With Scotland's manufacturing industry showing signs of recovery, James Pozzi attended the Scottish Manufacturing Advisory Service conference in Dunblane to measure the consensus.
Since the decline of heavy industry profoundly affected Scotland in decades gone by, it has been a country forging a new manufacturing identity. While sectors such as alcoholic beverages and oil & gas have continued to thrive, other industries in the renewables and pharmaceuticals industries have emerged to elevate Scotland to being among the UK’s most robust manufacturing economies.
The statistics bear testament to this. As home to over 8,000 manufacturing companies, industry in Scotland was last estimated to produce £12.7bn for the nation’s economy and employs 184,000. With 2014 expected to be a year of profitability for its manufacturers, business confidence has increased.
With the upturn in manufacturing coinciding with the intriguing political caveat of Scottish independence, the biennial Scottish Manufacturing Advisory Service (SMAS) conference was a timely means of measuring its current health. Supported by Enterprise Scotland and chaired by veteran journalist Bill Jamieson formerly of The Scotsman, the conference held at Dunblane’s Hydro hotel was presented under a title of ‘Making a Difference.’
Returning to form
The day opened with an address to the near 400-strong attendees from Nick Shields, a director at SMAS. In a short speech, Mr Shields acknowledged the in vogue status of manufacturing, something he said was now very much at the forefront of people’s minds. Given its propensity to produce technological innovation and duly create economic prosperity, Shields said the day was a focus on the potential of manufacturing within Scotland.
Political representation was provided by John Swinney, cabinet secretary for finance, employment and sustainable growth in the Scottish Government. Mr Swinney hailed the work of SMAS in developing and enhancing the processes of manufacturing companies across the country, which has resulted in the organisation achieving £25.m of savings for Scottish companies in the past year. While highlighting the recent statistic that 70/100 of Scotland’s highest growing companies are manufacturers, Swinney detailed what he would like to see from the industry going forward.
This included the expansion of the innovation centre concept into manufacturing and engineering spaces. Last April, Glasgow University was given £18m by the Scottish Funding Council to develop two new centres focused on medical research and electronic sensors, with the potential to create 5,000 jobs and generate over £500m for the Scottish economy. This would be supported by the Scottish government establishing a national innovation agency, putting forward “robust” proposals for access to finance, and the acquiring of power to incentivise companies to invest more in R&D.
A sunny outlook?
Swinney was followed by Donald Macrae, chief economist of the Lloyds Banking Group Scotland. Mr Macrae, posing the question “how important is manufacturing?”, gave a detailed analysis of where Scotland found itself both in the recession of 2008-09 and in the years after. Citing the “Grangemouth effect” as being a factor behind Scotland posting 0.2 growth in the final three months of 2013 instead of a projected 0.6, he said he expects the next set to results to restore the economy to desired levels. Such predictions are underpinned by a multitude of positive business trends.
For the last four quarters, investment has been consistent, said Macrae. While Scottish PMI fell in the last month, the number of people working for Scottish companies has rose at its fatest rate in 16 years, with manufacturing contributing strongly to this.
While workforce numbers have increased, it is also in this area that attention is required. Scottish unemployment, which fell by 7000 last week, needs further reducing from its 183,000 total. Average earnings which have also decreased throughout the UK also need addressing, said Macrae.
But where manufacturing has benefited is in the tumbling value of the pound. The UK now has a unit labour cost balance similar to that of Germany, and Scotland has an industry described as “disproportionately innovative.” 75% of the country’s business R&D comes from manufacturing, and the industry is responsible for 12.1% of onshore GDP. Going forward, Macrae echoed the view of Swinney and said continued investment in R&D is critical, while companies avoiding competing by lowest cost, embracing the possibilities of re-manufacturing and extending further into new markets.
But despite the possible hindrances mentioned and the sometimes inconsistent figures, the economy is very much in recovery, said Macrae. With the level of GVA expected to climb further by 2015, the emphasis on manufacturing in underpinning innovation and economic strength going forward is critical.
But what about the Scottish companies who will be the true enablers of this? As the ones providing jobs, contributing towards the GDP and growing Scotland’s export market, the day’s seminars provided insight into this. In a diverse schedule encompassing everything from bottled water manufacturer Highland Spring discussing collaborative improvements in its supply chain to Aimia Foods sharing how it created a world class factory, stories profiling transition to success were readily available.
Don’t play for draws, play for wins
Particularly memorable was an inspiring business turnaround study from Michelin’s Dundee tyre plant. John Reid, who took over as general manager of a site earmarked for closure, gave a comprehensive overview of how both he and his team turned around the factory. Resulting in him being awarded the Scottish Leadership Award for Manufacturing Leader, the turnaround from a company ranked near the bottom of the French tyre giant’s 69 global plant rankings was miraculous.
Producing 23,500 tyres a day – some 7.5m a year – the Dundee site sees 95% of its tyres exported outside of the UK. As a key local employer, Mr Reid recounted how years of limited investment saw standards fall behind such as 1,000 tyres missed daily and 50% over its scrap targets.
So how was such a consistent and steep level of decline reversed? According to Reid, it was a fundamental change in direction that he described in a football analogy. He said for too long, Michelin Dundee had played for a draw and not a win. In order to turn things around, he started with the staff and lifting the rock bottom morale.
This included speaking to 800 of the staff individually over a three day period, a move he said was aimed at getting the workforce to buy into what he set out to achieve. With a need to go over budget in expenditure for the first few years – by £1.5m for the first year and £1m following – money was used to both enhance what had become an outdated and unattractive factory and place emphasis in the workforce.
This included everything from increasing employee training to implemented fun events such as family visits, cinema tickets and even beer for staff to drink at the weekend during the World Cup. As a French company, communication with the headquarter country was also encouraged, and saw 30% of staff take up learning the language as a better means of communication.
Previously ranked sixth out of 15 European sites, Dundee now sits at the top of the tree; the best performing Michelin factory in Europe. It also occupies second place for scrap, moving up four places from 2009. Having recruited 150 new employees and now operating seven days a week, Dundee aims to produce up to 25,000 tyres a day by 2016.
“At the heart of our plans moving forward lies a 10-15 year strategy, with our success moving onto excellence,” said Reid. With the best safety record of any Michelin plant globally, turning success into excellence is often seen as a more precarious challenge to a manufacturer than turning around a culture of underachievement. But one can’t help but admire the work of Reid so far in how he underwent a fundamental turnaround of the site, with bold moves such as challenging Michelin bosses to revamping the entire factory from workforce even to the painting of a dirty building to all white.
Shipbuilding in Scotland: plain sailing?
Another intriguing case study of the day was Steven Clark, continuous improvement manager at BAE Naval Ships. While the closing address of Will Butler-Adams of London’s Brompton Bicycles served as a great example of how Scotland can improve its slightly underperforming export market, Mr Clark’s insight into a ship building industry that was for so long the lifeblood of Glasgow was fascinating.
Titled Developing Culture Change Through Lean Deployment, Clark explained that all the stereotypes of River Clyde dock workers made famous by Billy Connolly were pretty accurate. As a traditional industry that at its peak employed 70,000 workers across 19 shipyards, the 2014 figure is a much reduced 4,000. But its greatly reduced output and employment numbers doesn’t negate its importance.
BAE Systems, Britain’s largest defence manufacturer, built its Type-45 destroyer in Glasgow across two shipbuilding sites. Its 108-year association of ship building on the River Clyde is set to continue, with plans to bring production of the Type-26 to Scotland’s second city at the conclusion of the 2014 referendum vote. Clark said that in order to move forward, it was decided the workforce needed a new workplace culture, something he characterised as new attitudes, facilities, methods and behaviours.
Implementing this was no overnight fix. Operating under a Lean four step knowledge transfer process of prepare, show, help and sustain, Clark said making its workforce more self-aware was one of the primary aims. After preparing the execution of the plan, the show phase consisted of taking individuals out of the work place environment for an extended period of time. Their shopfloor was substituted for a classroom, where they learnt business-based modules and lean leadership skills. Following this was the help phase. This involved a course of mentoring, collaboration as a means of reinforcing tools and realising the benefits. Finally, there was sustaining this. As part of the process confirmation, standards needed to be maintained.
BAE assisted this by making changes to the factory floor. Using the pipe manufacturing plant as an example, simply steps such as letting more light into the facility were implemented. Perhaps most interestingly, these lean changes resulted in new ways of working. Set hours were eradicated in favour of schedule-based working, with production output tailored to give each individual a bigger sense of ownership over what was made. Overtime was also dispensed with in favour of pay rises. Essentially, if one of the workforce was to leave the floor for an extended period of time, that would have to be made up. The result was a sense of flexibility which led to increased performance output and a reduction in sick leave.
Going forward, Clark says he is looking to “join the dots” and refine the method. Alongside this is proposals to further deploy the lean methodology to other parts of the BAE Naval Ship workforce. This includes operations, and the engineering and design teams.
2014 and beyond
As I left Dunblane to return to London, a common thought of the day from delegates I spoke to was how much bigger and busier this year’s event was in comparison to previous ones. Traveling up and down the country to many exhibitions and trade shows, this train of thought has become more commonplace. While PMI Markit statistics and reports from the likes of the Confederation of British Industry paint an altogether brighter picture of the UK, it’s in talking to the businesses living and breathing the reality of this that makes any talk of recovery become that more tangible.
While resurgent is a fair term to describe the current state of Scottish manufacturing, this naturally doesn’t come without a element of caution. Having discussed some of the concerns outlined at the event, Pete Flockhart, Bank of Scotland area director for Glasgow and the West of Scotland has discussed these issues further in this guest article for TM.
And the Scottish Independence issue refuses to go away. While attendees – perhaps understandably – remained coy over the possibility of a Scottish exit from the UK, it’s clear businesses are setting themselves up for either scenario, regardless of whether they favour the Yes vote or share the better together way of thinking. But should Mr Salmond and the Scottish National Party get their desired outcome in September, then the future will obviously bring with it an element of uncertainty as Scotland ventures into new territory.
But that’s not to say an independent Scotland couldn’t thrive. Its oil & gas sector – worth an estimated £35bn annually to the UK – is an economy in itself, and as highlighted, its manufacturing industries economy continue to go from strength to strength across an array of sectors. With innovation so firmly on the agenda and the steady backing of trade organisations such as SMAS and Enterprise Scotland, the rebirth of Scottish manufacturing presents an exciting decade ahead.