THE UK AUTOMOTIVE SUPPLY CHAIN CHALLENGE…
Government’s leading economic policy objective, as stated in the National Plan for Growth (March 2011), is to achieve strong, sustainable and balanced growth more evenly shared across the country and between industries.
Financial services enjoyed strong growth at +25% over the period 1997-2007, moving from 6.5% to 8.5% GDP. Whilst manufacturing, as categorised, shrank as a proportion of GDP from around 20% to 12.5% during the same period, these numbers do not take into account the transformation in the production process and the trend towards greater outsourcing, servitisation, the take up of general purpose and specialist technologies, including computerisation and digitisation, which has led to a greatly more interconnected form of production leading to a ripple effect or the impact of this on wider regional economies around manufacturing locations.
Manufacturing in this scenario sits at the heart of wealth creation with many sectors highly dependent on its success, including business and professional services, branding, marketing and promotion, security, catering, media and digital, electronics and of course those in the supply chains directly responsible as suppliers. Adding in these related and interdependent elements would perhaps show that manufacturing’s contribution has not in fact declined, but has at the least held relatively steady, with increased productivity through implementation of general purpose technologies accounting for a great proportion of the decline in employment. Some economists think that a further 10% could be attributed to manufacturing’s contribution to GDP in this way. (Paul Forrest, West Midlands Economic Forum)
In the government’s Growth Review eleven sectors were identified within the UK Industrial Strategy, as central to generating economic growth and rebalancing. These include –
- Agricultural technology
- Information economy
- International education
- Life sciences
- Offshore wind
- Oil and gas
- Professional and business services
As part of their approach to Industrial Strategy, government also identified the eight great technologies based on updated advice from the Research Councils, with the Chancellor making £600m available in 2012 to support their development. These include- Big Data, satellites, robotics and autonomous systems, synthetic biology, regenerative medicine, agri-science, advanced materials and energy storage.
Advanced manufacturing, which depends on integrated knowledge, information and data, cutting edge technologies and incorporates a high degree of design and highly skilled people, is an integral part of most of the 11 growth sectors identified. These manufacturers are experienced in accommodating variability, complexity and customisation, creating, in general, low volume, high value offers through responsive manufacturing –providing user-oriented offers into markets, at home and abroad, with a high propensity to export. Services associated with advanced manufacturing include R&D, after sales – real and web-enabled service provision and maintenance support for high tech products as well as customised solutions, all forming part of the connected offer being made by advanced manufacturers not fully reflected as part of this sector in the statistics as currently produced.
Parmjit Chima, Head of the School of Engineering, at Birmingham City University describes the radical transformation that has taken place in automotive over the 20 years from ’97-2007, saying, “The humble car has changed so significantly over the few decades since the development of the microprocessor. There is now so much electronics in a typical family car accounting for more than 50% of its value. There are no fewer than 100 microprocessors in the average car today controlling every aspect of the vehicle from automatic parking, airbag and control systems, engine management and satellite navigation. At a conservative estimate there are 15 million lines of code running a luxury car. There are more sensors and computing power in a midsize car than the Apollo space craft. And of course, more additional electronic systems are being introduced with the development of electric and hybrid vehicles, such as battery management, electric motor drives and energy recovery systems.”
A review follows of some of the key businesses within the automotive supply chain, the trends shaping them into the future, their connectivity to the OEMs in their sector as well as to other companies in the supply chain in driving new product offers leading future competitive advantage, as well as the policy steps required to support these businesses to grow and create more jobs.
Government acknowledges that, ‘future growth of the automotive sector is dependent on its ability to design and make high value products’, however, the National Plan for Growth, says nothing further about the development or expansion of relevant design skills, focusing entirely on recruitment and development of much needed STEM skills within the productive sector.
In speaking about design and its relevance to manufacturing and business more generally, Dr Ben Reid of the Work Foundation, states, “design, at its simplest, is ‘tactical’ focusing on aesthetics. However, many designers today have adopted a more complex view of design as a process that plays a more active and wide-ranging role in problem-solving and meeting customer needs – which is referred to as ‘strategic design’.
“Design is involved not only in developing new products and services, but in planning and problem-solving, systems thinking and strategic business decision-making and all organizations need to think about how design can help them adapt to the coming decade.
“Because of this breadth of activity, its highly intangible nature, and its complex embeddedness in different kinds of commercial activity, design has tended to be overlooked in government thinking.”
Given the interconnected nature of manufacturing, and in particular within advanced forms of manufacturing, design becomes a vital integrator, and where optimised, provides the ability for a business to pull together different disciplines, teams and groups to develop common approaches to producing innovative user-focussed solutions, perhaps not previously envisaged by the current customer.
However, the challenge for business is to hire and develop designers with a sufficient level of business, technological, market, customer and relevant trends knowledge and understanding in order to be able to make this contribution.
As Professor John Heskett said in 2010, “We are going nowhere in future if we have design students who do not understand technologies, manufacturing and business processes, distribution, social and cultural elements of how design structures our work and life and how design is woven into a social, cultural, ethical and political context. If we could get this right for our students this would be a very powerful learning experience for life and would get the very best students into design. How many British FTSE companies today have a designer on their boards, or running the business?” (Bham Post Business blog, 21 November 2010)
In Design and the Knowledge Economy 2020, Will Hutton has spoken about design as the bridge between the consumer questing for the experiential and the company trying to meet that appetite with an offer that presents the new in a user-friendly and innovative way. To do this he has said, “Britain is going to (need to) self-consciously create a national innovation eco-system to drive new growth sectors and companies.
“It is becoming crystal clear that no economy can get to ﬁrst base unless it has all the components of an innovation ecosystem. There have to be the universities and research centres creating knowledge; there have to be institutions who transfer knowledge into companies small and large; there have to be systems and processes to create new markets – from advertising to public procurement; there has to be a steady supply of entrepreneurs; ﬁnance has to be mobilised – and skills developed.”
In 2012 the Work Foundation collaborated with the Big Innovation Centre and the Intellectual Property Office producing a report highlighting key features of six ‘design-intensive’ sectors, or those that employed above average numbers of designers to assess the role of UK design in generating exports and global trade, and to guide policy in ensuring design can make a full contribution to economic growth. They identified 6 sectors as ‘design- intensive’, in terms of their employment of ‘core designers’ which, in total, accounted for 7% GDP. However, the suggestion coming from this research is that these design-intensive sectors act to produce a form of catalytic impact, with their combined output contributing to £678bn output, or around half of UK GDP. Their findings show that these design intensive sector are highly export-facing accounting for 35% of UK exports, with 66% of these coming from Advanced Manufacturing. ((1) Design as a Global Industry, Work Foundation, IPO and Big Innovation Centre, 2012)
However, the UK’s share of world exports has fallen from 4.4% in 2000 to 2.8% in 2009, unlike Germany, whose share of world exports actually grew during this period, up from 8.5% in 2000 to 9% in 2009. By 2006 the UK current account deficit increased to more than 3% GDP and was, in absolute terms, the third largest in the world after the US and Spain. The deficit in traded goods was £9.4bn in June 2014 alone, with the European Commission forecasting that our current account deficit will rise to 4.4pc of GDP in the 2014, with little improvement being forecast after that. Some economists put this down to capacity shortages, but the Bank of England believes that the UK still has considerable room for expansion in production capacity.
The National Plan for Growth states, “Not only do we export just a third as much as Germany, we lie behind the Netherlands, a country one third our size.” The UK has underperformed in exports to emerging markets. From 1998 to 2008 UK exports to the eight largest markets increased by just 0.8% of GDP compared to over 3% for Germany. In November 2010 the government recognized in, ‘The path to strong, sustainable and balanced growth,’ that UK exporters account for 60% of UK productivity growth, over 70% of UK business research and development and nearly twice their share in output.”
Government recognises the need for rebalancing the UK economy away from reliance on a narrow range of sectors and regions, to one built on investment and exports. The National Plan for Growth suggests that, “regional differences in GDP per capita are greater in the UK than in any other EU country,” and that “GVA per head grew more quickly in London than in other regions, widening the gap between the richest and poorest regions.”
Whilst it is worth bearing in mind that GVA figures include calculations on the basis of where corporation tax is paid, with London hosting more company HQs than any other part of the country, using GVA results in some skewing of the numbers, so much so, that using GVA to calculate the UK’s most intensive centre for mining activity demonstrates London as the answer.
However, leaving aside queries about the basis of the data, it is clear that growth needs to be more evenly balanced across the UK.
The National Plan for Growth states that ‘manufacturing is the third largest sector in the UK economy after professional and business services and the retail sector in terms of share of GDP’, highlighting the need to attract more STEM graduates into manufacturing: ‘In 2008-09, nearly 43% of first degree graduates from UK Higher Education Institutions were in STEM-related subjects. However, of these graduates, less than 5% entered employment in the manufacturing sector, despite average wages in engineering comparing favourably to other professions’.
It proposes a number of measures to tackle the STEM shortage. These include – expanding University Technical Colleges, developing High Value Manufacturing (HVM) Technology and Innovation Centres, funding 9 new university based Centres for Innovative Manufacturing and Manufacturing Fellowships to forge links between business and research bases, launching a new £75m programme to help SMEs access Advanced Level and Higher Apprenticeships, strengthening its strategy for promoting STEM and promoting manufacturing.
Rob Irvine, policy adviser at the CBI, notes there have been great improvements in the way government funds initiatives and supports innovation in business since the Automotive Assistance Programme debacle. “There are specific teams at BIS working with industry and if a business is clear about what they want to achieve and what they want government to do, then this team takes a very positive approach to part-funding. There is a much closer collaboration and the approach is less stand-offish.”
In answering businesses constant concern that this is ‘yet another’ set of government initiatives, Rob Irvine is quite upbeat. “I don’t think the Industrial Strategy will be cut – there is a cross-Party consensus which sees this is the right approach,” he says. “It may even be that the eleven sectors will be expanded out leading to even wider participation.”