Scrutton Bland Manufacturing & Engineering Newsletter 26

scruttonbland.co.uk MANUFACTURING & ENGINEERING

How a 5% slip in profits can cost £1m

A guide to the VAT landscape for UK-EU trade

How a first-time acquisition secured growth for a local engineering group

Contents

3 Welcome & introduction

4 China, the UK, and the shifting geometry of global trade for manufacturers

6 Why more manufacturing & engineering firms are outsourcing their bookkeeping

8 How a 5% slip in profits can cost £1m

10 A guide to the VAT landscape for UK-EU trade

12 Research & Development incentives: Turning innovation into real growth

14 AI and automation in manufacturing and engineering

16 Case Study: How a first-time acquisition secured growth for a local engineering group

18 Meet the team

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Welcome to this Winter edition of our Manufacturing and Engineering newsletter

As we move towards the end of the first quarter, many of you will already have shifted from planning mode into delivery. Budgets will be set, investment decisions will be underway, and your attention will no doubt now be on performance - protecting margin, managing risk and identifying areas for sustainable growth.

M eanwhile, the global backdrop remains complex. And for manufacturing and engineering businesses across East Anglia, international developments are no longer distant headlines. Cross border trade relationships continue to evolve amid ongoing geopolitical tensions and shifting alliances, all of which has an influence on supply chains, freight routes and cost structures here in the UK. So, in this edition, we take a practical look at what this changing landscape means for you. Chris George provides a guide to the VAT considerations surrounding UK–EU trade, while Luke Morris explores the wider international trade dynamics involving China and the UK, and what these shifts mean for the region’s freight and logistics sector. Closer to home, margin management remains firmly in focus, so our colleagues at EQ, part of the wider Sumer Group, explore how manufacturing and engineering businesses can take a more strategic approach to managing gross profit. And Emma Clifton examines why an increasing number

of firms within the sector are choosing to outsource their bookkeeping to improve efficiency, strengthen financial controls and enhance visibility. Innovation continues to be a key driver of growth within the sector, and our colleagues at Sumer NI explain how R&D incentives can help turn technical development into tangible financial benefit, while a guest contribution from Suffolk-based international facilities management company OCS examines the growing role of AI and automation across the sector. Finally, we share a case study on how a first-time acquisition enabled a local engineering group to accelerate its growth - demonstrating that, even in a shifting economic environment, well- planned strategic decisions can create significant opportunity. As always, our aim is to provide insight that’s practical, commercially grounded and aligned with the realities facing manufacturing and engineering businesses today. If there’s a topic you’d like to see covered in future editions then please do let us know.

Steven Burgess Audit Partner

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China, the UK, and the shifting geometry of global trade for manufacturers

Luke Morris, Corporate Finance Partner, looks at the impact of the relationship between China and the UK on East Anglia’s manufacturing businesses.

I recently spoke at an event where the theme was all things “China”. We discussed the Chinese economy, how global trade patterns are shifting and what that really means for businesses on the ground, particularly manufacturers and the logistics networks that support them. The conversations focused on four connected themes: China’s economic direction, the evolving UK–China relationship, how manufacturing supply chains are being re‑engineered, and what all of this means in practical terms for logistics and freight operators. What this means for the East of England’s freight, logistics and manufacturing sector China enters 2026 at a clear turning point. Once defined by relentless growth, industrial scale, and seemingly unlimited domestic demand, the world’s second‑largest economy is now operating under far more complex conditions. Consumption is weaker. Prices are under pressure. Demographics are moving decisively the wrong way. These issues do not stay neatly within China’s borders. They shape global manufacturing economics, squeeze margins, and force hard decisions about where things are made, assembled, and moved.

For manufacturers in the UK and across Europe, this matters because China remains deeply embedded in global production. It’s not just a supplier of finished goods, but a critical upstream provider of components, materials, and industrial capability. So, when China slows, shifts strategy, or exports deflation, it ripples straight through factory cost bases and supply chain planning. At the same time, the UK–China relationship is being recalibrated. Prime Minister Keir Starmer’s visit to Beijing in January 2026 was the first by a UK leader in eight years and signalled a deliberate attempt to stabilise relations after a prolonged period of tension. That does not mean a reset to the old model. Strategic competition, national security concerns, and political differences remain very real. But it does suggest a more pragmatic phase, particularly where trade, investment, and industrial cooperation are concerned. Against this backdrop, global manufacturers are continuing to rethink how and where they produce. “China+1” has quietly become “China+multiple”. Production is no longer being ripped out of China wholesale. Instead, manufacturers are spreading risk by keeping core capacity in China while adding assembly, finishing, or parallel supply lines in places like Vietnam, India, Eastern Europe, and Mexico.

This has direct consequences for freight, ports, and regional logistics hubs. Volumes fragment. Routes multiply. Reliability becomes as important as cost. For the East of England, sitting at the heart of the UK’s containerised trade, these changes create both opportunity and pressure. China’s 2026 outlook: Slower growth, softer demand, and manufacturing at the centre China is still growing, but it is no longer growing easily. Forecast growth of around 4.5 percent in 2026 sounds respectable until set against the scale of the economy and the expectations baked into global manufacturing planning over the last two decades. Growth is being propped up by state intervention and targeted stimulus, but the underlying picture is more fragile. Property remains weak, consumer confidence is subdued, and productivity gains are harder to come by. For manufacturers, the key point is not the headline growth rate. It is where that growth is coming from.

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Post‑pandemic China has doubled down on manufacturing capability. Industrial policy is no longer subtle. The state is actively backing sectors it views as strategically essential. Electric vehicles, batteries, renewables, shipbuilding, pharmaceuticals, and advanced industrial equipment all sit high on that list. In many of these areas, China is not just competitive but dominant. Scale, cost, and speed remain formidable advantages. This matters for UK manufacturers in two ways. First, competition is intensifying, particularly in capital‑intensive and mid‑tech manufacturing. Second, China’s industrial machine is exporting deflation. Factory‑gate prices have been falling for years. For importers, that can look attractive in the short term. For manufacturers producing into global markets, it puts relentless pressure on pricing and margins. China’s demographic trajectory only sharpens this picture. A shrinking and ageing workforce means labour is no longer the cheap, abundant input it once was. Over time, this pushes China further towards automation, capital investment, and high‑value manufacturing. It also accelerates the need for manufacturers elsewhere to reassess how dependent they are on Chinese inputs, particularly where resilience and continuity of supply matter more than unit cost.

There is also a growing question around data and transparency. Official figures paint a picture of stability. Independent analysis often suggests more volatility under the surface. For manufacturers making long‑term investment decisions, this reinforces the need for caution, diversification, and contingency planning rather than blind faith in any single set of numbers. UK–China relations: Trade reality meets strategic caution Trade between the UK and China remains substantial. China is still one of the UK’s largest trading partners, particularly on the import side. The imbalance is well known. The UK imports far more goods from China than it exports, while services help narrow but do not close the gap. For manufacturers, the composition of that trade is more important than the headline value. UK goods exports to China have been under pressure, particularly in sectors such as automotive. At the same time, the UK continues to import large volumes of manufactured goods, components, and industrial equipment from China.

Politically, the UK’s stance is deliberately nuanced. China is viewed simultaneously as a partner, a competitor, and a systemic challenge. That framing reflects reality on the factory floor. Many UK manufacturers compete with Chinese firms in global markets while relying on Chinese suppliers somewhere in their production chain. The Starmer visit signalled an attempt to manage this complexity rather than pretend it does not exist. For business, that means selective engagement. No return to dependency, but no blanket disengagement either. Manufacturers that understand where China fits into their value chain, and where it should not, will be best placed to navigate the next phase. For businesses navigating these shifts - whether investing in capacity, reshaping supply chains, securing funding, or considering acquisition or exit - the commercial implications are significant. Our Corporate Finance team works with freight, logistics and manufacturing businesses across East Anglia to help turn strategic uncertainty into informed, confident decisions. Get in contact with one of the team by calling 0330 058 6559 or email hello@scruttonbland.co.uk

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Why more Manufacturing & Engineering firms are outsourcing their bookkeeping

Across the sector, precision, efficiency, and cost control are everything.

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W hether you’re managing complex supply chains, capital intensive equipment, or fluctuating material costs - staying on top of your financial data is critical. Yet for many firms, bookkeeping remains an administrative drain that pulls attention away from production, planning, and innovation. That’s why an increasing number of manufacturers and engineering businesses are turning to outsourced bookkeeping. Because by shifting this essential function to specialist providers, firms can streamline operations, improve financial accuracy, and free up capacity to focus on what they do best - making great products and delivering exceptional engineering solutions.

Improved accuracy, controls, and compliance

Access to the latest accounting technology without the investment

If you’ve ever reached year end only to find that your accounts tell a different story from your internal dashboards, you’re not alone. Complex inventories, long production cycles, and multiple revenue streams can expose gaps in internal bookkeeping processes. Outsourced teams use standardised workflows, advanced software, and consistent controls to keep your financial records accurate and audit ready. They help ensure compliance with accounting standards and industry specific requirements, and this reduces the risk of errors that can lead to costly delays.

Manufacturing and engineering systems are increasingly digital - ERP platforms, inventory systems, project management tools, and IoT- enabled machinery all feed into financial operations. Outsourced bookkeeping firms invest heavily in modern accounting software and integrations such as: • Xero • QuickBooks Online • Sage • Industry specific add ons and stock management tools And because they understand automation, bank feeds, and integration with manufacturing systems, they can help to streamline data flow and reduce manual entry. For firms that don’t have internal financial systems expertise, this offers a significant technical advantage without the cost or complexity of managing these tools in house.

Cost efficiency in a high cost industry

Scalability fit for cyclical and project driven workloads

Manufacturing and engineering already demand significant investment - machinery, tooling, R&D, compliance, skilled labour, and energy costs all add up fast. So, managing an in house bookkeeping team adds further overhead: with salaries, pension contributions, training, software licences, and workspace to consider. Outsourcing converts these fixed costs into scalable, pay as you go services. Whether you need basic transaction processing or full management reporting, you only pay for what your business needs. And it’s this flexibility that helps firms maintain lean operations without compromising on financial visibility. Access to industry experienced financial professionals Bookkeeping in manufacturing and engineering businesses isn’t straightforward.

Manufacturing and engineering rarely moves at a steady pace. You may have periods of rapid growth, seasonal peaks, or sudden surges in project based demand. Scaling an internal bookkeeping team up and down to match those cycles isn’t practical. Outsourced bookkeeping services flex with your workload though. So, whether you’re adding new production lines, taking on long term engineering contracts, or navigating a quieter period, your financial support adjusts with you - without recruitment, training, or restructuring.

Reduced risk and built in continuity

Relying on a single in house bookkeeper is a risk - especially during busy production periods. If that person resigns, becomes ill, or makes an undetected error, operations can quickly stall. Outsourced providers work with team based models and established internal controls, ensuring built in oversight and continuity. Your financial processes keep running smoothly no matter what.

More time for production, projects, and innovation

From production managers to directors, leaders in manufacturing and engineering often juggle many responsibilities. Bookkeeping shouldn’t be one of them. Every hour spent reconciling accounts or reviewing transactions is an hour not spent optimising processes, improving lead times, managing suppliers, or supporting innovation. Outsourcing routine but time sensitive tasks instead frees your core team to focus on strategic work that enhances output and drives profitability. And clear, accurate financial reports means you’ll always have the information you need without having to dig through spreadsheets.

We’re here to help

For manufacturing and engineering businesses, outsourced bookkeeping is more than a cost saving tactic - it’s a strategic decision that strengthens financial accuracy, improves operational efficiency, and supports future growth. By leveraging external expertise and modern accounting technology, you can redirect internal resources toward production, engineering excellence, and innovation. To discuss how outsourced bookkeeping could support your manufacturing or engineering business, Emma and the team are here to help. Call us on 0330 058 6559 or email hello@scruttonbland.co.uk

You’re dealing with: • job costing •

work in progress valuation stock and materials management fluctuating supplier pricing capital expenditure tracking

• • • •

multisite operations

Small mistakes in any of these areas can distort margins or disrupt cash flow. But by outsourcing, you’ll get access to specialists with deep experience across these sectors. Specialists that understand cost breakdowns, project based accounting, and the regulatory environment that manufacturing and engineering businesses operate in. And this expertise ensures more accurate data and stronger financial decision making.

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How a 5% slip in profits can cost £1m

In this article, David Yates, Partner at EQ, part of the wider Sumer Group, explores how manufacturing and engineering businesses can take a more strategic approach to managing gross profit.

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M any of the challenges we see in manufacturing, and engineering businesses stem from one core issue: poor or declining gross profit. While margin pressure is not unique to these sectors, each faces its own operational complexities that can quietly erode profitability if not properly managed. To put the importance of gross profit into perspective, a 5% reduction for a business with £20 million of turnover equates to a £1 million drop in profit. Recovering that loss through increased sales alone is extremely difficult, which is why protecting margin should be a priority for management teams. Below are some of the key areas we regularly see impacting gross profit, along with practical considerations for addressing them.

be less profitable than the work carried out in normal hours. If the increase in turnover is permanent, consider larger premises to accommodate a larger day-shift, or employ night-shift-only workers at normal rates.

Costing systems

Robust job costing and work-in-progress tracking are critical. Implementing a costing system, such as NetSuite, allows businesses to understand true job profitability, identify issues early, and take corrective action before margins are lost.

Customer variations

Where engineering involves an element of offsite installation, ensure that documented procedures exist to cover customer changes(variations). Customer’s representatives are known to turn up on site and request changes to the install/build. Changes can of course be accepted – but only once management has been informed and a variation notice has been agreed by the customer, along with the extra costs. The site staff have to know get written approval before the variations are done, not after!

Buying

It sounds obvious, but regularly checking supplier prices and researching new supplier options is important. If buying from overseas for the first time, remember and price in import duty and transportation costs – these will add to the basic purchase price. Opening foreign currency accounts for overseas transactions, or using a specialist currency broker, can save large sums on currency transfers.

Pricing

Businesses are often reluctant to pass on inflationary price increases to customers, for fear of losing work. What this reluctance does is reduce the gross profit, meaning that you need to increase sales, just to stand still. Sometimes the reluctance is due to clients feeling that they cannot put inflation (say 3.5%) on all future jobs ‘carte blanche’. That is not always required – sometimes you can reach the same overall inflationary increase by variable pricing. Some jobs may be able to take a 5% increase, some 2%. Overall, you are trying to get as close as possible to 3.5% overall.

Investing in efficiency

It sounds contrary advising clients to spend when they are trying to make more profit! But I am talking here about investing in long-term assets, in order to reduce machining/construction time (or wastage), to achieve better margins. Investing £250k in machinery with a 10-year life (so a cost of £25k pa), that will produce £100kpa in savings, is obviously money well spent. But it’s not always about the savings. Unreliable machinery causes lost time and hence loss of profit – paying workers to drink tea for days whilst machines lie broken and idle is lost profit. Investing in new machinery, solely to reduce downtime, is also money well spent.

Management Accounting

Good stock and work-in-progress control, along with regular and accurate management accounts, is imperative. I normally suggest the production of monthly accounts, with formal quarterly minuted meetings to review and discuss the results. I cannot stress enough the importance and value of timely, accurate management accounts. You cannot make informed decisions without them. All of the points above involve management putting systems and controls in place, to ensure that the business runs as efficiently as possible.

Control of wastage

Lack of awareness around inhouse wastage of materials is common. Sometimes this is down to lack of staff training, sometimes down to lack of supervision and accountability. If there are no consequences for mistakes, where is the incentive for care? Consider offering the production management team incentives for improved efficiency. Invest in quality staff training – the costs will be recouped.

The goal is simply: Work smarter, not harder!

David Yates, Partner at EQ Accountants, Part of the Sumer Group David specialises in supporting SMEs across a wide range of sectors, with particular experience in construction, engineering, IR35 contractors,management consultancy and tax. With over 30 years’ experience as a managing director, he brings a practical, solutionsfocused approach and is known for helping clients navigate complex challenges.

Overtime

By far the most common culprit. I don’t know how many times I have heard clients happily announce ‘We’re so busy that we’re working evenings and/or weekends!’. To which I reply ‘Great, but are you pricing that overtime into the jobs?’ If you have standard pricing in place, then the overtime work will obviously

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A guide to the VAT landscape for UK- EU trade

Chris George, Tax Advisory Partner has put together this guide to the main VAT considerations for UK businesses who are trading goods with the EU.

I t’s safe to say we all agree that VAT is complicated. With its nuances and often logic defying rules and regulations, it’s a topic that fills many businesses with dread. And, following Brexit, the VAT environment for buying and selling goods to and from Europe has become increasingly complex. But understanding the VAT implications here is crucial to ensure compliance, avoid unexpected costs, and maintain smooth cross-border operations.

How do I zero rate an export? As a business you must:

Postponed VAT accounting (PVA)

To ease cash flow pressures, postponed VAT accounting (PVA) is available to UK businesses who import goods from overseas. PVA allows UK VAT-registered businesses to account for import VAT on their VAT return, rather than paying it upfront at the border. This is a significant benefit, as it avoids the need to pay VAT immediately and then reclaim it later. A business can use PVA for goods imported from anywhere outside the UK, including the EU and the business must include the value of imported goods and the VAT due on the VAT return for the period the goods arrive in the UK. The same VAT return allows the business to reclaim the import VAT as input tax, subject to the normal rules. HMRC produce monthly postponed import VAT statements, which detail the VAT you must account for. To use PVA, a business simply needs to indicate this on their customs declaration when the goods are imported, there is no need to apply in advance.

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Ensure the goods are exported from the UK within three months of the time of supply. Obtain and keep valid official or commercial evidence of export. Retain supplementary evidence, such as sales invoices, customer orders, and proof of payment.

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Can I reclaim VAT on exported goods? If you cannot obtain the required evidence within the time limit, then the business must account for VAT at the standard rate (currently 20%). If the evidence is then obtained later, the business can adjust the VAT account accordingly.

VAT on exports to the EU

Since 1 January 2021, sales of goods from Great Britain to the EU are treated as exports for VAT purposes (Northern Ireland has its own special rules which are not considered in this article). Provided certain conditions are met, these exports can be zero-rated for UK VAT. This means you do not charge VAT on the sale, but you must retain evidence that the goods have physically left the UK.

VAT on importing goods from the EU

When buying goods from the EU, UK businesses must treat these as imports. This means that import VAT and, in some cases, customs duties are due when the goods enter the UK. Who pays import tax? The responsibility for paying import VAT and duties depends on the agreement with the overseas supplier. But if a business as the customer is the importer of record, they will be responsible for these charges.

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Import VAT and customs compliance

We’re here to help

The correct VAT treatment depends on the precise contractual arrangements, the movement of goods, and the location of the parties. Getting this wrong can lead to double taxation or missed VAT recovery opportunities.

When importing goods from the EU, it is essential to ensure that customs declarations are completed accurately. A business will need to provide the correct commodity codes, values, and origin of goods to determine the correct amount of VAT and any applicable duties. Errors can lead to delays, penalties, or overpayment of tax. If a freight forwarder or customs agent is used, a business will need to ensure they are aware of the business’ intention to use postponed VAT accounting and that they complete the customs declaration accordingly.

The VAT landscape for UK-EU trade is more complex than ever. So, proactive planning, clear contractual terms, and diligent record-keeping are essential to avoid costly mistakes. As with all things VAT, the rules and requirements can differ on a case by case basis. Meaning the points in this article should therefore be treated as a guide and reminder of the key points to consider. If your business is uncertain on any aspect of their VAT requirements, our specialist VAT team can assist and provide guidance to help you navigate the evolving VAT environment with confidence. Get in touch with Chris or one of the team today by calling 0330 058 6559 or email hello@scruttonbland.co.uk

Practical VAT tips for UK businesses •

Review supply chains to understand who is responsible for import VAT and customs duties in the EU and the UK. Obtain and retain export evidence . This is essential for zero-rating. Use postponed VAT accounting to improve cash flow when importing goods. Seek local advice . Each EU country has its own VAT rules and registration requirements for sales within the EU.

•

Chain transactions and VAT treatment

If a business is involved in chain transactions (where goods are sold through multiple parties before reaching the final customer in the EU) careful attention must be paid to the flow of goods and invoices. If a UK business takes title to goods in the EU and sells them on, this often creates a VAT registration obligation in the relevant EU country, even if they never physically handle the goods.

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Research & Development incentives in manufacturing and engineering: Turning innovation into real growth Dr Phil Chambers PhD, Associate Partner at Sumer NI - part of the wider Sumer Group explains how R&D incentives can help turn technical development into tangible financial benefit.

M anufacturing and engineering companies across the UK are innovating every day, often without realising that much of this work can qualify for valuable research and development (R&D) incentives. From improving production processes and developing advanced equipment for solving complex engineering challenges, innovation in this sector rarely looks like stereotypical laboratory research, conducted by those wearing white coats. Instead, it happens on the shopfloor, in design offices, and through continuous improvement projects aimed at improving quality, productivity and competitiveness. Yet many manufacturers still assume R&D tax relief and the related incentives are only for technology companies or scientific research organisations. When in reality, manufacturing is one of the most frequent users of R&D incentives in the UK, precisely because so much genuine innovation takes place within engineering environments.

A Real Company Story: Innovation Driving Operational Performance

Together, these incentives help reduce the financial risk of innovation while supporting reinvestment into new products, improved processes and manufacturing capability. Importantly, R&D does not need to succeed to qualify. Projects involving trial and error, uncertainty and iterative development are often the strongest from an incentive perspective. What types of manufacturing activity can qualify? Common qualifying activities in manufacturing and engineering include:

An advanced manufacturing company undertook an innovation project to improve the accuracy and efficiency of a critical production process. The existing approach relied heavily on manual intervention, leading to variable quality, extended production times and high levels of rework and scrap. No available automated solution could deliver the required consistency. The company developed a new automated process, overcoming genuine engineering uncertainties around achieving consistent precision and integrating automated adjustments within production equipment. Following extensive testing and refinement, the new process was deployed into live operations, delivering:

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Developing new or improved production processes Designing advanced machinery or modifying existing equipment for new applications Improving tolerances, speed, materials or output quality Automating previously manual or inefficient operations

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Reducing waste, defects, energy consumption or downtime

• • •

Over 70% reduction in rework Over 80% reduction in scrap Around 75% reduction in process time

How R&D incentives support manufacturers

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Scaling prototypes into reliable commercial production

At a high level, companies undertaking qualifying innovation can benefit from:

If your team is solving technical problems where the outcome is not immediately obvious and requires testing and refinement, there is a strong chance the work qualifies.

The work qualified for R&D tax relief as it involved resolving technical uncertainties through experimentation and innovation rather than routine production changes. The resulting process materially improved productivity, quality and operational resilience, while freeing capacity for higher-value manufacturing work.

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R&D Tax Relief , which provides either cash repayments or reductions in corporation tax based on eligible development expenditure Innovation and R&D grants , available through bodies such as UKRI and regional growth organisations, which support early- stage technical projects Patent Box , which reduces the corporation tax rate applied to profits generated from patented technologies

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A Real Company Story: Patent Box Supporting Long-Term Growth A UK-based manufacturer of industrial equipment holding multiple patents embedded the Patent Box regime into its long-term innovation strategy. By commercialising patented engineering innovations within its product range, the company significantly reduced corporation tax on profits linked to those technologies. Over an eight-year period, the company generated over £4.4 million in tax savings , with several individual years delivering more than £1 million in benefit . These savings were reinvested into product development, manufacturing capability and international expansion, accelerating innovation while maintaining competitiveness.

The commercial benefits of claiming R&D incentives For manufacturers, the value of innovation incentives extends far beyond tax efficiency.

Practical tips to identify eligible projects

To uncover qualifying R&D within your company, ask:

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Where have we struggled to achieve a technical outcome first time? What processes required redesign, testing or experimentation? Where have we pushed equipment beyond standard capability? Which projects involved genuine technical risk or uncertainty?

Key benefits include: •

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Improved cash flow through repayments or reduced corporation tax Lower financial risk when investing in automation and process improvement Funding for continuous improvement , not just one-off “hero” projects

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Support for growth, exports and competitiveness

Often, the strongest R&D projects sit within operations and process engineering rather than formal “R&D departments”.

Many companies successfully combine R&D grant funding, R&D tax relief and Patent Box into an “ innovation finance stack ”, supporting development from early experimentation all the way through to commercialisation. Common Research & Development pitfalls to avoid Despite the opportunities available, manufacturers often encounter avoidable issues, including:

Final thought

Innovation is no longer optional in manufacturing. It is a core driver of productivity, resilience and long- term growth. When used together, R&D grant funding, R&D tax relief, and Patent Box can transform everyday engineering problem-solving into a sustainable funding model that supports continuous improvement and competitive advantage. Dr. Phil Chambers PhD is an Associate Partner and Head of Innovation Tax Reliefs at Sumer Northern Ireland, leading the firm’s specialist advisory services across R&D tax relief, Patent Box and innovation funding incentives. With a technical background spanning aeronautical engineering, pharmaceutical development and software innovation, Phil works closely with manufacturing and technology-led businesses across the UK to turn innovation activity into sustainable commercial benefit.

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Treating R&D claims as an end-of-year exercise rather than tracking projects properly Failing to separate genuine innovation from routine production activity Poor documentation of technical challenges and decision-making Inconsistent cost capture across engineering teams Missing key deadlines under the updated HMRC R&D Tax Relief regime

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Increasingly, strong project governance and clear evidence are just as important as the innovation itself.

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AI and automation in manufacturing and engineering

Ian Wallace from Suffolk-based facilities management company OCS examines the growing role of AI and automation across the sector.

M anufacturing and engineering businesses have always relied on data, systems and automation to improve efficiency, control costs and maintain quality. From early MRP systems and SCADA to total quality management and digital twins, this sector has a long track record of adopting technology where it delivers clear commercial benefit. And I believe AI and automation should be viewed in the same way. While often described as revolutionary, they are better understood as the next step in an already data-rich environment. The manufacturers making progress today are not chasing novelty. They’ re applying AI as an extension of existing strengths, including good data, disciplined processes and deep operational knowledge, to run smarter, leaner and more resilient operations.

Where AI is already delivering value

In practical terms, this means:

• • • •

Identifying risks and opportunities earlier Reducing non-value-adding activity Improving decision quality at every level Creating smoother, more predictable day-to- day operations

Across the sector, AI and automation are being applied in targeted ways that deliver measurable outcomes. In production and process efficiency , automated inspection reduces rework and waste, while predictive maintenance uses vibration, temperature and usage data to reduce unplanned downtime. AI-driven scheduling improves labour utilisation, machine uptime and changeover sequencing. In engineering and product development , generative design tools explore thousands of design options to reduce weight, improve strength or lower costs. Digital twins enable teams to test process changes, workloads or factory layouts without disrupting live production, thereby encouraging faster learning and safer experimentation. Within the supply chain , demand forecasting adapts to seasonality and shifts in customer behaviour. Procurement systems monitor supplier performance, lead times and commodity pricing, while energy optimisation tools reduce consumption across plants and buildings. For finance and commercial teams , AI-driven costing models update in real time, drawing on labour, material and machine data. Automated reporting highlights emerging trends and risks earlier, improving control and forecasting accuracy.

One common application is predictive insight . By analysing machine data, production history, quality trends and supplier performance, AI can identify potential issues before they affect output or quality. This shifts teams from reactive firefighting to planned, proactive intervention. Adaptive automation is also becoming more widespread . Routine activities such as scheduling, purchasing, approvals and quality checks can be automated and adjusted dynamically using real- time data. Over time, these systems learn from outcomes and improve accuracy. Another fast-growing area is intelligent vision systems . AI-enabled cameras support quality control, safety monitoring and inventory management with consistent accuracy. As systems learn from each production run, performance improves without increasing labour demand. And at a leadership level , AI can consolidate data from ERP, production systems, financials and sales into a single, coherent view. This enables trends, risks and margin pressures to be identified earlier, supporting more confident and timely decisions.

What AI and automation look like in practice

AI adoption in manufacturing is not about replacing people or building fully autonomous, “lights-out” factories. Its real value lies in supporting skilled teams by adding intelligence to everyday decisions and reducing unnecessary friction.

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Common AI and automation pitfalls to avoid

Identifying the right opportunities

Ian Wallace, Sector Managing Director – Industries, OCS UK Ian leads the industries sector at OCS UK, overseeing a portfolio of high-profile manufacturing customers across aerospace, automotive, food and drink, and print. He brings more than 25 years’ experience across manufacturing and facilities management. Ian spent the first decade of his career in technically led manufacturing roles, followed by more than 15 years in senior leadership roles with tier-one FM providers. This background gives him a clear, practical understanding of the challenges and opportunities facing manufacturing and engineering businesses, from shop-floor operations to board-level decision- making across the UK.

AI and automation deliver the fastest return in areas where friction is persistent and manual intervention is frequent. High-cost or high-waste activities, including downtime, energy use, labour and materials, often offer the clearest starting point Data-rich processes such as production logs, maintenance records and quality data are strong candidates for AI insights. Predictive use cases, including forecasting breakdowns in demand, inventory or capacity, are particularly effective when early intervention reduces cost or risk. Low-risk pilot projects are often the most effective way to begin. Demonstrating that a concept works in practice builds belief, capability and budget for wider adoption.

Successful adoption is less about technical sophistication and more about discipline and focus. One of the most common mistakes is starting too big . Large, end-to-end transformation programmes often stall. Whereas smaller, well- defined initiatives that demonstrate value quickly build confidence and momentum. Data quality is another critical factor . AI cannot compensate for inconsistent, fragmented, or poorly governed data. Establishing basic data standards is essential before meaningful insight can be expected. The human impact must also be addressed early . Concerns about job security are real. Clear communication about why technology is being introduced and how it supports rather than replaces people is vital. Finally, technology should never be selected before the need is clearly defined . A clear set of user requirements helps avoid costly solutions that do not work or integrate smoothly with existing systems, machinery or workflows.

A measured path forward

To find out more visit OCS.com

For manufacturing and engineering leaders, AI does not require a leap of faith. It rewards the same principles the sector already understands, including strong data, clear processes, skilled people and a focus on outcomes. Applied intelligently, it strengthens productivity, resilience and decision-making without adding unnecessary complexity. The organisations that see the greatest benefit are not those doing the most, but those doing the right things, deliberately and well.

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Case Study How a first-time acquisition secured growth for a local engineering group For many businesses, growth is often organic - expanding customer relationships, investing in new equipment, and developing teams over decades. But sometimes, opportunities arise that require a bolder approach.

“Their hands-on approach and practical advice helped us navigate the inevitable bumps along the way. It was reassuring to have advisers who were approachable and focused on solutions.”

Claire Key , Pickering Group Ltd Finance Director

1 6 | SCRUTTON BLAND | MANUFACTURING AND ENGINEERING

T his was the situation for Essex-based engineering business Pickering who had grown steadily since their founding in the 1960s, when they were presented with the opportunity to acquire a long-standing supplier – Mumford Engineering Ltd, a company they had worked with for some considerable time, and who produced to a quality that Pickering were unable to obtain elsewhere. One of Mumford Engineering Ltd’s shareholders was nearing retirement, and without a clear succession plan, the security of a critical supply chain was uncertain. So, having explored a variety of options, and with the express wish of securing employment in the local community - alongside making sure their operations could continue ‘business as usual’ - the Pickering Group decided to complete the share acquisition of Mumford Engineering Ltd. This was to be the Group’s first ever share acquisition.

Our approach

The outcome

Pickering engaged us as lead advisers through the process. And our combination of professional expertise with a practical, hands-on style helped them by:

This meant that the acquisition achieved multiple objectives:

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Secured the supply chain : A critical supplier was brought under full ownership, reducing risk for the Pickering Group’s operations. Preserved jobs : All existing employees at Mumford were retained, safeguarding local jobs in an area with limited employment opportunities. Enabled future investment : Pickering were able to invest in equipment, processes, and people at Mumford Engineering that would continue over the coming years. Operational consolidation : Operations were able to be relocated to a modern facility closer to Pickering’s main site, improving efficiency and working conditions. Strategic milestone : This first acquisition marked the Pickering Group’s entry into acquisitive growth, opening the door for future opportunities.

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Breaking down complexities : We explained corporate finance, legal obligations, and accounting mechanics in plain English, making the process understandable for first- time acquirers. Focusing on relationships : Short-notice, face-to-face meetings were held in informal local venues, balancing professional negotiation with personal connection. This helped maintain trust and avoid friction. Negotiating ownership and continuity : The Pickering Group’s priority was full ownership of Mumford Engineering. So, through careful structuring, all selling shareholders were retained as employees, ensuring operational continuity during the transition. Resolving property challenges : A new lease was negotiated with landlords in a way that preserved operational stability at Mumford, avoiding disruption to staff and customers. Presenting clear options : We laid out the pros and cons of either a partial investment or a full acquisition, meaning the board could make an informed, confident decision.

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The challenge

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From the outset, the transaction was complex:

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Long-standing relationships : The Pickering Group and Mumford Engineering Ltd shared decades of history, which made emotions and personal relationships a factor in every discussion. First-time dealmakers : Neither company had previously completed an M&A transaction, creating potential for confusion over mechanics like completion cashflows or lease obligations. Property issues : Mumford Engineering operated from a leasehold property, with a lease renewal due within the timeline to complete the acquisition.