2 years it was second in size only to Textiles. Indeed, much of the industry's earlier development went hand-in-hand with technological change within the textile and allied industry itself. During the war years, many of its core mechanical engineering skills were effectively transferred to the production of aircraft, aero-engines and ordnance. From a post-war employment peak in the late 1960s job opportunities within machinery and equipment have fallen steadily though the great bulk of this reduction was concentrated within two particularly dominating sectors of activity. The biggest casualty was the one-time world-class textile machinery industry that alone employed nearly 15,000 people at its peak in the early 1950s. Such has been the scale of decline in this once key sector that it occupies barely a few hundred people today. The other large loss of jobs was associated with the production of weapons and ammunition, largely in Royal Ordnance plants. This activity employed 7,000 people as recently as 30-years ago but steady cuts in defence procurement expenditure and the ending of the Cold War resulted in considerable excess capacity which resulted in major downsizing of the Lancashire operations. Today only residual ordnance activities remain.

Figure 3 Machinery and Equipment Employee Jobs, Lancashire, 1950-2005

Source Ministry of Labour/ONS - ERII Employment Records

Broad sectoral employment trends over the past 15-years are illustrated in Table 3. Over this period total employment within the industry fell by about 3,400 or by a third, or at a slightly faster pace of net loss than experienced in manufacturing industry generally. However, some of the underlying employment trends within the industry were less discouraging than this overall figure might suggest. About 2,300 jobs were lost from the ordnance, textile machinery and domestic appliance sectors but many other activities witnessed either only a modest net job loss or, at least until very recently, enjoyed expansion. Notable in the latter respect was the production of engines and turbines, taps and valves, lifting and handling equipment, machine tools and special purpose machinery other than that for textiles.

It was clearly apparent however that pressures on the industry began to impose themselves even more heavily from about 2000 onwards. Faced with the high value of Sterling against the Euro, competition from lower cost countries and critically some cut-back in general investment expenditure across production industry generally, many mechanical engineering companies were forced to cut costs dramatically, including their headcounts. There have been several announced job reductions amongst companies within the sector and even instances where the production activities of large and long-established engineering companies have been transferred overseas or consolidated onto sites elsewhere within the UK. Across Lancashire most districts have seen a reduction in the number of jobs in the industry, the fall being most pronounced in Blackburn and South Ribble. On the positive side however, a number of local mechanical engineering companies are within the aerospace supply chain and may well have benefited directly with their association with this buoyant sector.

General Characteristics

The machinery and equipment industry provides production equipment or parts thereof for virtually every sector and branch of the economy – everything from miniaturised precision components such as special needle roller bearings through to complete production plant. As a supplier of capital equipment goods it holds a key supply chain and enabling position in the economy and is central to the general competitiveness of manufacturing as a whole as the strength of many other sectors often hinges on the products and services provided directly by machinery and equipment suppliers. It is reckoned that about 65% of innovation in European manufacturing is supported directly by the technologies actually embodied within production machinery.

Figure 4 Machinery and Equipment Production Trends, Lancashire, 1994-2004

Source ONS - Annual Business Inquiry

With the exception of domestic appliances, most of the enterprises in this sector focus largely on the production of capital goods. The industry's performance is therefore more dependent than many other branches of industry on cyclical fluctuations in the propensity to invest. Company investment activities are sensitive to interest rates and other developments affecting the economy as a whole and also rise and fall more abruptly than the other demand aggregates which impacts directly and often more rapidly on mechanical engineering than in the case of many other industries. The sector is also strongly export-orientated and is thereby additionally exposed to exchange rate fluctuations.

In Lancashire the industry suffered quite sharply from the economic downturn and investment fall of the early 1990s but recovered strongly from 1993 onwards with total turnover peaking at more than £855m in 1997. Subsequently, the sector seems to have lost much of its momentum; turnover had fallen back again to £552m by 2003, a sum in real terms lower than a decade earlier, before recovering some ground to £673m in 2004 (Figure 4). A similar pattern was evident in the trend of gross value added with the difficult national and international circumstances affecting manufacturing generally clearly having an adverse impact on the local industry. In 2004 with GVA of £250m the industry contributed 4.9% of Lancashire's manufacturing output compared with a 6.8% share in 1994. Of particular concern also was the cut-back in total investment in the industry: in 2003 net capital expenditure of just £10.5m was at an all-time low and was less than a third of that experienced over the late 1990s. It rebounded strongly in 2004 with an outturn of £27bn. Investment per head also fell steadily over the period though bounced upwards in 2004. Taken over the full decade 1994-2004 investment per head in Machinery & Equipment in Lancashire averaged £2,640 per annum. This was roughly on a par with the national industry but only three-quarters of the Lancashire manufacturing average. Labour productivity (gross value added per head) in the local sector has risen by about a third between 1994 and 2004 but this was a slower pace of improvement than in the UK sector at large and in 2004 labour productivity stood at 91% of the UK industry average.

Although often described as "old economy" activity, the Machinery & Equipment sector has continued to gain momentum from the development and diffusion of microelectronics to mechanical systems, the use of optics, sensor and laser technologies, the growing demand for more sophisticated environmental technologies, nanotechnology and the use of new materials and an increasing tendency away from the supply of stand-alone machines towards integrated plant and machinery systems. The latter, incorporating high levels of service support for customers in the form of consultancy, training, technical assistance, maintenance and specific software, often throughout the machine's life has extended the range of activity undertaken by many machinery companies. It has refocused the sector's business towards providing more tailored-made solutions to individual customer requirements and endeavouring to add greater value to their products and services and assisting in fulfilling their business objectives. This increase in the expectations of customers is leading to a steady shift in the role of the manufacturer of machinery and equipment from a supplier of manufactured goods per se to a services provider.

Addison-McKee, Walton Summit, Bamber Bridge

Source www.addisonmckee.com

Many manufacturers within the sector have moved into highly specialised niche markets serving the needs of narrowly defined downstream industries with highly specialised and customised needs. Through such strategies even relatively small enterprises can often achieve international repute. Indeed, increasingly over recent years the provision of mechanical machinery and equipment has become the realm of small and medium-sized companies. This SME-dominated structure results from the diversity of manufacturing tasks required from mechanical engineering. The very large number of different mechanical products demanded by end-users makes it difficult for machine manufacturers to realise large-scale let alone mass production. This inevitably leads to a high degree of specialisation among mechanical firms. Such specialisation in customised machinery and equipment can provide a key competitive advantage as within it often lies the possession of unique cumulative engineering know-how and a capacity to further exploit and develop it beyond the immediate reach of a competitor.

The industry generally has sought to modernise its own plant and to introduce new flexible and lean production organisation in order to cater to its customers' needs. It has a growing demand for engineers and other skilled production personnel, particularly of software engineers though does tend to suffer from skills shortages in many areas, a characteristic often attributed to the low esteem in which engineering is now held as a career choice. It is likely to continue to rationalise and to shed jobs as it strives for greater productivity but its competitiveness, especially against the growing price pressure from low wage economies in Eastern Europe and East Asia, will increasingly depend on the use of newer and improved technologies, high quality and the ability to offer specialised solutions to the specific production problems of customers.

For further details, please contact:
Peter Kivell
Tel 01772 534157
Email Peter.Kivell@lancashire.gov.uk