Industry Forum

In 2015 the Chinese Ministry of Industry and Information Technology (MIIT) completed Made in China 2025, which it had prepared for over a period of two and a half years with 150 experts from the China Academy of Engineering and in collaboration with three other ministries.Quality-over-Quantity

The China Daily News reported in April that the document, described as a road-map for the future of manufacturing, had gone to the State Council. A summary of the document was made available in a State Council document in May 2015. There are reports that a further plan is in preparation to transform China into a leading manufacturing power by 2049, the 100th anniversary of the founding of the People’s Republic.

Made in China 2025 stresses that Chinese manufacturing needs to get beyond making ever greater quantities and focus on higher quality with a strong emphasis on sustainability. Innovation is the primary means of achieving this and it can only be delivered via a strong emphasis on talent and skills. China wants to reposition its manufacturing sector within global value chains and like so many other nations move up market to higher value added segments. There is an explicit goal of raising the domestic content of core components and materials to 40% by 2020 and 70% by 2025.

Echoing the UK’s policy for Catapults, which is itself based on the well-established Fraunhofer model in Germany, the road-map commits to creating15 manufacturing innovation centres by 2020 and 40 by 2025. A major change is envisaged in the approach to intellectual property rights with protections for SMEs and a more constructive approach to IPR in overall business strategy at all levels in Chinese manufacturing. The importance of international standards is also highlighted in the plan together with the need for Chinese manufacturers to take a more active role in their development.

Global Automotive ForumNew energy vehicles and equipment, agricultural equipment, aerospace and     aeronautical equipment, maritime equipment and high-tec shipping and             modern rail equipment are amongst the 10 priority sectors identified in the           plan. This is particularly important from the UK point of view as a potent                 transport equipment manufacturing cluster has been developing for some years. The other sectors in the top ten are advanced information technology, automated machine tools and robotics, power equipment, new materials and biopharma and advanced medicinal products. Several of these are part of the supply chain for transport equipment manufacturing.

 

But although Made in China 2025 highlights these ten sectors it focuses on the whole manufacturing sector and stresses that the whole sector needs to progress and not just the priority areas. Some commentators detect Japanese and German national strategy models in the construction of Made in China 2025.poP

Made in China 2025 also identifies a set of priority tasks: improving manufacturing innovation, integrating technology and industry, strengthening the industrial base, building Chinese brands, pushing through green manufacturing, restructuring the manufacturing sector, developing service oriented manufacturing and internationalising Chinese manufacturing. This portfolio reflects the awareness that China is under pressure from other emerging economies but advanced competitors including Germany, Japan and the US already are well advanced with policies and programmes to promote advanced manufacturing.

The Global Automotive Forum (GAF)

Global Automotive ForumSpeaking at the opening of the Global Automotive Forum (GAF) in Chongqing, Wang Xia, the chairman of the automotive committee of the China Council for the Promotion of International Trade, reiterated one of the core messages in Made in China 2025, stressing that Chinese automakers need to improve their manufacturing quality. This improvement is needed to raise the standing of Chinese auto brands to match international brands. Chinese component suppliers need to connect with the global market. The GAF is considered the most prestigious auto industry forum in China and the theme of the 2015 event was ‘Mega-Change: Reshaping and Industry’. There were 800 participants attending from 17 countries.

The GAF included a brainstorming session on the future of new energy vehicles. The concept of new energy vehicles which is one of the 10 priority sectors in Made in China 2025 covers the development of hydrogen powered fuel cells, hybrids and electric cars.

Honda presented the advances they have made with fuel cell powered vehicles which are in trial production. Continental discussed the severity of the Chinese auto energy consumption standard for 2020 and the way that achieving it required changes across the whole supply chain. The existing Chinese policy instruments were discussed which include the progress made in introducing new energy buses.However the energy performance of Chinese made bus batteries has some way to go before it meets the best international standards. Chinese ministries have made progress in developing a coherent body of measures to encourage electric car ownership

Chinese automaker, BYD Auto in Shenzhen which sold over half a million vehicles in 2013, has a joint venture with Daimler AG which makes luxury electric cars sold under the Denza brand. Its first model went on sale at the end of 2014 and the manufacturing volumes planned is 40,000 a year. It is also building an electric car factory in Brazil targeting the taxi and car sharing segments. In addition it makes plug-in hybrids sold under the BYD brand. Chinese automakers assess that no Western carmaker has established yet a strong electric car brand and this represents an opportunity for them.

The largest ever Chinese designed and built aircraft is the Comac C919 170 seat twin engine narrow bodied airliner.The first Global Automotive Forumaircraft rolled out in September 2015 and first delivery is planned for 2018. China has the explicit goal of breaking the Boeing-Airbus duopoly and 300 and 400 seat airliners are in development. The engines for the C909 will be provided by CFM International – one of several international firms in the supply chain. Experts judge that the C909 is like to be priced lower than the equivalent models from Boeing and Airbus.

A number of Western commentators have raised the question whether China can produce enough PhDs to support large competitive transport equipment manufacturing sector. On the other hand, Professor Williamson of the Judge Business School at Cambridge has reported that in certain sectors China is already developing new innovative product development methods which utilise large numbers of lower level technicians. At this point it is impossible to judge whether these innovative approaches can be adapted to automotive and aerospace but it would be unwise to dismiss the possibility. It is worth remembering that BYD Auto has already been ranked as one of the world’s most innovative companies.

In 2013 The Policy Exchange published David Willetts’ paper on Eight Great Technologies. This emerged in parallel to an exercise by the European Commission to identify Six Key Enabling Technologies (KETs) as part of the Horizon 2020 R&D programme. One of Willetts’ eight was Robotics and Autonomous Systems which was not explicitly highlighted by the Commission but wrapped up partially in the more general heading Advanced Manufacturing Equipment. The Commission have set up a KET Observatory to publish regular reports on how the Community is progressing in each area. The latest, published at the beginning of this year, found that advanced manufacturing equipment is the only one of the 6 KETs where Europe has global leadership. In March 2015 the Coalition published an important document about the UK’s segment of this European strategic cluster – the Government response to the national strategy proposal, RAS 2020: Robotics and Autonomous Systems which Innovate UK had published in July 2014.

Robot arm in a factory working for the humansWillett’s original analysis observed that outside automotive the UK utilised robots to a much lesser degree than Japan and Germany but he put the case for supporting RAS partly on the potential future use of autonomous systems in automotive and aerospace, two sectors where the UK is remains globally competitive. The substantial investment that has taken place recently in UK automotive both in the vehicle manufacturers and the supply chain will have strengthened the UK robotics user base with over 70 per cent of recent sales of robots in the UK currently going into the sector.

According to RAS2020 the technology will have some effect on 15 percent of the UK GVA worth over £200bn. In manufacturing there could be an increase in the productivity of over 20 percent and an increase in employment of 7 percent. Within the public sector there are significant potential benefits in security, healthcare and infrastructure management. In agriculture and the food supply chain there is potential for raising yields, increasing shelf-life, reducing waste and energy inefficiency and improving traceability. Energy sectors such as civil nuclear and offshore are also significant application areas for RAS.

The strategy recommends that investment should be managed nationally in terms of five strands – assets, challenges, clusters, skills and coordination and that there needs to be some means of integrating the work of different funding agencies and a new national RAS Leadership Council. Outreach and public dialogue should continue and connect with public concerns. Developing national standards and the promotion of the UK as a destination for inward investment by UKTI are also priorities.
The Government response took the form of a letter in March 2015 from Minister of Science, Greg Clark, to Professors Rob Buckingham and David Lane. He confirms that the UK’s research and innovation capability in RAS has grown over the last few years. Within Framework 7 the UK secured 80m million Euros of research funding from the total robotics research budget of 485m Euros – this budget has risen to 700m Euros in Horizon 2020. Significantly, Clark has agreed to the establishment of a RAS Leadership Council.

iStock_000035674510_LargeIn aerospace Clark points out that the UK now has one of the world’s most capable unmanned aircraft systems test and evaluation facilities in the West Wales UAS Environment at Parc, Aberporth. In automotive he refers to the substantial investment under way as part of the Automotive Industrial Strategy with significant public funding. The Government has also invested £20m in four new Centres of Doctoral Training in RAS. He suggests that the UK has major potential to benefit from the growth in global markets in industrial robotics, healthcare robotics, intelligent transport and automated farming.

It is important to be realistic about the competitive environment for this industry. Half the 24 teams in the finals of the US’s DARPA Robotics Challenge in June 2015 came from the US and 9 were Asian. Only three were European – 2 from Germany and 1 from Italy. The US industry is likely to benefit greatly from the US’s current military technology priorities where there is a strong drive to increase the US’s global lead. Plimsoll have just published an analysis of 80 firms in the UK robotics sector. Just under 60 per cent of firms get a performance rating of good or better but at the other extreme, over a quarter of the firms are making a loss and ripe for takeover.

In August 2013 Edelman, the global PR firm, noted that robotics progress may be held back by two image issues. The first is the widespread belief that the technology will create unemployment. The second is the consequence of the widespread controversial overseas use of drones by the US. In June of this year Edelman reported that since then, across the globe, the general level of public trust in technology has started a significant decline.

323Also in 2013 the International Federation of Robotics published a study by London based Metra Martech on Robotics and Employment which presented evidence that in practice robotics is creating overall employment increase via the downstream impact of the technology. Manufacturing jobs are also safeguarded by the higher productivity and competitiveness that the technology can bring which helps higher wage rate countries stay in manufacturing. The food industry, the largest manufacturing sector in the UK, is a fruitful application area where the technology is a way of making the workplace safer, meeting more stringent regulations and increasing job quality. In the UK, where the business services sector is now as large as manufacturing, capability in robotics implementation and support will help keep this sector on its expansion track.

The UK strategy covers the reputational dimension explicitly in terms of extending public outreach and engagement, continuing to change public perception and improve understanding of public concerns. A good start was made on this with the Sciencewise study of public thinking on RAS which found that the area where the public must strongly disapprove of deploying the technology is care of the elderly, children and the disabled.

One of the most important attitudinal constraints for the technology in the UK, identified by the All Party Parliamentary Manufacturing Group and confirmed by ABB Robotics, is the lack of ambition in some SMEs and the persistence of short term thinking. There is plenty of help and advice available to these firms on how to boost agility and flexibility via automation but there needs to be a wider appreciation that the utility of robotics isn’t just limited to the large scale long production runs found in automotive.

Further information:

Supply chain word cloudThe forces of global competition are accelerating the pace of new product introduction. As a result OEMs are expecting higher standards of performance from their supply chain. This often leads to a strategic appraisal of suppliers by OEMs to identify the suppliers which are critical to their new product strategy to ensure that they have developed an effective approach to new product introduction.  The rapid rate of innovation is forcing even major companies to upgrade their supply chain management capability as the complexities multiply.

The strength of European advanced manufacturing is based on the strength and depth of its supply chain. One effective approach to supplier appraisal uses VDA 6.3, a process based audit standard for evaluating and improving a manufacturing organisation’s processes consistent with ISO9001 and customer specific requirements in the automotive industry. The standard was developed by the German automotive industry and can be used for both evaluating potential or existing suppliers and for internal assessments. Industry Forum provides training and support in the use of VDA 6.3.

For a broader global perspective, the leading US professional association for supply chain and operations management, APICS, a not-for-profit international organisation is a premier global provider of research, education and certification programs for supply chain excellence, innovation and resilience.  APICS has over 41,000 members and more than 250 international partners including Industry Forum.  Last year APICS merged with the Supply Chain Council who developed the cross-industry standard for supply chain management, the Supply Chain Operations Reference (SCOR) Model.   In May 2015 it was announced that APICS would merge with AST&L, the professional organisation for transportation and logistics. The merger extends the APICS’s end to end supply chain body of knowledge in line with the overall global supply chain trend for greater integration.

CogsThe SCOR model helps users communicate and improve supply chain management practices within and between all interested parties in the extended enterprise. The model extends from the supplier’s supplier to the customer’s customer. It is based on three pillars covering process modelling, performance measurement and best practices.  The process model identifies six distinct processes – Plan, Source, Make, Deliver, Return, Enable. The performance measurement pillar offers 150 key indicators.  All best practice examples are current, structured, proven and repeatable.

The SCOR approach involves setting a suitable scope for the improvement program so that it supports the overall business context.  The project team needs to be assembled with care to make a balanced team, ensuring that members have problem solving experience. The initial data collected can be benchmarked against a SCOR database. A gap analysis enables the most promising areas of opportunity to be identified so the problem solving projects take place within a sound strategic framework. More detail about SCOR can be found in Peter Bolstorff’s book, Supply Chain Excellence.

An effective way to build up a firm’s capability to create an effective supply chain is through the APICS Certified in Production and Inventory Management (CPIM) programme. It focusses on an organisation’s internal operations taking an in-depth look at the production and inventory activities within the internal operations of a company providing a comprehensive view of materials management, master scheduling, forecasting, production planning and much more. To date, over 100,000+ professionals are CPIM certified. To earn the APICS CPIM designation, operations management professionals must successfully pass five exams.  These are process orientated topic areas providing participants with the best possible educational assessment and knowledge base:

  • Basics of Supply Chain Management: The basic concepts in managing the complete flow of materials in a supply chain from suppliers to customers. Supply chain concepts are introduced and basic terminology emphasised, as are relationships among activities in the supply chain.
  • Master Planning of Resources: Demand management, sales and operations planning and master scheduling are examined in-depth.
  • Detailed Scheduling and Planning:  Inventory management, materials requirements planning, capacity requirements planning, procurement and supplier relationships.
  • Execution and Control of Operations: The principles, approaches and techniques needed to schedule, control, measure and evaluate the effectiveness of production operations.
  • Strategic Management of Resources: Strategic planning and implementation and a look at how market requirements drive the resources and processes of an organisation.

APICS_Logo_PMS7462An APICS CPIM qualification will provide individuals with functional knowledge of production and inventory management so that they can predict outcomes more accurately. They will be able to improve efficiency across the processes of their organisation’s supply chain and increase profitability by optimising their organisation’s inventory investment. In this way the ROI on systems and technologies can be maximised.  Consequently, achieving CPIM means greater confidence and industry recognition with accelerated career development and better employment opportunities for the individual getting the qualification.

From an organisational standpoint the benefits of CPIM include creating a common understanding, vocabulary, processes and frameworks within their organisation to address their supply chain challenges and opportunities plus building the capability to streamline operations from a strategic perspective including the tools to manage global supply chain activities effectively where suppliers, plants, distributors and customers are located around the world.

Industry Forum is providing a full programme of courses leading to the APICS CPIM qualification using their in depth experience of supply chain development in both the automotive sector and other sectors such as aerospace, industrial products, electronics and medical devices. This expertise includes many projects working across a whole supply chain from OEM down to the lower tiers.

 

Further information:

automotive_council_uk_research_grantsThe success of car making in the UK is now widely recognised with the stream of good news stories continuing into 2015. The situation in the UK supply chain has not been so widely publicised but a recent report from the Automotive Council by Phil Davies at BIS helps put this right. Davies concludes that good progress is being made in bringing automotive supply back to the UK from overseas and that the activities of the Automotive Council have been important in bringing this about.

Changing assessments of risk are a significant factor. A recent study by Deloittes  predicts that automotive suppliers who get risk management right will be more competitive, more profitable and less likely to encounter the threat of disruptive recalls with serious financial consequences. Risk management continues to rise up the strategic agenda of OEMs and this makes supply chain proximity is an increasing priority for vehicle manufacturers.

Back in 2011 Matthew Holweg of Cambridge University had shown that around 80 per cent of all component types required in vehicle assembly could in principle be produced in the UK. In fact, the volume of UK supply chain business increased from £11.8 billion in 2009 to £15.9 billion in 2013. In 2014 the turnover of the parts manufacturers expanded more rapidly than that of the car manufacturers and so it is likely that the share of their purchasing which goes to UK firms is now increasing after a long period when the trend was in the other direction.

The Automotive Council was set up in 2009 to strengthen the links between government and industry and is a model which has been widely adopted by other sectors. This led to the formation of the Automotive Investment Organisation in 2013 to make the case for overseas investment in the UK supply chain.  10,000 new supply chain jobs as a result of inward investment from overseas have been created in the two years to April 2015.

iStock_000025724739XXXLargeThe Coalition’s Advanced Manufacturing Supply Chain Initiative has supported 48 individual supplier projects in the automotive sector and nearly £90 million investment has been secured. The investment goes into capex, R&D and skills and so far more than 1200 jobs have been safeguarded. There are a number of projects in development.  In addition the Employer Ownership Automotive Supply Chain Project has bought a further £20m government funding for skills development.

Davies’ analysis highlights the importance of well-designed business to business communication in achieving strategic business goals for the supply chain.  He finds that SMMT ‘Meet the Buyer’ events are effective and there should be stronger efforts to communicate with lower tiers in the supply chain. He concludes that despite the efforts so far which have clearly bought excellent results, there remains an information failure where buyers and sellers are unaware of what each other has to offer, despite the range of new communication channels now available in the digital realm. These findings are particularly important given the expansion opportunities that exist elsewhere in the UK transport equipment supply chain cluster such as aerospace and railway equipment where significant development programmes are under way.

In 2014 BIS published a study of how good practice in industry and government could strengthen UK supply chains.  It highlighted major business challenges where the evidence shows that supply chain collaboration produces results. For example, supply chain collaboration can solve problems in skills, finance, innovation and supply chain efficiency, balancing the whole supply chain.

A report in 2014 by the All Party Parliamentary Manufacturing Group – Making Good,  A Study of Culture and Competitiveness in UK Manufacturing –  developed the theme of effective communication for strategic change. It concluded that there is still too much reluctance on the part of owners and managers in UK manufacturing to engage with the kind of support packages and business development programmes that would boost business competitiveness via innovation, automation, skills, exporting and long-term financing. The Group recommends that politicians need to focus on changing the overall business culture and promoting the long-term attitude changes required. They issue the stark warning to the new government  it would be disastrous if the result is a change in the rules of the game. A sustained cross-party approach is needed to press home the key messages.

In the robotics industry, ABB Robotics have endorsed the All Party Manufacturing Group Study highlighting the importance of effective supply chain communication in boosting UK productivity. Apart from the automotive sector, the UK lags international competition in the use of robots as a means of getting better value added per person.  ABB and other robot manufacturers know they must convince manufacturing SMEs to invest and to abandon the prevailing approach identified in the Parliamentary Group study of ‘make do and mend’.

Robot arm in a factory working for the humansABB’s own research shows the UK SMEs lack the skills and resources to use robotics confidently. ABB tackle this by demonstrating the benefits that robot investment has brought elsewhere to SMEs in competitor countries and showing how robot investment can produce a rapid return. They endorse the Parliamentary Group’s stress on the need for a consistent long term policy framework. This should cover a much better integration of industrial and educational strategies.

Improving supply chain collaboration is a priority across major economies, including for example in the US Defence Industry. In April the Pentagon have released Better Buying Power 3.0, the latest iteration in a strategic long term drive to improve defence acquisition and supply chain collaboration. Under earlier iterations, the US Navy piloted a Superior Supplier Incentive Program and this approach is to be adopted by other services.

To achieve the US’s strategic goals, defence acquisition has to integrate inputs from many perspectives, balance competing needs and satisfy different stakeholder requirements.  This means that more technically qualified program leadership is needed with proven competence in terms of experience based standards. Stronger partnerships between different communities are also required so that emerging threats are spotted earlier and effectively countered more rapidly.  Just as in ABB Robotics’ analysis, the Pentagon see the need for continued efforts to promote technical education right the way across the defence supply chain.

The key point from all these different initiatives and studies is that better supply chain collaboration means a long term strategic commitment involving multiple stakeholders delivering consistent messages, particularly to smaller firms at the lower levels in the supply chain. The importance of this approach is the way it delivers real and tangible results as the world becomes more uncertain and risks proliferate.

Further information:

Concept of skillThis year Bosch, the global electronics firm who are a major player in the automotive supply chain, are recruiting nearly 80 engineers in the UK as part of a much larger worldwide expansion. A spokesman explains that as connectivity expands in every business sector from mobility to industrial technology, the importance of software does too. This is driving their worldwide demand for more engineers.

A survey of the UK labour market in March 2015 by the Recruitment and Employment Confederation finds that salaries are rising quickly across a number of sectors. The most sought after categories are engineering and financial. According to the chief executive of the Confederation increases in starting salaries are being driven by skills and talent shortages .

In the USA, The Manufacturing Institute in Washington DC has completed a forward look at the recruitment needs of the US manufacturing sector, working with Deloittes with a survey of 450 firms. The results suggest that a major skills shortfall is emerging in US manufacturing.  It threatens the sector’s ability to meet customer demands, its ability to increase production and its ability to implement new technologies and raise productivity. A major factor is the retirement of the ‘baby boomer’ generation coupled with the difficulty of attracting suitable quality younger recruits to the sector.

The forward look proposes the introduction of major programs involving a wide range of stakeholders. The sector as a whole must communicate with the younger generation how much it presents viable career options. Clear competency models are needed coupled to role based skill requirements as part of major training and talent management strategies. The industry must pursue high performance team working supported by high performance management.

AIP-logoIn the UK, the automotive sector has come together with other key players to form the new Automotive Industry Partnership, a similar approach to that proposed in the US by the Manufacturing Institute.  It aims to inspire the next generation of automotive engineers and technicians, create new routes into automotive careers and increase skill levels in the industry.  The Automotive Industrial Partnership consists of the UK’s largest automotive employers – Aston Martin, Bentley, BMW, Ford, General Motors, GKN, Honda, Jaguar Land Rover, Nissan and Toyota – as well as SEMTA and SMMT. It is estimated that by 2020 at least 50,000 jobs in the UK automotive sector will need replacing, with skills priorities in strategic advanced technologies linked to increased connectivity, advanced propulsion and lightweighting .

Automotive Industry Partnership initiatives include:

  • Supporting the development and roll out of robust and high quality new world class Apprenticeship Standards, with the development of Trailblazer Apprenticeships in seven key areas
  • Piloting a range of programmes to attract more work ready new entrants to the sector, including giving 4,500 Year Six students an experience of working in the industry through a one day production simulation and taking on 960 11-16 year old Industrial Cadets, to develop vital industry skills in team working, communications and problem solving over a six day programme
  • Providing a route to work for 19+ year olds, with a 15 day programme offering vocational training and simulated work activities designed by their potential future employers
  • Assessing functional and employability skills leading to further work experience at a host company, helping young people with little or no workplace experience and vocational skills on a route to possible future apprenticeships
  • In depth research to establish automotive industry employers’ current and future skills needs
  • Developing industry approved high quality learning and development solutions that are relevant to job roles across the whole industry
  • Formally accrediting quality assured training organisations to deliver industry approved frameworks, qualifications and programmes
  • Upskilling the existing workforce and retraining and recruitment initiatives to bring new talent to the industry, which will benefit large manufacturer and SME supply chain employers
  • Attracting 10,000 apprentices and 2,000 graduates by 2018

iStock_000039287072MediumLooking further ahead, Nesta, the UK national innovation think tank, have just published the results of a survey of young people’s opportunities for and attitudes to digital creativity, entitled Young Digital Makers. It starts with a recent House of Lords report on digital skills which warns that there is a lack of skills in the UK in making with technology which means that with digital business developing so rapidly there is a serious risk that the UK could be left behind.

For Nesta, digital making involves a range of skills and understanding based on the idea that learning about technology should be based on making things with it. Nesta have found that face-to-face interaction with others is a vital part of developing learning in practical activities and they have focused on organisations that create that kind of opportunity.

Nesta have found that digital making gets strong support from parents:

  • 89% think it is a worthwhile activity
  • 84% think it is important for careers and jobs
  • 74% would specifically encourage a career in digital making
  • 99% think computing should be taught in schools
  • 53% have bought something to help children do digital making

But only 12% are able to signpost children to online or face-to-face opportunities.

There are important gender differences in attitudes to digital making. 17% of boys use digital making as a way of making money whereas only 9% of girls do.  Nearly half the boys surveyed find digital making technology interesting whereas only a third of girls do.

Nesta conclude that young people need to be supported as digital makers across the UK, not just in London where there is a concentration of opportunities for them.  Nesta have also found that there aren’t enough technology professionals to work with the broad mass of young people on digital making but he survey found plenty of examples where non-professionals facilitate digital making with suitable resources and support. They want clear pathways to excellence to grow young people’s ambitions as digital makers and help them fulfil their potential in and out of school.  Nesta are currently planning the next step for the UK digital making programme.

Further information:

 

Advanced Manufacturing is a major competitive strength in the European Union according to a study published in February 2015 by the Key Enabling Technologies (KETs) Observatory. The Observatory’s role is to provide national and regional policymakers with information on KETs for European competitiveness by comparing the EU with North America and East Asia.

A computer controlled automated manufacturing processThe Observatory finds that Europe retains the leading global share in advanced manufacturing exports and patents. This is based on the capability to integrate a number of different technologies into manufacturing processes and the associated equipment. This capability has to be linked to a deep understanding of the challenges and requirements of customers and the markets that they serve. This ability to produce usable and relevant advanced manufacturing equipment helps safeguard Europe’s position ahead of emerging economies. But, the global export share in advanced manufacturing of East Asia is rising steadily and is well ahead of North America, so there is no room for complacency about Europe’s lead.

From a UK point of view, the customer sectors for advanced manufacturing include the thriving transport equipment manufacturing sector which covers Automotive, Aerospace and Rail. In terms of advanced manufacturing patents, in 2011 the UK ranked third in Europe behind France and Germany which had a 20 percent share of European patents. In advanced manufacturing production in 2012 the UK ranked fourth behind Germany, Netherlands and Italy but ahead of France.

One of the most immediate impacts of advanced manufacturing is a dramatic fall in the costs and timescale for new product development thanks to the development and spread of low cost additive manufacturing equipment which is extremely effective in prototyping. This is one of the many current developments in digital business which favours start-ups and SMEs. But a prototype, however rapidly it is produced, is of limited value unless it is in a state where it can be scaled easily in manufacturing.

Start-ups often use contract manufacturing with a low cost emerging economy supplier. This strategy carries plenty of risks such as the obvious lack of control involved and the need to establish an excellent relationship with the manufacturer from a different business culture. Other potential risk areas include quality, securing IPR, capacity, agility and flexibility. There is also the question of financial risk management particularly as this is the stage in a start-up’s development where external finance often enters the equation. This complex of issues is high on the agenda in the growing accelerator movement in the UK and elsewhere whereby new firms are helped to develop effective strategies for sustainable growth.

Bottle industryThe largest UK manufacturing sector in employment terms is the Food and Drink sector. It is the second largest in Europe and only slightly smaller than the German sector. It has been steadily expanding its share of export markets. In 2013 the sector developed 16000 new products – between 2 and 3 for every firm in the sector. It is supported by an active UK contract manufacturing and packaging industry which is spread across the country with particular concentrations in the North West and the Midlands. The perishable nature of the goods is an obvious driver for an indigenous contract manufacturing capability.

In advanced engineering in recent years, global majors based in the UK have also become interested in building up local supply because of the requirements for rapid new product development. This theme has been picked up by the CBI and at the end of February the Coalition Government published a national plan for developing manufacturing supply chains.

The opportunities for increased UK manufacturing supply are substantial. The plan estimates that UK firms currently satisfy only half of the UK demand for manufactured components. The plan identifies a number of new opportunities:

£5bn potential extra automotive sourcing opportunities
30,000 potential jobs in the offshore wind supply chain by 2020
A new shale gas supply chain which could be worth £15bn by 2030
£4.7bn new value added from nuclear new build supply chain

To develop these opportunities, manufacturing supply chain firms should combine product and manufacturing process innovation with business process and systems innovation – a route to an increase in overall productivity. New capital equipment as a source of new technology is a good starting point. Good support and advice is needed for smaller firms to get this investment right.

One source of support and advice is the Manufacturing Advisory Service (MAS) which was started by the previous government and extended by the Coalition. MAS run a quarterly barometer survey and the latest results (for the last quarter of 2014) show that 54% of manufacturing SMEs surveyed predict that they will increase investment in new technology in the first half of 2015. This is the highest figure since the barometer began at the start of 2012 when the figure was nearly 20% lower.

It remains to be seen how the manufacturing supply chain plan survives the 2015 election but the extent of industry support for this approach, plus the scale of the opportunities available, increase the chances that continuity will prevail. An important factor in the success of manufacturing sectors such as Automotive and Aerospace has been a degree of policy stability which helps create a favourable investment climate and encourages the development of positive business relationships in the supply chain.

Binary code backgroundThe impact of the digitalisation of the whole business domain is being felt by global manufacturers as well as smaller firms in the supply base. One important dimension is the development of a global manufacturing footprint that is capable of operating effectively throughout the whole product life cycle. In today’s global markets demand can fluctuate significantly and different manufacturing approaches will be suitable for different patterns and stages of demand. A global approach to manufacturing means a global approach to managing supply. The performance of suppliers in the UK is increasingly compared with competition from across the globe which adds to the pressure for the UK manufacturing supply base to set ambitious goals for performance improvement. These pressures are set to intensify.

Such conditions have been present in Automotive manufacturing supply chains for some time. SMMT Industry Forum has extensive experience in effectively supporting manufacturing organisations, across multiple sectors, understand and improve capability and capacity through a combination of expertise, insight and best practice.

Further information:

 

British High Speed TrainSupport for the UK transport equipment supply chain now includes the UK Rail Supply Group which has been given £500,000 to help rail suppliers secure new business. £38bn is being invested in the UK rail infrastructure over the next fifteen years. Many other countries have similar investment plans and so there is a series of great opportunities for the UK sector.

The Rail Supply Group is led jointly by Vince Cable, Terence Watson who is president of Althsom UK and the Transport Secretary, Patrick McLoughlin. It represents a sector with some 3,500 firms employing 80,000 people and value added of £7bn. The sector will be heavily involved in HS2, further work on Thameslink and Crossrail, London Underground upgrades and major electrification projects.

The Rail Supply Group Council have identified five priorities for increased competitiveness covering exports, inward investment, innovation, skills, focused support for SMEs and HS2.

On the innovation front, last November the Rail Vehicles Powertrain competition was launched with a budget of £4.4m. The funding is for novel technical solutions making self-powered rail vehicles more energy efficient.

In addition, last month the £4m COMPASS competition was launched as part of the development of new systems which will allow trains to keep moving when signal systems fail. This month a £6m competition is being launched to help de-risk potential step change innovations.

2014 saw the CBI develop its industrial strategy by highlighting the need for the UK to strengthen its manufacturing supply chains. The report ‘Pulling Together’ identified a number of supply chain development priorities including increased innovation capability and higher standards of quality and service. The upside potential is estimated at an extra 500,000 jobs and £30bn in value added by 2025. The need to rebalance the UK economy is widely accepted and strengthening manufacturing supply chains is one of the best ways of achieving this.

The drivers for majors in the UK to seek improved local manufacturing supply chains include risk analysis of extended supply chains and the high priority of innovation strategy with reduced product development lead times. This amounts to a strong case for reshoring supply – a trend which is evident not just in the UK but across Europe and North America.

Offshore wind, automotive and civil nuclear are identified by the CBI as sectors with substantial growth potential.

While cost remains an important factor in supplier selection, innovation and service related criteria put UK suppliers in a much stronger position than hitherto.

Modern automatic factoryStrengthened manufacturing supply chains mean more healthy employment ecosystems. Manufacturing supply chains involve a diversity of activities with a broad range of jobs at all skills levels.

In the UK R&D expenditure is still too low as a share of national economy compared with many of our advanced competitors. China’s R&D spend has been rising steadily and has recently overtaken the UK. In addition UK’s spend is still too heavily concentrated in larger firms compared with smaller firms especially those in manufacturing supply chains.

In the same way smaller firms at the lower level in the supply chain are particularly vulnerable to shortages in technical and managerial skills which seem to be developing as the labour market continues to expand.

In addition to the sectors mentioned so far, the supply chain opportunities arising from growth in global aerospace are also substantial. Just under a year ago the aerospace trade association, ADS, published a report on growth prospects. Emerging aerospace markets include Brazil, Japan, Mexico and South Korea. Major existing markets for UK aerospace include China, USA, Canada and India and these will continue to be important.

The Aerospace Growth Partnership has identified investment priorities for the development of these opportunities – new technology, skills and supply chain enhancement.

The AGP Supply Chain development working group seeks to remove barriers to growth via collaborative technology development, improved access to finance, increased performance building on the Supply Chain 21 programme, advanced manufacturing capability and access to new markets.

The importance of this kind of long term sector planning and development is highlighted by the challenges faced by European machinery manufacturers, another industry grouping where competitiveness depends on a rich supply chain. Chinese machinery makers have now developed their capabilities so that they can compete with European firms in both domestic and emerging markets. China’s share of the machinery global market increased from 23% in 2008 to 37% in 2012. Besides cost advantages the Chinese have used process innovations to boost their productivity and efficiency. The Chinese have also benefited from increased demand in rapidly growing economies for equipment which is cost competitive and has sufficient performance rather than the advanced customisation which European manufacturers offer.

Large modern storehouse with some goodsBoston Consulting Group suggests that European firms need to identify the market sectors where the catch-up barriers for the Chinese are high and reinforce their existing competitive advantage there.

Where the catch-up barriers are low, European firms need to match the cost innovation strategies of the Chinese by applying similar techniques such as value engineering.

Medical equipment and technology is an area where Europe faces a particularly strong competition from the Chinese. Here, European firms should exploit their inherent strengths and consider acquisition of some Chinese firms and strategic alliances with others.

The UK automotive supply chain has grown as the overall automotive manufacturing sector has been expanding with greatly increased investment and R&D spend. But, while this is encouraging, there is plenty of scope for further supply chain development. The CBI is right to think in terms of a ten year program to enhance supply chain competitiveness.

The Automotive Council has made the supply chain a priority area and Industry Forum has been working on this programme with funds from the Advanced Manufacturing Supply Chain Initiative (AMSCI) to help bolster the efficiencies of the UK’s automotive supply chains.

With the general election in May 2015 the UK Government policy dimension of supply chain development will enter a period of uncertainty. Hopefully with so much support across manufacturing, supply chain development will remain a priority for whatever government emerges.

The work that has already been done in automotive, aerospace and rail plus the support of the CBI should all help make a strong case for further development underpinned by government support. It is no exaggeration to say that the UK has the potential to develop a powerful national transport industries cluster fully internationally competitive exploiting synergies in key areas like relations with higher education and skills supply and employment.

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An important success factor in successful New Product Introduction is the attitude of consumers in the target market. The internet represents new ways of informing potential buyers and stimulating purchase decisions. To make the most of the net knowledge of attitudes in the target group is vital.

Internet connectionMckinsey reports that in China there are 632 million internet users currently – compared with 277 million in the US. In both domestic markets internet sales account for around 6-8 % of retailing. The Chinese e-tailing market at USD 295bn is currently larger than the US at USD 270bn.

Until recently Chinese manufacturers were thought to be lagging behind firms in the West in internet use. McKinsey senses an important increase in the rate of uptake of these technologies by Chinese firms.

This should mean a surge in productivity and better access to finance for Chinese firms. Besides better richer communication with the market, the internet globally is helping smaller, potentially disruptive firms, enter market and in some instances grow rapidly. Chinese firms can be expected to benefit in this way.

McKinsey anticipate that the innovative capability of Chinese firms will also progress rapidly. Examples include mobile phone maker Xiaomi who is developing net based user centred design capability – also Lenovo who have moved into crowd-sourcing new product ideas.

Mckinsey’s analysis ties in with important new work by Peter Williamson at the Judge Business School in Cambridge, UK, following on his study of the Chinese strategy of globalising by cost innovation.

In his latest work he finds that China has moved beyond cost innovation to develop rapid innovation capability by integrating technologies.

By Western standards, Chinese innovation is often unorthodox – for example designing a fast computer by linking standard chips.

Overall, the Chinese are industrialising innovation with an approach shaped by their relative lack of PhDs. They are using the classic principles of Fordism to create innovation processes which take place in a lot of small steps using trade school graduates.

iStock_000052709030XXLargeThey are also pushing the boundaries of simultaneous engineering. Lenovo have been successful with this approach as the classic waterfall sequence isn’t needed with a modular design with well specified interfaces like PCs. Pearl River Pianos have also moved beyond sequential development to reduce cost and compress time.

The Chinese have embraced the fast iteration approach typical of the Lean Startup methodology. Some Chinese markets support this approach well because there are customer segments who are happy to buy innovative products and then provide fast feedback on the product aspects where more work is needed. It is becoming routine to launch platforms and let users suggest what to add. This approach has been used effectively by medtec firm, Mindray, for example.

Like the Tech City firms in London the Chineses have adopted flexible horizontal organisation but this is coupled with a strong vertical hierarchy which sets ambitious goals for each team. These goals often cover extremely rapid production scale up for new products.

All in all, Peter Williamson believes the Chinese are emerging at the cutting edge of global management practices. He suggests that China is now taking a global lead in business models in the way that Japanese manufacturing did in the 1980s.

In summary, China’s contribution is in building management systems that can deliver accelerated innovation to keep pace with a fast-changing domestic consumer market. In this way a distinctive Chinese management style and a Chinese way of doing things are rapidly developing.

Clearly it would be a mistake for UK firms to neglect these developments. Major engineering firms in the UK have been reshoring their supply chains to better manage NPI. UK supply chain firms often have to upskill to meet expectations when this happens.

There is some evidence now that big pharma is actively seeking collaboration with Chinese firms, in part to get access to their new methods and approaches.

Big pharma have deep experience in managing their development and innovation processes as you would expect from the UK sector which spends most on R&D. In other sectors many firms need to prioritise improving their understanding, management and development of their NPI process. This where SMMT Industry Forum’s insight, experience, planning and training can ensure smooth new product introductions and a profitable Return-On-Investment. For more information on SMMT Industry Forum’s NPI capabilities, please visit the Industry Forum website.

Groups of peopleThe big lesson from the Chinese case (apart from the importance of the internet) is the way that they are actively re-engineering their NPI systems to suit their circumstances both in terms of skills supply and market expectations. UK firms should make this active and explicit management of the NPI process a priority fot 2015. This is likely to include adapting it to suit both their capability and skills supply plus working out the best way of enlisting customer input and co-operation.

This work is likely to highlight the importance of suppliers in successful NPI. The judgement of whether a potential supplier will be an asset from the NPI angle is something many firms struggle with. SMMT Industry Forum can help with this via its training offering for the VDA 6.3 Supplier Audit.

As Chinese GDP growth falls back to more normal levels it is easy to misread this headline as a weakening of the competitive threat. While a major factor in the GDP growth rate decline is a drop in the overall level of investment, the recent studies by Mckinsey and Williamson show that investment is being concentrated on projects with strong growth opportunities. This means that UK firms must adapt their strategies accordingly. Getting a better grip of NPI should be high up the list of priorities for the UK in 2015. Industry Forum is ready to help.

 

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The process approach underpins a vast amount of contemporary business management and strategy whether this is the improvement of existing business processes or the introduction of new processes in support of innovative products and/or services.

vda6.3-thumbThe Audit Standard VDA 6.3 is a standardised procedure for the conduct of process audits to assess organisational performance and capability for their product realisation processes. The standard is intended to complement and reinforce widely adopted standards such as ISO 9001, ISO/TS 16949 and other sector specific quality derivatives of ISO 9001 such as those for aerospace and medical equipment. Such audits are a vital element in determining whether an organisation/supplier has the capability to meet the needs of a purchaser. Getting this judgement right can make all the difference to the success of a project.

VDA 6.3 may also be used to good effect internally within an organisation. In this case, the goal of the audit is to analyse processes throughout the whole product life cycle so that risks and weaknesses are detected both in the processes themselves and in their interfaces. The audit report can then form the basis of an improvement plan.

VDA 6.3 was developed by the Verband der Automobilindustrie (VDA) which is the national association for the German automotive industry. They devised VDA 6.3 as a unique procedure beyond any comparable approach worldwide. It was introduced in 1998 and substantially revised in 2010. The revision has been prompted by an appreciation that the time between the formulation of the concept for a new product and its manufacture is becoming increasingly shorter. As a result, various areas within companies have to operate in parallel to an ever greater degree which places greater demands on organisations, their processes and their staff.

The standard now covers:

  • Potential analysis – to assess a new supplier, new location or new technology
  • Project management
  • Planning the product and process development
  • Carrying out the product and process development
  • Supplier management
  • Production
  • Customer support, customer satisfaction and service

Risk analysis is a major element in the preparation for an audit. Besides the process inputs and outputs, risk analysis must consider:

  • How does the process operate?
  • How is the process supported by various functions and other areas of the organisation and by direct personnel?
  • What material resources are required to carry out the process?
  • What level of effectiveness is being achieved by the process?

The outcome of the VDA 6.3 audit is determined through a quality matrix and is allocated one of three values:

A – Quality-capable
B – Conditionally quality-capable
C – Not quality-capable

Within the matrix each of the six elements from project management to customer support is assessed. There are detailed rules for deriving the outcome value from each of the stages. VDA 6.3 auditing is a skilled process and accordingly VDA 6.3 sets competence requirements for auditors.

customer serviceFor the six process elements, from project management through to customer service, the standard provides a questionnaire which covers the minimum requirements, examples of requirements and proof of compliance plus reference information. The questions are closed questions for the auditor to answer within the audit but to get the answers the auditor must ask open questions, based on the risks identified.

For example, on project management there are seven questions including: Is the project organisation established and are tasks and authorities specified for the team leader and team members? The minimum requirements include having a project management process with authorities within the project team clearly specified with all expertise provided for implementation.  At the other end of the life cycle, six high level questions cover customer support, customer satisfaction and service. The first question is ‘Are the customer’s requirements for the Quality Management System, product and process satisfied?’  This is a broad question covering, amongst other things, the organisations quality management certification status, supply of spares for products moving outside series production, packaging meeting customer requirements, product requalification requirements and conformance with legislation.

The potential analysis is part of the sourcing process and examines potential suppliers. It evaluates the experience of the potential supplier in creating similar products.

In conclusion, VDA6.3 is an approach that can be used by any manufacturing organisation to help drive process improvement. Although developed by the automotive industry if is not exclusive to automotive organisations.

iStock_000025724739XXXLargeIndustry Forum, as part of the SMMT, are well placed to deliver training and support on VDA 6.3. For individuals with no previous experience Module A which gives an overview of the requirements of the Process Audit and its underpinning methodology, is the best place to start. Module BII is internal auditor training. This module enables delegates to understand the structure, content and scoring evaluation system of VDA 6.3. They will be able to apply these elements to their own process areas. Module E incorporates Module A, BII and Module C (the exam module). This qualifies delegates to undertake VDA 6.3 audits externally (at suppliers).

The Confederation of British Industry (CBI) has just published an influential report, ‘Pulling Together’, that shows that to convert the current sense of optimism in the UK manufacturing sector into sustainable success we need stronger supply chains in the UK. In this way growth can filter down to all manufacturing sectors (and beyond) and into all the regions of the UK. Companies across the world are re-evaluating their supply chains. Mastering process audit disciplines and using the results as a powerful improvement plan are an excellent way for UK businesses to benefit from these current trends.

SMMT Industry Forum is the only UK approved training provider licensed and qualified by VDA to deliver sanctioned VDA 6.3 training. For more information visit the Industry Forum website VDA section or call the VDA Team on +44(0)121 717 6600.

Industry Forum provide an overview of VDA 6.3 Process Audit

 

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Value added is part of the productivity ratio and productivity matters because growth in productivity is the only sustainable way of increasing GDP. It is widely recognised that the UK has shown some puzzling trends in productivity since 2008. This is now seen as part of a much broader global situation.

iStock_000038573336XXLargeAccording to the Conference Board, worldwide productivity growth weakened for the third year in succession in 2013. In 2010 global labour productivity growth was 3.9 per cent and by 2013 it had dropped to 1.7 per cent. Different factors are thought to have been operating in emerging economies and in the advanced economies. There is some hope that progress in the latter in 2014 may help stabilise the global decline.

The UK productivity puzzle has been studied extensively and certain key points have been identified. Falling productivity has been concentrated in financial services, utilities and the extractive industries which all face special circumstances.

The majority of the UK’s economy is the service sector where historically productivity growth has been weaker than in manufacturing. McKinsey have just recirculated a 1992 report which examines the variation in advanced economies service sector productivity growth. For example, McKinsey found in the case of the US that service sector productivity growth did not mean lower service sector quality. The report concludes that competitive pressure is an important driver for service sector productivity growth.

This is relevant to the UK with its high share of GDP taken by the service sector. Many successful countries including Switzerland, Singapore and Germany have a much higher manufacturing value added per capita than the UK. The UK’s underlying position in labour productivity means an absolute level which remains significantly behind the US and several European countries. Even before 2008 and the emergence of the productivity puzzle, the UK faced a major productivity challenge.

In the last decade UK policy analysis was mostly framed in terms of five drivers for productivity growth- competition, investment, innovation, skills and enterprise. The ONS has done a lot of analytical work within this framework.

In UK automotive manufacturing, investment in 2012 at £1.7bn was one third up on the previous peak in 2008. R&D expenditure was even higher at £2bn in 2013 – another all time record. Sector value added in 2013 at £13.6 bn up 36% on 2008. In the vehicle manufacturing sector, 2013 total value added was over 50% higher than in 2008. The automotive manufacturing gross surplus – that is total value added less labour costs – in 2013 reached £7.5bn, up nearly 80% on 2008.

In 2013 the auto sector generated almost 10% of the UK’s total manufacturing gross surplus.

iStock_000051356406XXLargeThere is a sharp contrast therefore between the general trend in the global economy and the specific situation of UK automotive sector. The key point is that the global economy is not homogenous. The brands that are at the heart of the UK auto sector, and the product performance and service quality that now underpin them, are in tune with the values of the consumers in the parts of the global economy that are vibrant and dynamic.

The depth of the sector’s value adding capability is evident when the 80% increase in sector gross surplus between 2008 and 2013 is contrasted with only 26% increase in vehicle manufacturers’ purchases over the same period. This means that even though a high proportion of vehicle manufacturers’ total turnover is taken by bought in goods and services the overall business models are very effective in generating value added and gross surplus.

A high proportion of the UK automotive sector is part of global corporations headquartered outside the UK. Securing continuing large scale investment and R&D outlay means competing with other locations across the globe within the same group. A good record in the generation of gross surplus is a major plus point in this context. This surplus must in the first instance fund the depreciation charge on past years’ investment and also contribute to the global financial management within the corporation in an industry where any sort of competitiveness requires large R&D and investment budgets. .

iStock_000025724739XXXLargeThe automotive supply chain within the UK like many other UK manufacturing sectors, is a mix of global and locally owned firms. Vehicle manufactures have been encouraging the supply chain to invest and develop modern capabilities to support their programmes in this country. There is evidence of a positive response in that the segment of the supply chain that is easily identified with ONS data doubled the level of annual capital expenditure between 2008 and 2012.

Vehicle manufacturers’ purchasing also involves other manufacturing sectors beyond the segment ONS specifically identifies. The business services sectors also benefits, especially the design engineering sector.

The CBI recently published an important report on the future of UK manufacturing supply chains in October. The report anticipates that potentially half a million new manufacturing jobs could be created by 2025. The work was completed in collaboration with A T Kearney. Action is especially needed to boost and R&D and develop the skills base. Higher quality products supported by better customer service are priorities.

Industry Forum was set up nearly 20 years ago as a national initiative based on partnership between major automotive inward investors and the Government of the day. It has brought new capability and skills into the UK industrial ecology and has worked in the automotive, aerospace and other engineering supply chains both nationally and globally. It offers approaches drawn from Japan, Germany and the United States. It is working extensively under the direction of the UK Automotive Council implementing the national sector strategy. We look forward to further deep involvement in developing the potential of UK national supply chains.

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