the uk in 2030 - mark allen group · 2015-07-16 · its work is focused on making machines capable...

The UK in 2030Key Trends for Manufacturing

July 2015

In partnership with

ForewordUnderstanding what the world might look like in the next few decades and taking action to prepare is of fundamental importance if we are going to create a fairer and more sustainable future. It is essential that more organisations think beyond the immediate short term pressures of business to really consider the long term implications of the changes facing the world today. That is why we have developed the Future Insights project – to help UK businesses explore how global forces may impact them and identify the practical actions they can take today to maximise opportunity and minimise risk. Collaboration will be central in driving change and creating the change we want to see. We are grateful to the project partners, Anthesis, Cisco, Lloyds Bank, Pinsent Masons, Walgreen Boots Alliance and WSP for their expertise. We are working with a growing group of forward thinking companies that are considering these issues, working with us to consider what their own personal journey may look like and then sharing their own learning to inspire others. I encourage many more companies to get involved: www.bitc.org.uk/futureinsights.

Stephen HowardChief Executive, Business in the Community

Pinsent Masons The UK in 2030: Key Trends for Manufacturing Introduction

01

Today’s technology, perhaps more than at any time in history, is offering opportunities to improve our lives, our jobs and our productivity. Manufacturers now have new ways to enhance their relationships with their customers and suppliers, and reduce their environmental impact. Developments in artificial intelligence offer the chance to reduce costs, relieve us of mundane tasks and to improve our capability. Although some fear that jobs are at risk, tomorrow’s machines can make us better at what we do, giving us the information and processing power to increase speed to market and improve the match between supply and demand.

This document sets out some of the key developments which will affect the manufacturing sector over the next fifteen years. Technology will be at the heart of these developments, but other trends including resource-related, demography, politics and climate change will also have an impact.

What will be important is how manufacturers and policy makers respond to these changes. In particular, in a globalised and competitive world, where governments are already investing heavily in what is known as Industry 4.0, the UK will need to make sure that it is not left behind. Companies and organisations will need to maximise benefit from connections between people, information and objects to take advantage of tangible

commercial opportunities. With rapid advancements in technology, there will inevitably be an impact on the workforce. Increased automation need not represent a negative scenario, as it could also bring opportunities for augmentation, new skills and the training required to make the most out of process and product improvement.

The leading manufacturers will also need to make their own investments in technology to remain competitive. Developments like the Internet of Things and 3D printing are disrupting traditional business models, and allowing new entrants to seize market share. Traditional manufacturers will need to respond by developing new products and ways of working, as well as developing more collaborative arrangements with their suppliers and potentially with some of the new start-ups entering the market. UK manufacturers may not always be able to compete in the global market on cost but, by embracing innovation, they will be able to open up new options to secure value. Additionally, there will be many opportunities for collaboration and funding, in particular in the USA and China.

Throughout history, successful manufacturers have risen to the challenges posed by innovation and change. In this document we propose a series of approaches which today’s manufacturers must consider if they are not only to survive but flourish.

A new industrial revolution is underway; one that is blurring the boundaries between physical and virtual.

IntroductionDevelopments

like the Internet of Things and

3D printing are disrupting

traditional business models,

and allowing new entrants to seize

market share.

David IsaacPartner, Head of Advanced Manufacturing and TechnologyE: [email protected]: +44 (0)20 7490 6375

02

Technological advances are transforming many aspects of manufacturing, but one of the most significant drivers of change is increased connectivity. It is widely documented that the Internet of Things is opening up a huge range of new markets, products, services and opportunities for collaboration. At the same time, connected manufacturing has the potential to reduce costs through smart factories and more efficient supply chains. • By 2020, 50 billion devices will be networked on the

Internet of Things.1

• Investing in smart factories could boost British manufacturing productivity by up to 30%.2

• The world contains about 1.5 billion large manufactured objects – only 2% of these are currently connected.3

• The value of the global market for connectivity components and services for cars will be €170bn by 2020, five times higher than today.4

• By 2030, connected and autonomous vehicles could create an additional 320,000 jobs in the UK, of which 25,000 will be in automotive manufacturing.5

Possible Responses• Recognise the impact of new entrants effecting

disruptive business models and how technology reduces barriers to entry.

• Explore partnerships to develop new connectivity enabled services, for example car manufacturers linking up with telecoms providers.

• Develop end-to-end connected services including networks.

• Look for acquisitions that can provide access to relevant technology and capability in the Internet of Things.

• Develop systems and products that make effective use of the massive amounts of new data provided by the Internet of Things.

• Explore how connected technology can enhance the productivity of workers and the potential of remote operations.

• Verify proper security measures are in place to manage the increased security risk of connectivity and ensure clarity on data privacy, use and accountability.

• Respond to the opportunities the Internet of Things may bring for consumers to buy direct from the manufacturer.

TECHNOLOGY

Connected ManufacturingManufacturing has become a lot more fluid… There has been a burst of creativity, caused by an explosion in technology, and such technologies being blended to customise products more cheaply and efficiently.

Peter Marsh, Author, ‘The New Industrial Revolution’

1870

1784

First mechanical loom

1 Industrial revolution follows introduction

of water- and steam-powered mechanical manufacturing facilities.

First production line, Cincinnati slaughterhouses

2 Industrial revolution follows introduction of

electrically-powered mass production based on the division of labour.Start of 20th century

First programmable logic controller (PLC), Modicon 084

3Industrial revolution uses electronics

and IT to achieve further automation of manufacturing.Start of 1970s

4Industrial revolution

based on Cyber-Physical Systems

• networking of human beings and smart objects

• convergence of the physical world and the virtual world

• collaboration

1969ToDay

Co

MP

LEX

ITy

03

Beverage Manufacturer Decreases Downtime with a Plantwide Network InfrastructureBeverage manufacturers require continuous production. A leading beverage manufacturer worked with Cisco and Rockwell Automation to establish a unified control and information infrastructure to deliver the speed, uptime and reliability they required across the plant floor and enterprise. The plant-wide network infrastructure has now become the standard for all production plants.

Bosch and the Industrial Internet ConsortiumA collaborative effort between Bosch and two international companies, all members of the Industrial Internet Consortium, is driving forward tool connectivity with the aim of improving quality and efficiency in industrial manufacturing. The first outcome of their collaboration on the “Track and Trace” project is the ability to determine the position of a cordless tool on the shop floor with extreme precision. This positioning information is used to automatically select the correct torque for the respective task.

Open standards are set to enable the seamless integration of industrial power tools used to drill, tighten, measure, and solder into an overall system of networked tools in the future.

This is just one of more than 50 pilot projects on Industry 4.0 at Bosch which will enable people, machines and products to network with one another to become the factory of the future.

Google acquires Deep Mind to secure artificial Intelligence skillsIn 2014, Google bought Oxford University’s spin off company, Deep Mind. The acquisition gave Google access to the capability of 140 of the world’s leading artificial intelligence researchers. Described as the most advanced artificial intelligence think tank in the world, its work is focused on making machines capable of learning things for themselves.

Pinsent Masons The UK in 2030: Key Trends for Manufacturing Technology

Case Studies

Industry 1.0 to Industry 4.0

Source: DFKI.

By 2030, connected and autonomous vehicles could create an additional 320,000 jobs in the UK.

04

Improvements in ICT, consumer responsiveness, automation and additive manufacturing are all increasing the opportunity for manufacturers to develop low cost mass personalisation and customisation of products. In particular, the growing availability of 3D or additive printing is transforming manufacturing and enabling customers to secure individualised services. This creates new opportunities, as well as disrupting traditional business models.

• Consumers in developed countries are prepared to pay a premium of up to 10% for individualised goods.6

• Nissan’s Qashqai vehicle can be made in 24,000 varieties, depending on the choices made about components.7

• The global 3D printing market expected to be worth $16.2bn by 2018 up from $4bn today and the number of 3D printers sold will reach 2.3 million by 2018.8

• The global market for additive manufactured products will grow from $3bn to $100bn per annum by 2020.9 Amazon Technologies, Inc. has submitted patents for an automated process that would allow products to be 3D printed inside a delivery van en route to the customers.10

Possible Reponses• Patent, patent, patent. Protecting IP will matter even

more in this new world.• Embed sensors into goods and create mechanisms

to use that direct feedback on usage to develop more personalised products.

• Use 3D printing to accelerate prototyping and testing which can drastically speed up the time to market and responsiveness to changes in consumer demand.

• Create manufacturing processes which are flexible enough to adapt products to rapidly shifting consumer tastes and trends.

• Develop ways to involve customers in the design of products.

• Understand how to protect IP, charge for products and manage product liability in the world of additive printing.

The potential of personalisationTECHNOLOGY

An interconnected world means opportunities to customise things, to make things tailored to the requirements of the user.

Peter Marsh, Author, ‘The New Industrial Revolution’

05

Speedier Harley Davidson production timeHarley Davidson manufactures more than 270,000 motorbikes every year many of which are personalised to customer needs. The SAP software company helped them create a factory of the future, using the Internet of Things to standardise and simplify numerous business processes and give them better data accuracy. This improved performance across the factory, most dramatically by reducing the delivery time for the production of a motorbike from 21 days to six hours.

CloudDDM – 3D printing inside UPS’ worldwide hub In May 2015, CloudDDM unveiled a 3D printing factory inside UPS’ worldwide hub in Louisville, Kentucky, USA. CloudDDM uses 3D printers to make prototypes and product parts for corporate customers. These customers submit their orders online by uploading a 3D file; and software immediately estimates the price. Orders start printing once a customer enters their payment information. Orders are being turned around in as little as 24 hours.

The first of its kind, this fully-automated facility has 100 high-tech 3D printers running 24 hours, seven days a week. It needs just three employees: one for each of the eight-hour shifts. UPS handles all of the packaging and shipping logistics. CloudDDM’s location and technological strength now gives it around a six hour advantage on its competitors.

Fujitsu and Microsoft: collaborating to improve manufacturing with connected technologyFujitsu has teamed up with Microsoft to use Windows 8.1 Pro and an Internet of Things platform to improve manufacturing by using cloud and connected technology.

The collaboration was developed following a project undertaken by Fujitsu at its Akisai factory in Japan to use sensors and cloud computing to improve the growing of low-potassium lettuce that can be consumed by people on dialysis and with chronic kidney disease. The project applied sensors and computing to closely monitor the chemical composition of the liquid fertilisers used in growing lettuce, which had a production target of 3,500 heads of lettuce a day. The partnership enables managers, engineers and scientists to track data from the sensors monitoring the plants through data pushed from the Azure cloud onto Windows tablets.

Fujitsu is deploying its Eco-Management Dashboard and applying its IoT and M2M capabilities to help simultaneously manage product quality, process efficiency and equipment performance to improve operations and reduce energy costs. This solution can be replicated by other manufacturers and will be an enormous step in helping companies manage and consume data in the right ways, increasing productivity while saving time and money.


Case Studies

CloudDDM

06

Connectivity, more sophisticated sensors, the growth of data storage (especially in the cloud) and powerful analytics are opening up new opportunities for manufacturers. Effective data use can improve the efficiency of factories, enable service-based business models, and allow producers to get closer to consumers and to collaborate across the supply chain.

• The global market for sensors is expected to be $95.3bn in 2015, and up to $154.4bn by 2020.11

• Spending on cloud computing infrastructure and platforms will grow at a 30% a year12 and is currently worth $180bn.

• The total amount of digital data generated in 2020 will be 44 zettabytes.13

• Cloud-based manufacturing solutions can reduce IT infrastructure, maintenance, and lifecycle costs of process improvement projects by 54%.14

• A connected car can process up to 25G of data an hour.15

Possible responses• Use new data analytics and connectivity to develop

smarter factories which can self-diagnose faults before machines fail.

• Secure the capability and skills to analyse big data and use it to understand and respond rapidly to customer preferences.

• Explore new business models to monetise the value of data captured from product usage.

• Understand the legal and regulatory constraints on data usage, privacy and security.

• Use clearer, timely information from the whole supply chain to cut costs and reduce waste.

• Seize the opportunities in the Internet of Things to trade data and secure value from it.

• Prepare for disruptive business models. Understand that moving from prescribed service intervals to maintenance as needed requires new skills, processes and culture.

The power of dataTECHNOLOGY

Connectivity enables companies to deliver services that they previously weren’t able to, and the use of ‘big data’ is of huge value to business.

Cerys Wyn Davies, Partner, Pinsent Masons

07

aluminium Manufacturer gains end-to-end production visibilityOne of the world’s largest aluminium manufacturers wanted the ability to share control network data with its manufacturing execution systems and ERP system in order to maximise production, minimise power consumption and lower the total cost of ownership. It now has single end-to-end networking architecture to integrate production data with information from business applications, while quality of service mechanisms help ensure that critical and time-sensitive information is delivered in real time to the ERP system. As operations expand, the manufacturer will provide important information to supply chain partners and customers, as well as connecting people across locations.

The Internet of Things is increasing productivity in a leading copper mine One of the world’s leading mining companies runs a copper mine in North America, producing 500,000 tonnes of copper every shift. It is applying the connectivity provided by the Internet of Things to manage their operations more effectively. A vast range of data from sensors across the mine is provided on computer tablets to supervisors. This means they can see, in real time, the detail of activity across the mine from where their shovels are digging to the position of their lorries. This enables them to make precise and timely adjustments to operations, managing a complex industrial operation more efficiently.

Case Studies

The cloud offers a real opportunity to provide end-to-end visibility of a supply chain, so that decisions can be made that are ‘best for the supply chain’ which in the long run should also be best for the businesses involved. The key to success is to ensure that collectively the supply chain uses the ‘big data’ available to make ‘big decisions’.

Janet Godsell,Professor of Supply Chain and Operations, Warwick Manufacturing Group


SUSTAINABILITY

08

Many manufacturing sectors are highly dependent on raw materials which may become scarcer in the future as a result of environmental pressures and increasing completion from developing economies. Technology and increased collaboration across the supply chain is helping manufacturers make more efficient use of these resources and to support reuse and recycling.

• Demand for metals will increase by 30%-50% by 2020.16

• By 2030, the increased global population will need 140% more water and 250% more land.17

• Global demand for engineering materials and rare earth elements has quadrupled in the past 50 years18 and will double again by 2050.

• Manufacturers could halve product costs by reusing materials and components.19

• EU research suggests simple resource efficiency measures could reduce costs by €10bn across the EU manufacturing sector.20

Possible responses• Explore the market for sustainable products: design out

waste, use lightweight materials, reduce inventories, and manage supply chains better.

• Prepare for increased environmental regulatory requirements.

• Diversify supply chains and develop new collaborative models of working with suppliers.

• Understand the implications of resource scarcity on decisions about factory location.

• Develop circular manufacturing models focused on re-use; re-manufacturing and recycling where products or components are leased and then returned.

• Make products more robust, so that they can be used in collaborative consumption where more goods are shared or used second hand.

• Explore the potential for leasing and servitisation.

Resource scarcityBy embedding calcite-precipitating bacteria in the concrete mixture, it is possible to create concrete that has self-healing capacities.

Case Studies

New ways of working reduce Ricoh UK’s Co2 emissions Ricoh UK has cut its CO2 emissions and use of resources by using technology to work in different ways. It now aims to deal with 20% of customer service calls remotely, without having to send out a service engineer to the site, so reducing fuel use and CO2 emissions. The company has also reduced the amount of stock carried by engineers by allocating them to particular customers, so they only carry the parts needed for that work, saving £2.5m. At the same time, the company is recirculating more components back into the supply chain, reducing its dependency on raw materials and saving money.

Coca-Cola’s investment drives recycling and reuse of its bottles Coca-Cola Enterprises aims to reduce its use of raw materials in its packaging by 25% by 2020. It has invested €13m in two strategic recycling infrastructure partnerships in the UK and in France. The UK facility is now the biggest plastic bottle reprocessing facility in the world, producing 25,000 tonnes of rPET a year. The facility also recycled around 15 million bottles collected at the London 2012 Olympic and Paralympic Games, which returned to the shelves as new bottles within six weeks.

Self-healing concreteConcrete is the world’s most used building material, but it can easily crack when under tension. Large cracks lead to corrosion of the steel reinforcement, jeopardising the structure’s mechanical qualities, hence the use of steel reinforcement. This extra steel has no structural use and is an expensive solution. Repair cracks can be extremely difficult in underground or liquid retaining structures. The ultimate solution would be self-healing concrete, which is exactly what TU Delft researchers are working on.

By embedding calcite-precipitating bacteria in the concrete mixture, it is possible to create concrete that has self-healing capacities, minimising extra cost, delay and deterioration.

The UK Coca-Cola facility is now the biggest plastic bottle reprocessing facility in the world, producing 25,000 tonnes of rPET a year.

Cracked bioconcrete before healing.

Cracked bioconcrete after healing.

Pinsent Masons The UK in 2030: Key Trends for Manufacturing Sustainability

09

10

Climate change has potentially significant implications for all types of manufacturers. They will need to respond to a range of new risks including that of more extreme weather disrupting supply chains, as well as dealing with the impact of increasing regulation and carbon pricing on costs, as well as increased energy costs.

• A monsoon in Thailand in 2011 flooded 1,000 factories, supplying 800 international companies. The disruption to Nissan’s and Toyota’s supply chains cost more than $1bn.21

• The world market for energy efficiency will be $1.2trn by 2020.22

• The value of low-carbon technologies (tidal and wave energy, carbon capture and storage, and offshore wind) in the UK could reach £126.5bn.23

• Grid electricity prices will be 40% higher in real terms by 2030.24

Possible responses• Develop new circular business models where products

are leased to other companies, maintained, repaired and upgraded, and then remanufactured or recycled to reduce energy use.

• Respond to the growing demand for energy efficient and carbon neutral products.

• Use lifecycle assessment to measure the environmental impact of production processes and of the use of products.

• Apply connected technology to reduce climate change impacts by reducing transport costs and inventories.

• Create collaborative and connected supply chains to give greater transparency over environmental standards and drive efficiencies.

• Prepare for increases in energy costs from carbon pricing.• Create agile and flexible supply chains to ensure

business continuity in the event of natural disasters.• Use connected technology to provide transparency over

the full supply chain.

Climate ChangeSUSTAINABILITY

A monsoon in Thailand in 2011 flooded 1000 factories, supplying 800 international companies. The disruption to Nissan’s and Toyota’s supply chains cost more than $1bn.

11

Veolia is securing the value from environmental services Veolia is a leading global provider of environmental services in waste, water and energy. Revenue from green products and energy already represents 20% of its turnover. This includes £158.5m from selling materials that had traditionally been as waste back to the market, and more than £50m from selling energy and fuel recovered from waste. By 2017 they want to generate £1m from producing and selling compost from green waste and £2m from transforming construction material (e.g. glass/demolition material) into new products.

Toyota UK is developing low emission factories of the futureToyota Motor Manufacturing UK aims to reduce key emissions from their manufacturing plants to zero. Its UK manufacturing plants in Derbyshire and Deeside were selected as leading prototypes for clean and green production. They are developing the use of renewable energy, using innovative technologies to reduce waste and enhance the natural environment around the plants.

Understanding the lifecycle environmental impact of buildingsThe steel maker, Arcelor Mittal has developed software that identifies the potential global warming impact of two alternative products: composite steel-concrete and 100% reinforced concrete. The results show that the eco-optimised composite steel-concrete structure has an 82% lower impact, because the steel building contains less concrete and the steel can often be reused and recycled.

Reducing Co2 emissions through new product design.The Centre for Process Innovation (CPI) is working on options to reduce the weight of aircraft which would in turn lower fuel consumption. Every 1% reduction in the weight of an aircraft, delivers a 0.75% fuel saving. As windows require a plane’s fuselage to be strengthened which increases the weight, CPI have produced a windowless plane concept where the windows are replaced with large, hi-definition, ultra-thin and lightweight screens.

Pinsent Masons The UK in 2030: Key Trends for Manufacturing Sustainability

Events Contagion of impacts

Heat wave and drought in Russia (2010)

Estimated economic losses from Russian heat wave of US$15bn, including the destruction of crops (mainly wheat) from the drought and wildfires.

Drought in the US (2012)

A combination of dry conditions and extreme heat, including record-breaking temperatures over the summer months, led to destruction of agricultural crops.

Scarcity of feed stock (corn) further affected meat and dairy prices.

Global food prices soared by 10% between June and July 2012, according to the World Bank.

Flooding in Thailand (2011)

Forty percent of the global production of hard disk drives (HDD) is concentrated in Thailand. The flooding of manufacturing plants led to global price increases of HDD and the electronics dependent on them.

The flooding of cart manufacturing plants led to local and international disruptions, resulting in the postponement of the launch of new car models for some companies.

Insured losses were estimated at $15-20bn. Much of this is covered by insurers (and reinsurers) outside of Thailand. Business continuity claims make up a significant proportion of losses.

Flooding in australia (2010-11)

Forty mines were affected by floods, including disruptions in transporting coal from mines to coastal ports for export. Major global coal mining companies declared force majeure, legally releasing companies from the obligation of contracted deliveries.

Source: PwC

Case Studies

Supply chain disruptions: the contagions of impacts from a single event

VALUE CHANGE

12

Over recent decades, automation and new technology has driven many changes to manufacturing processes, but the fundamentals of its business model have changed little. Until now it has retained a ‘take, make, and dispose’ approach, but technology is changing and opening up a whole range of new ways to secure value and transform the very nature of manufacturing. In particular, the concept of servitisation, where companies sell services alongside or instead of a product, is being developed by a growing range of manufacturers. In competitive markets, add-on services can provide a way to compete against low cost competitors.

Focusing on cost reduction alone is no longer an effective strategy, and organisations need to instead enhance differentiation. A new emphasis on speed, productivity and sustainability provides strategists opportunities to innovate the role of production in the value chain. Businesses need to identify where the opportunities are for creating value, and develop bespoke strategies to maximise these possibilities.

Globalisation is changing the way manufacturing is managed (multi-locations) and organised (complex supply-chains), in the context of shifting demand from West to East.

The digitisation of manufacturing makes it easier to locate production in multiple countries and operate more flexibly.

• 39% of UK manufacturers with more than 100 employees derived value from services related to their products.25

• Rolls Royce earns 49% of its revenue from services, and Arcelor Mittal 29%.26

• The US has the greatest proportion of manufacturing firms offering services (56%), and the UK has the ninth-highest level.27

• Most UK manufacturers have part of their supply chain located overseas and 20% have half of their suppliers outside of the UK.28

• GE makes more money from servicing aircraft engines over their 30-year lifespan, than on the initial sale.29

• The Digital Manufacturing and Design Innovation Institute, a federally-funded research and development organisation, encourages factories across the US to deploy digital manufacturing and design technologies, so those factories can become more efficient and cost competitive.

New manufacturing business models

13

Possible Responses• Explore the full range of new business models and supply

chains: collaborative, circular, servitisation.• Understand where the value lies in the new business

model: the products themselves or in the data they produce, or their ongoing use. Then work out how to charge for that value.

• Engage directly with customers to develop and maintain brand awareness, provide new services, and share data.

• Work with individual designers and small businesses to secure their agility and innovation, which will drive the development of new models and new value.

• Use the digital infrastructure to connect directly with the consumer, building affinity for both product and company to maximise the value of service-based business models.

• Explore shifting from products to platforms and from ownership to access.

• Engage with policy makers to update regulations on IP protection and data sharing.

• Big businesses need to focus and keep knowledge at the top end. There will be a focus on consolidation, with greater fragmentation further downstream, creating opportunities for businesses to adapt to change.

• A new emphasis on speed, productivity and sustainability provides strategists with opportunities to innovate the role of production in the value chain.

• Businesses need to focus on the whole solution, not just the product, responding to greater customer demand for personalisation.

• Organisations need an innovation strategy that fits their business. Senior leaders need to consider how their strategy should evolve, and how they will innovate to create value for both customers and business.

Weir secures the value of services Weir engineering group has responded to a downturn in its key mining and oil and gas markets by increasing its focus on services. Equipment sales in its minerals division fell by 24% between 2012-14, but its aftermarket sales rose by 9%. Services now represent 66% of Weir’s revenues, compared with 45% in 2007.

Securing the skills for servitisationAston Business School’s centre for servitisation is providing education and support for a range of businesses to help them develop service based businesses. The 55 SMEs who have attended Aston’s courses have seen their revenue increase on average by 75%.

Caterpillar’s remanufacturing service employs over 3600 peopleCaterpillar remanufacturing division replaces vehicles before they break, and rebuilds them with a mixture of new and used parts. They are now beginning to make use of digital technology to monitor a number of criteria related to the general operation of the component, so they can deal with it before it fails. They are also exploring the potential of 3D printing to manufacture new parts.

Pinsent Masons The UK in 2030: Key Trends for Manufacturing Value change

Case Studies

The new business models that are evolving are very different from the the traditional ‘buy and sell’ model. Manufacturers need to make sure the right contractual model is in place to allow for this, and the additional services that they provide.

Cerys Wyn Davies,Partner, Pinsent Masons

Value creationvs.

value capture

Nature of products

Economics of

production

Consumer

deman

d

Economics

of

the v

alue c

hain

Graphic: Deloitte University PressSource: Center for the Edge

Four shifts in manufacturing

POLITICS

14

The political context has always been important to manufacturers. They can be affected by national industrial strategies which could provide investment or create competition from new markets. There are also political challenges around the location of factories and the need to consider political risk in international supply chains. The importance of politics is only going to increase as manufacturing becomes more complex and more interconnected with challenges arising from greater cross-border working and data sharing, and the need for new types of IP protection. This is further magnified by globalisation, the growth of regional trading blocks and UK devolution.

The UK manufacturing industry needs to consider two new scenarios, which will each have very different impacts and require separate business models: complete globalisation and federalisation. Businesses can future-proof themselves by being structurally flexible: i.e. be globally connected, but retain UK self-sufficient business models.

Globalisation has changed the nature of international competitiveness in the manufacturing sector. A raft of new collaboration and investment initiatives have highlighted how many regions are placing significant priority on innovation in the sector to support growth.

The UK Government has indicated that continued investment in technological innovation, and specifically the Internet of Things, to rank alongside investment overseas, such as the German government’s ongoing investment in Industry 4.0.

Yet the UK lags behind key global competitors when it comes to investment in R&D. Only two UK firms (GSK and AstraZeneca) feature in the world’s top 100 R&D investors. The UK is still considered to be an attractive location for manufacturing, but it is starting to slip down the competitiveness league tables. The strongest UK manufacturers are already operating as multinationals and investing in both the UK and key international markets.

Similarly an increasing move towards greater federalisation requires detailed thinking. Companies need to prepare robust strategies now so that they are in a position to adapt quickly in a fast changing political landscape.

A more complex picture

The scheme will focus on science and innovation, industrial leadership and tackling societal challenges and aims to deliver more breakthroughs, discoveries and world firsts.

15

Possible responses• Understand how new technology will bring new

regulatory and political challenges around protection of IP, privacy and data security.

• Respond to the increasing devolution of fiscal powers to Scotland, Wales, and NI and to cities within England.

• Reshoring to the UK could create 100,000-200,000 extra jobs to 2025 and add £6bn-£12bn to the economy.30

• More distributed manufacturing and longer supply chains mean manufacturers have to deal with more legal jurisdictions and political environments.

• The German government is investing €200m to stimulate Industry 4.0 research across government, academia, and business.31

Some other collaboration initiatives being driven internationally include:

Horizon 2020: the biggest EU Research and Innovation programme ever with €80bn of funding available up to 2020, in addition to private investments that this money will attract. The scheme will focus on science and innovation, industrial leadership and tackling societal challenges and aims to deliver more breakthroughs, discoveries and world firsts.

The scheme is a standout example of political collaboration supporting innovation as a means to drive economic growth and create jobs. Horizon 2020 is supported by Europe’s leaders and Members of the European Parliament.

Similarly, Made in China 2025: a scheme that will invest £4.3bn to support emerging industries and sectors, including ICT, aircraft engineering and agricultural machinery. This provides strong collaboration opportunities for UK firms with Chinese partners, including intelligent manufacturing, and industrial automation.

The Smart Manufacturing Leadership Coalition (SMLC): developing America’s first open smart manufacturing platform for collaborative networked information industrial applications.

The Smart Manufacturing Platform and Marketplace supports real-time, high value applications for manufacturers to optimize production systems and value chains to radically improve sustainability, productivity, quality, innovation and customer-service.

Smart Manufacturing adoption is challenging due to lack of awareness, risks and ROI barriers. The associated costs make it nearly impossible for companies to ‘own’ all the necessary capabilities to implement Smart Manufacturing. That’s why SMLC is developing a truly open Smart Manufacturing Platform to provide a highly accessible, industry-driven, enabling infrastructure that is missing today.

Pinsent Masons The UK in 2030: Key Trends for Manufacturing Politics

Businesses can future proof themselves by

being structurally flexible; i.e. be globally

connected but retain UK self-sufficient business models.

16

The emergence of low cost, widely available drones

has significant legal implications which will mirror

the emerging challenges of

autonomous road vehicles.

Possible Responses• Take maximum advantage of collaborative schemes to

increase innovation.• Develop a clear and detailed understanding of how

operations in each jurisdiction will be taxed and regulated. • Understand and manage the political risk of extended

supply chains and international partnerships.• Apply political risk factors to decisions about offshoring

and reshoring.• Lobby for effective regulatory responses to technology

enabled developments – including data security, privacy and IP.

• Engage with the debate about national and international regulatory and legal frameworks to ensure they support new forms of contracting, partnerships and risk sharing.

• Start the debate among policy makers about the need to align regulations affecting autonomous vehicles and drones across jurisdictions.

• Campaign for long term UK government investment in technology, such as robotics, to match EU and US commitments.

• Companies will need to be prepared for both federalisation and globalisation. Each will have a different impact and require different business models. This creates a need for structural flexibility globally connected, but within a self sufficient business model.

• Remain competitive in the face of continued globalisation and more intense competition by developing a greater focus on innovation and quality, not cost.

POLITICS

A more complex picture (cont)

17

Manufacturers are asked to open their doors to interact with students, teachers and career advisors to visit their

manufacturing facilities and change the sceptical perceptions of manufacturing and ‘get behind the scenes’ of success.

Legislators need to keep up with technologyThe emergence of low cost, widely available drones has significant legal implications which will mirror the emerging challenges of autonomous road vehicles. These include working out where responsibility lies in the case of any accidents – the drone owner, the operator, the pilot or the software developer. Solving this problem needs lawyers and engineers to work together to establish the ground rules based on a clear understanding of autonomous systems and what technical boundaries can be built on them from the start.

See Inside Manufacturing – manufacturing engages with the next generationSee Inside Manufacturing (SIM) is a partnership between the Department for Business, Innovation and Skills (BIS) and Industry which has been created to inspire young people (ages 11 – 19 years) by raising awareness of career opportunities in manufacturing by supporting visits to ‘get behind the scenes’. Manufacturers are asked to open their doors to interact with students, teachers and career advisors to visit their manufacturing facilities and change the sceptical perceptions of manufacturing and ‘get behind the scenes’ of success.

Germany and Platform Industry 4.0The term “Industry 4.0” was coined in Germany in 2011 by a scientific advisory group of the German government. A stakeholder group, called “Platform Industry 4.0”, has been formed, chartered to enable the transition of the German manufacturing industry into the new value creation processes of the internet age. Particular emphasis is on easing this transition for the SME sector. The Platform is controlled by the two ministries of economics and research, and it contains leading scientific institutions, industry associations, labour unions and a selected group of industrial companies that are organised in 5 working groups. Fujitsu is a member in the working group on ‘security in networked systems’. The Platform Industry 4.0 is chartered to lay the basis for new business related to the industrial internet in technology, legal framework and innovation in the education sector.

Case Studies

Pinsent Masons The UK in 2030: Key Trends for Manufacturing Politics

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DEMOGRAPHY

From the urbanisation of the industrial revolution to the mass production of cars, manufacturing has both responded to social and demographic change, and driven that change. This is likely to continue over the next fifteen years as technology enables manufacturers to respond to the changing needs of older, wealthier, and more urban populations. • The global middle class is forecast to rise from 1.8 billion

people to 4.9 billion in 2030.32 • 64% of the global middle class will live in Asia in 2030

and will consume 40% of manufactured products.33

• By 2030, 60% of the world’s population will live in cities.34

• Over 50s now account for 76% of the UK’s financial wealth.35

• 28% of the UK population will be over 6036 by 2030 .37

Possible responses • Tailor products to meet the needs of the newly

wealthy in developing economies.• Develop age specific (smart assistance for older or

disabled people) and age neutral products to seize the opportunities of a growing and lucrative market.

• Adapt to the need for longer working lives by using machines to improve working conditions.

• Take advantage of a more urbanised world to locate factories closer to consumers to reduce costs.

• Use technology and richer data to connect directly with consumers, wherever they live.

The Department of Transport adapts to an older workforceTo increase the retention of older workers, the Department of Transport now considers all employees for development programmes and promotion, irrespective of age. It has also adopted a number of programmes to improve work/life balance including a ‘Carers Passport’ which provides flexible working options for those with caring responsibilities. As a result, staff turnover has reduced over from 11.1% to 9.3%, and 2% of employees aged 65 and over have chosen to stay on at work.

Older and wealthier populations

Case Study

To increase the retention of older workers, the Department of Transport now considers all employees for development programmes and promotion, irrespective of age.

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New skills needed

DEMOGRAPHY

Rethink Robotics – developing the robots of the futureRethink Robotics, has developed a new type of automation for manufacturers. The Baxter Research Robot provides a low cost, easy-to-implement way of developing new automated processes. Rethink Robotics are currently working with Sirris, a Belgian technology company, to help develop, test and effectively implement the technological innovation needed for the factory of the future.

Sheffield Robotics - making robotics relevant Funded by the UK Research Councils and the European Union, Sheffield Robotics, based at Sheffield University, develops research partnerships with leading industrial, commercial, and government organisations. It is the central hub for robotics research within the UK and is leveraging the power of collaboration to ensure the research is focused on the real world developments the industry needs.

Nestlé automates end-to-end production of hypoallergenic baby goods using Rockwell automation and Endress +Hauser solutionsNestlé’s Biessenhofen factory has 650 employees and produces baby food requiring the highest levels of hygiene, processing precision and quality control.

Rockwell Automation and Endress +Hauser provided an integrated system to automate the sterile filling and packaging sections, as well as the manufacturing area so that every stage of the process is managed, monitored and documented. The use of structured and modularised automation technology facilitate rapid and flexible system extensions. Nestlé can analyse real-time data from the production plant. The types of system and technology can be used globally; helping to support the system’s long-term manageability.

Pinsent Masons The UK in 2030: Key Trends for Manufacturing Demography

Case Studies

Manufacturers in 2030 will need to meet the twin challenges of an ageing workforce and changes in the kind of skills they need. They will need fewer manual workers and more people with broader capabilities across IT, design, data analytics and customer service, who may well cost more. Automation and intelligent robots will then add further complexity, whether they replace workers entirely or are used to enhance their performance.

• Manufacturing employment in the UK is predicted to decline by around 170,000 by 2020.38

• By 2020, 800,000 additional workers will be needed in manufacturing to replace those retiring.39

• Only 25% engineering and technology graduates work in manufacturing six months after graduation.40

• 42% of UK managers in manufacturing firms have degrees – 60% are graduates in India, Japan, Germany, US and France.41

• 1.6 million industrial robots are in use around the world.42

• Global spending on robots will increase from $15bn to $67bn by 2025.43

• Robots could cut manufacturing labour costs by 16% by 2025.44

Possible responses• Develop new training and retraining schemes to

secure the future capabilities manufacturing will need.• Understand and secure new hybrid skills: managing

big data; collaborative working; advanced IT; and customer relationships.

• Explore ways of collaborative working with, and alongside, robots to enhance performance.

• Develop ways of working to accommodate older workers, longer working lives and the need for flexible working.

• Understand the implications of changing demography on costs and skills when making onshoring, offshoring and reshoring decisions.

• Recognise that a move away from manual labour to a highly skilled workforce will raise wage costs and mean manufacturers have to find more ways to remain competitive in the global economy.

• Advancing technologies need not necessarily suggest a negative impact on workforce. Companies should think in terms of augmentation and what employees might achieve if they have a thinking machine assisting them, instead of just replacing an employee’s skills.

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The US, Germany and the emerging economies of Asia are all investing in the fourth industrial revolution and, in a globalised world, the UK needs to keep up.

ConclusionManufacturing is changing fast. Across the entire value chain, technology is transforming how things are produced, what is produced and where.

This technology will be a source of competitive advantage to both companies and countries. The US, Germany and the emerging economies of Asia are all investing in the fourth industrial revolution and, in a globalised world, the UK needs to keep up.

Now, more than ever, the winners will be those that understand and embrace the changes technology is bringing and apply them across everything they do. That includes their relationships with their suppliers, with innovators inside and outside the sector, their customers and their workers. Traditional, bigger manufacturing businesses will face some real challenges from new more agile competitors. However, as the case studies show, many of them are already responding and developing the new products, new services and business models that mean they will remain leading players in the sector. Companies need to work out the business models that work, and look at innovative alternatives as part of their strategy.

What is clear from the trends set out in this document is that, by 2030, UK manufacturing will look very different but, with the right policy and business responses, it will retain its critical role in our economy and in supporting the UK’s competitive position in the world.

Pinsent Masons The UK in 2030: Key Trends for Manufacturing

This document does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by the Solicitors Regulation Authority and the

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