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The reindustrialisation opportunity: SMEs and the next wave of smart, sustainable supply chains
Dave Atkinson, UK Head of Manufacturing SME & Mid Corporates, explains why factors including security, technology and sustainability are combining to create an unprecedented opportunity for manufacturing SMEs.
Read time: 5 mins Added: 08/12/25
A turning point?
Looking ahead to the rest of 2025 and into 2026, it feels like the UK manufacturing sector is at a pivotal moment. For those firms that can adapt to the diverse converging factors that are coming together to shape the sector’s future, the payoff could be profound.
Let’s consider some of the dynamics that are combining to create a unique opportunity for UK SMEs to lead in innovation, resilience and growth. The launch of the UK’s Industrial Strategy sets the agenda for the next 10 years with a multifaceted plan to unlock investment and unblock barriers to growth, from energy costs to regulation, planning and skills. It identifies defence and advanced manufacturing as being among the eight business sectors with the greatest untapped potential for growth.
At the same time, international management consulting firm Oliver Wyman and the Confederation of British Industry have, through the recently published Defence & Economic Growth Report, produced a landmark set of recommendations outlining how government and industry can work together to seize the opportunity to align defence investment with the national economic growth mission.
Combined with the UK’s stable R&D tax reliefs regime, it’s creating a more predictable environment for investment in advanced manufacturing and clean energy. And the multi-billion-pound Strategic Defence Review contains pledges to boost security budgets and strengthen domestic defence supply chains, with the specific aim of directing more investment to SME suppliers.
Reshaping supply chains
At a time when the speed and scale of global change seems to have intensified, from tariffs to trade agreements, conflict and climate change. It has created a global trading environment that is increasingly uncertain and has exposed the vulnerabilities of international supply chains. Geopolitical tensions, including the Red Sea crisis, and regulatory shifts, such as the EU Carbon Border Adjustment Mechanism, have combined to undermine the economic benefits of offshoring supply chains.
This comes with a realisation that UK suppliers can provide the security, reliability and flexibility that those on more distant shores simply cannot, and many are likely to be prepared to pay a premium for that security of supply. That is prompting OEMs and Tier One suppliers to reconsider and reconfigure their supply chains, prioritising where possible domestic firms in order to reduce the risk of any disruption, even if it does sometimes come at a higher price.
However, to make the most of this reindustrialisation opportunity, manufacturers must address three key challenges: technology, sustainability and skills.
Technology
There’s no denying that manufacturing SMEs can sometimes lag behind larger firms in the implementation of technologies with transformative potential. AI, robotics and digital tools like digital twinning and the Internet of Things can generate increased efficiency, improve product quality, reduce costs and enable greater flexibility.
Connected smart factories allow for real-time data collection and analysis, identifying opportunities to optimise processes, supporting predictive maintenance and enhancing cybersecurity. However, while SMEs recognise that their digital transformation is ultimately inevitable, they have deferred investment because of barriers including cost, skills shortages and a lack of tailored support.
We can help firms overcome this adoption gap by working with them, and our partners like MTC (Manufacturing Technology Centre) to identify the investment strategy that can have the biggest impact. Following an initial virtual consultation, MTC senior engineers are available to visit manufacturers, meet with the senior team, conduct a shop floor process review and carry out a consultative line walk to examine current challenges and identify opportunities. The process can also identify funding options, including via Lloyds and via MTC through the Reach grant scheme, which can provide matched funding up to 50% to eligible SMEs.
Sustainability
Sustainability is no longer optional, and those manufacturers who move to adopt efficiency measures aren’t just helping protect the environment. Green technologies are fundamental to the future and sustainable strategies are a key driver of access to capital, talent and markets. Technologies like renewables and electrified heat also improve productivity while reducing reliance on the slings and arrows of energy markets. And manufacturing economies around the world are in a race to be first to adopt the green technologies of the future.
In recognition of this opportunity, Lloyds offers discounted sustainable finance options designed to support manufacturers as they work to reduce their carbon footprint. That could be through investing in energy efficient equipment and buildings, electricity generation and storage, renewables, infrastructure that enables low carbon transport and more.
Skills
UK manufacturers still have significant and well-known recruitment and skills challenges to overcome. Make UK reports that there are 55,000 long-term unfilled vacancies in the sectori, with half of manufacturers unable to source the talent their business needs locallyii. The digitisation of manufacturing has only exacerbated the issue, requiring transferable skills that leave manufacturers competing with firms from all sectors to recruit the technical engineers and data experts they need.
So, manufacturing still has a PR challenge in overcoming outdated preconceptions that it is dirty, unsustainable, low tech and repetitive. The sector is also suffering from a longstanding lack of female representation – only around 25% of manufacturing workers are women, despite making up around half of the country’s working population – so addressing the inclusion issue will likely be part of the solution.
There is also an opportunity to harness older workers’ skills. While many workers may be approaching retirement, they have huge amounts of up-to-date experience that they are ready and willing to share with their younger colleagues, presenting a clear opportunity for firms to unlock the knowledge already within the workforce before it is lost. Organisations like MTC, Skills England and the Industrial Strategy Skills Commission are working to reshape workforce development, supporting employers to find the skills they need.
Disruption often creates opportunity, and the world is currently experiencing remarkable environmental, economic and technological change. Support for manufacturers is being dialled up, customers are recognising the value of homegrown supply chains and transformative technologies are becoming more accessible.
Making the most of these catalysts will require thought, effort and investment, but the opportunities outweigh the risks.
Meet the author
Dave Atkinson
UK Head of Manufacturing SME & Mid Corporates
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