New report says that OEMs can make a huge difference to GDP if government policy supports re-shoring and domestic supply chains, as Cranfield University and the ERA Foundation join calls for government intervention.
The report, released today, says that manufacturing output could grow significantly if original equipment manufacturers (OEMs) become better stewards of their supply base, and government policy changes to facilitate this development.
Coming on the day the Business Secretary Vince Cable is set to unveil details of a government industrial strategy, “Rebuilding the UK Manufacturing Supply Base” by Cranfield School of Management on behalf of the ERA Foundation, says that two things need to happen to rebuild the depleted UK supply base.
Firstly, government policies must support manufacturing to develop the correct tax and regulatory frameworks, encourage R&D, and improve access to finance, skills and knowledge.
Secondly, and more distinctively, large companies (OEMs) at the head of supply chains should be encouraged to switch to indigenous suppliers, as this leads to a competitive advantage because of reduced risks and increased responsiveness.
Notwithstanding research published in August that found a quarter of companies have increased their use of local suppliers because of supply risks, this report warns that the sector is unprepared for such a shift with potential skills and capacity bottlenecks.
“We are not arguing that uncompetitive suppliers should be propped up, rather they should be actively encouraged to improve,” said Professor Alan Braithwaite, director of the Supply Chain Research Centre at Cranfield School of Management. “The strategy of large UK manufacturing enterprises to seek low-cost suppliers around the globe is at direct odds with the approach taken in developed countries such as Japan and Germany.”
The report also highlights that, because government policies towards manufacturing over the last decade have focused on improvements in productivity, the gains made have been at the expense of nearly 1 million jobs and 30,000 enterprises due to the attrition of uncompetitive firms.
Cranfield Management School says it is clear from the analysis that some of those losses could have been averted to the benefit of companies and the economy.
Mr Braithwaite added: “Many of the measures proposed in this report can be found in initiatives from the TSB and the HM Treasury but the scale of the potential from providing co-ordinated support to SMEs is truly apparent from this research. The Government should actively integrate initiatives and drive measures to make UK manufacturing a winner again.”
Vince Cable is due to announce details of his industrial strategy, which is expected to include plans to domesticise more government procurement, at about midday today.
Read the full report here