The Second Annual Supply Chain Excellence Debate

A transcription of debate at a Manufacturer Directors’ Forum Event hosted by The Manufacturer magazine and sponsored by IBM.

Debate attendees:

Henry Anson, managing director, The Manufacturer magazine

Jane Gray, editor, The Manufacturer magazine

Alan Duncan, business executive, IBM

Richard Lanyon-Hogg, CTO industrial industries, IBM

Iain Gray, CEO, The Technology Strategy Board

John Faulkner, director, Cab Automotive

Deidre Fox, director strategic business development, Tata Steel

Paul Harnetty, operations director, The Authentic Food Company

Brian Holliday, divisional director, Siemens Industry Automation

Gareth Humphreys MBE, programme manager, MBDA

Tim Joyce, group strategic supply chain manager, Oxford Instruments

Jeff Kennelly, plant manager, GE Aviation

Charles Morgan, (former) managing director, The Morgan Motor Company

Adrian Whitehead, director group operations, Oxford Instruments

 

This peer-to peer knowledge exchange was introduced by Iain Gray, CEO of the Technology Strategy Board (TSB). The headline topic was energy security and sustainability. A full transcript of the debate is below but key outcomes were as follows:

Catapults

  • The Catapult centres, run by the TSB, have become highly valued by industry as hubs for innovation which addresses the future competitive and sustainability challenges faced by industry
  • The catapult centres have more scope to work with food and drink supply chains in order to address key sustainability challenges such as increasing the life of products to reduce waste
  • Industry guests felt the Catapults had reached a maturity where they could take on more responsibility for non-technology based industry challenges such as skills gaps, gender ratios and knowledge sharing in supply chains based on the dissemination of non-competitive IP

Skills

  • Finding and retaining talented employees who can develop the skills needed to face new industry challenges remains difficult for all – but particularly for SMEs. It hampers growth and capacity for taking on new orders
  • Larger companies accept their advantage in having brands which can draw attract and are developing mechanism to stop the negative impact that is can have on the supply chain. These mechanisms include Employer Ownership of skills initiatives to place apprentices with their supply chain or instating clear policy on not raiding the supply chain in order to secure long term industrial stability
  • It was suggested that smaller firms could do more to elevate their brands and make their local presence felt in a positive way through working with local schools, media and through leveraging social media
  • Guests felt that industry needs to communicate ints contributions to education better while also improving them. It was suggested that schools-engagement programmes should target ever younger groups to overcome preconceptions and create a skills pipeline for the kinds of jobs industry anticipates it will need to be filled in twenty years’ time
  • It was agree that skills are a critical part of supply chain strategy and need to be more formally recognised as such

Energy

  • The cost of energy was agreed by all to be a challenging dynamic for British industry to cope with. There is not a level playing field in terms of taxation regimes across Europe and this make manufacturing in the UK less attractive for energy intensive industries, despite government action to relax levies for these users
  • More could be done through creative thinking within industry to incentivise energy efficiency, the uptake of cleaner energy and the reduction of energy use, independent of government. Creative contracting and risk sharing schemes were discussed

Fairness

  • Incentivisation of sustainable investment and knowledge sharing cannot be optimised until there is greater trust between smaller firms and their large customers
  • It was suggested small firms are acting as banks to big business
  • It was felt that large firms seek to absorb the efficiency and cost benefits smaller firms achieve through strategic actions and investment. This ultimately discourages openness about investment intentions and makes confidence in supply chains hard to measure and slow to grow

Iain Gray’s Introduction

“In many ways our [TSB’s] whole high value manufacturing strategy is built on the sustainability agenda and the creation of a circular economy.

“I think it is interesting that, at the BIS/CBI conference last week on industrial strategy, the word sustainability didn’t seem to come up at all. And yet, sustainability and energy security are at the heart of all the challenges we face.

“I would put it to you that we need to talk more about sustainability. It is at the heart of our agenda but we need to talk about it more and not hide it in the background.

“To update you on the TSB’s high value manufacturing strategy: last year we had just launched it and the Catapult centres – technology innovation centres – were very new.

“The TSB has grown up a lot in the last year and a lot of progress has been made across our agenda. As the UK’s innovation agency we are no longer a parochial part of the Department for Business Innovation and Skills.

“We support business with 50-50 grant funding. But we do a lot more than that.

“At its core TSB has a budget of about £400m per annum to support business across a broad range of sectors.

“Looking at the grant funding for a moment – am familiar with a number of collaboration with companies here. I am aware of grant funding for projects at Oxford Instruments. We support Morgan [Cars], we support GE and collaborate with IBM.

“The grant funding model works well – targeted through competitions.

“Sustainability is core to a lot of these projects – not always obviously. Take additive manufacturing and 3D printing. We ran one of our most successful competitions last year to win grant funding to develop these technologies. It was heavily over-subscribed and resulted in some good examples of collaborative R&D funding for low carbon vehicles and general support for the automotive and aerospace industries.

“Arguably what we [TSB] have become best known for in the last twelve months are the Catapult Centres – even to the extent that some would recognise the Catapult Centres without recognising that they are a TSB initiative.

“These seven centres provide access to skilled people and world class equipment. They allow large corporates, midsized companies and SMEs access to world class capability.

“The seven centres include Catapults for high value manufacturing, cell therapy, off-shore renewable energy, satellite applications. These are all technology-based.

“We then also have what I would term ‘platform-based’ Catapults for future cities and the connected digital economy.

“The Catapults run on a third-third-third funding model. The public sector third makes sure they stay at the forefront in terms of housing world class capability and equipment. There is competitive funding via European projects and the final third is private sector investment.

“I should make clear that the High Value Manufacturing Catapult I not the only Catapult with a manufacturing agenda. That is a mistake that some people make.

“It was however the first Catapult and is made up of seven centres in its own right – ranging through the National Composites Centre, the Advanced Manufacturing Research Centre in Rotherham, the Advanced Forming Centre in Glasgow and the Centre for Process Innovation in the North East.

“The High Value Manufacturing Catapult as a whole is surpassing all the performance metrics we set before it. There are over 600 businesses actively engaging with it on live projects and in terms of SMEs there are about 18,000 actively engaged with the HVM Catapult. It is a centre that is really delivering to business. I say this based on feedback from the business world – but of course there is still a lot more that we can do.

“With relevance to tonight’s debate I should mention the launch of a new Catapult for Energy Systems.

“This will investigate the challenges associated with moving away from large single source energy supplies toward distributed energy systems and technologies for energy storage and management.

“The criteria for establishing a Catapult include us identifying a large, multi-billion pound market where there is capability in the UK that we can harness and enhance and which business can derive benefits from in a relatively short time.

“The Catapults are also gaining a political momentum – becoming familiar in the political lexicon. Vince Cable mentioned them in his party political speech – though it was the only part of the TSB’s agenda that was mentioned.

“Another key thing we do is support a set of Innovation Knowledge Centres where we work with the research councils on much earlier stage technology and scientific development.

“These centres tend to be a lot more specific and again they really fit with tonight’s remit to talk about sustainability – there is research at the Tata  Steel sponsored centre in Swansea looking into ways that we can generate energy from buildings.

“We have really progressed with our support to SMEs in the last year – though I acknowledge Charles [Morgan]’s comment that there is still more to be done.

“We try to deliver funding through initiatives like our SMART programme which has just processed its 1000th grant. We try to support SMEs through government pre-commercial procurement – SPRI. As an aside – there is an interesting SPRI challenge in Ireland at the moment looking into what to do with the amount of chicken waste being produced due to demand for chickens in the food chain.

“We also support SMEs through knowledge transfer and exchange. We run the Knowledge Transfer Network mechanisms. There is an online community of around 60,000 for these.

“That’s an update of our activity – let’s put it in the context of last week’s BIS/CBI meeting [at Warwick University] on industrial strategy.

“Eighteen months ago you would not have heard people talking about a UK industrial strategy. But that meeting showed the consistency in the language of industrial strategy that has built up in the last year and that marks a huge step forward.

“A number of sectors are winning big ticket support via this strategy. There has been a billion pounds invested in aerospace via the Aerospace Technology Institute. Automotive has received a similar amount.

“But the industrial strategy has also brought manufacturing benefits in sectors like agri-tech. This sector has previously been ignored in the UK but is home to some magnificent manufacturing innovation. There has also been a real improvement in the focus between business and government on what they can do to improve competitiveness in construction, renewables and nuclear.

“The TSB’s role in these sector strategies is supporting the technology element.

“Tonight, I would like to understand what TSB needs to do to support your businesses as you look at sustainability and energy security challenges and the change from supply chains in which products are just handed over, towards systems which understand the whole product lifecycle more clearly.

“Alongside skills, sustainability is industry’s other ‘big ticket’ agenda item.

The Debate

Richard Lanyon-Hogg, CTO industrial industries, IBM

R-LH: “I have worked with one of the Catapult centres over the past two years to develop a remote controlled robotic arm which uses augmented reality. The project will help companies who have got a dwindling number of grey-haired senior engineers. We are focusing on helping them to better utilise the skills and capabilities they have.

“I would just like to say that the centres are excellent. There are creative minds there and there’s an enthusiasm and an energy to bring like minds together and help companies with engineering challenges. A big ‘thumbs-up’ to the Catapults.

“My only fear for the future is that once the genie is out of the bottle and people pile into the centres they will not be able to cope.

“But that link they provide between university research and real customer problems is critical.”

BH: “I echo that support from this side of the table.”

IG: “It might be worth noting that the AMRC in Rotherham will become the first Catapult centre to host its own apprentice training centre: supporting that link between skills and technology development for the future.”

CM: “I completely second that. I recently went the National Composites centre in Bristol.

Morgan, Charles Morgan
Charles Morgan, former MD, Morgan Motor Cars
I thought that it would not be relevant – that it would all be about aircraft manufacture or vehicles with a base price of £250,000 or more.

“While I was there I met project engineers working on a new kind of aluminium wheel and I suddenly realised ‘This is exactly what we [Morgan] want’.

“The Catapults are a perfect example of a Franunhoffer-type institute where a small company can come and be ‘wowed’. That’s fantastic.”

AD: “I’d just like to observe how much work has been done in a year Iain. At this dinner last year we were talking about the failing links between technology, government and industry. The rate of change in a year across a range of different focus areas has been incredible.”

IG: “It’s all about the people involved. A central part of the Catapult agenda has been making sure that we had the right people involved from business. But this time a year ago we were having futile debates about what to call the Catapults – endless discussion of names. It is good to be away from that stage.”

AW: “Do you worry about that team being poached by industry or do you encourage it?”

IG: “In the longer term I would encourage it. We want to create cycle of young people coming in, doing projects and going back out to business. We want experienced people coming in from the business world and taking senior positions.

“Our recruitment strategy and salary scales are designed to be attractive and not give in to the ‘public sector badge’.”

RL-H: “The Catapults could benefit from having more women involved. Industry is still suffering on this score. I have a son and a daughter. My son is an engineer and my daughter is a mathematician and she went into the City because the idea of going ito engineering and working with industry just didn’t appeal to her at all.

“I think there could be a role for the Catapults to help here – perhaps creating a better impression of industry in schools.”

JG: “A year ago Dick Elsy [CEO the HVM Catapult] told me fairly firmly that working on skills and industry image was not within the Catapult remit – although he knew these were big issues. But there has obviously been a change of view about that. We’ve already heard that the AMRC will have an apprentice training centre working alongside it now and Simon Edmonds [Director of the Catapult Programme] recently suggested that tackling the ‘women issue’ might be the next step down that road.

“It seems that, while the Catapults started out as a very technology focussed initiative there has been a realisation that they can offer a lot more.”

DF: “Does the TSB have any direct engagement with academic institutions at a university level – not necessarily from a research perspective but in terms of interacting with them on what you are doing?”

IG: “We interact with most universities in the UK and fund some university projects. But our stance has always been that there are other bodies out there whose job it is to fund universities in terms of teaching and research. What we are keen to do is to support businesses that have seen the benefit of working with universities.

“We tend to draw universities in to collaborative projects where business takes the lead and identifies the challenge so that universities can help find the solutions.

“We also support a number of university spin-out companies.”

HA: “Has the Authentic food company worked with the Catapults?”

PH: “No – I have made a note to follow up with Iain and find out what the opportunities are for the food industry in working with the TSB and the Catapults.

“As an industry we face some huge challenges. We have a significant skills shortage, both from an enforcement [regulatory] point of view and a technology point of view. This is causing all the skill to be drawn into the big companies at the top of the industry – the big super markets”

IG: “I’d love to make the connection. With the food industry, whether from a farming perspective or a packaging point of view – with companies moving toward more intelligent packaging – again the sustainability agenda surrounds all the challenges. Look at the work to develop different approaches to logistics and distribution.”

PH: “The key area for me is the need to give technology-driven product a longer life. Whether you do that by modifying the product or the packaging there are real potential benefits to be had. We waste so much food and put so much energy into trying to process that into a biodegradable format – but stopping it going to waste in the first place would be a proactive rather than reactive approach to the problem.”

JG: “Have you heard that Brunel University has just launched a Centre for Sustainable Energy Use in Food Chains?”

“There’s also been a new food engineering degree launched at Sheffield Hallam University that seeks to develop the skills and knowledge needed to tackle the problems facing the food industry.

“It would be good to see a Catapult looking at food security and sustainability issues though.”

PH: “Definitely. Our only real link with industry support or research organisations at the moment is with Camden and Chorely Wood Food Research Association. We sit on a number of panels there.”

IG: “We also engage with Camden and Chorely Wood – though not to a great extent. We do engage with the big food retail organisations and we worked on the creation of the new agri-tech  industrial strategy, collaborating with the agri-tech leadership council. That council has representation from support groups and industry. I would advise you get involved.”

PH: “It looks like it would be a help to us. Our big interest at the moment is the potential for more vertical integration. Should we be bringing in raw meat rather than cooked meat and processing it ourselves. This would mean buying from different people –not China or Thailand.”

IG: “It’s a really interesting challenge. The industries that tend to get forgotten about are the food industry, the construction industry and the textile industry. In the North East of England the textile industry is hugely important – but it just drops off the radar.”

PH: “The food industry is always left until there’s bad news – then it’s all over the papers.”

Brian Holliday, divisional director, Siemens Industry

BH: “I recently took a fairly large food manufacturer based in Wigan to the MTC [Manufacturing Technology Centre – part of the HVM Catapult].

“It was just brilliant. I’d been a bit unsure because it was out of MTC’s comfort zone of cars and planes and advanced materials. But the team really latched on to some of the engineering and energy challenges. I would absolutely recommend starting a conversation with them.”

PH: “We’ve done some small scale cross sector knowledge sharing work where we go and visit other companies. We’ve been to Jaguar, Bentley, Ultraframe – a manufacturer of conservatories. This is good for piggy-backing on someone else’s skills and getting some serious learning for ourselves. We went to Warburton’s this week.”

IG: “We did some work with Warburton’s to extend product life.”

PH: “With respect – all the names you are dropping in that you have worked with our big businesses. Not small like us – and we employ 250 which is a lot more than some. Our turnover’s around £40 million – so we make an impact but….

“For the next stage of our business strategy we will look for another site. We’ve been talking to our local council about planning permission – but we’ve had very little support.

CM: “I think this echoes a point that was made in a Panorama programme last night on the Patent Box. It showed that government is willing to favour very large companies. If you can prove a patent you can get to a stage where you only pay 10% tax on the profits from it.

“But you’ve got to have a team of people working on developing lots of patents and the sorts of companies that do that are the big multinationals. They’re not Morgan.

“We’ve got some patents and we’ll have a go but I don’t think we’ll be as successful as GlaxoSmithKline.”

RL-H: “Do you think there’s an argument to be had in the world of manufacturing supply chains that, as in the IT industry where there’s this idea of shared IP for open source software and open source data which bring benefit to may because it is a core platform for our industry, there could be more openness about supply chain and manufacturing best practice?

“What do we need to facilitate that non-competitive knowledge sharing?”

“For example, there was a report put out by the MET office about 18 months ago which looked at increased climate variability. This will impact all of us, but the impact of climate variability on some companies and supply chains will be extremely high.

“Companies are building up knowledge about how to cope with that – but should we be sharing that information – perhaps through the Catapult centres – making them act as a knowledge repository for industry?

DF: “There’s a very valid point there. Look at the off-shore renewable sector today as an example.

“Offshore wind is very much in the news with endless debates about whether it will be cost effective.

“Whatever your view on that, there is undeniably a big opportunity for the UK in off-shore wind –and we have an energy crisis.

“We are one of the biggest renewable markets in the world and it is potentially attracting a lot of inward investment. But what the UK does not have is strong local supply chains to supply to off-shore wind.

“As a steel producer we sit at one end of that supply chain we note a sign of immaturity in the market in the way it shrouds R&D. There is a lot of protectionism around. I am passionate about UK manufacturing. I think it could be done a lot better and I think automotive has proved that. But we must be more open about the way we collaborate and share.

“We’ve got to stop seeing things in terms of ‘what is the benefit for me?’. Of course as individual companies we have to have a good reason to be doing something. But we should try and see the bigger picture first and then share and learn through that, then there’s a bigger opportunity for all of us.

“How do we cause this to happen? That’s a real challenge.”

IG: Collaboration and sharing is the way forward. Big and successful companies recognise that. But we mustn’t be naïve. There are companies whose revenues rely on the IP.

“We could create a big change in the freedom of IP and our ability to extract value from it in the UK if we could change the way Universities act about the treasure trove IP stored within them. Universities have created a whole industry around the way they protect their IP. But time has shown there is little intrinsic value in it for them.

“The biggest value in IP to a University is seeing student or partner have a great idea, go on to make a lot of money with it in the business world and then becoming alumni and foundation sponsors. That’s the American model.

“To put an organisation around protecting IP in Universities is not, in my opinion, valuable. Particularly when so many of the solutions to the problems we have, exist within Universities.”

BH: “I think there’s a capability piece that sits in front of IP. Siemens does have protected IP in core strength areas that we have here in the UK. For example in our magnet technology there is a built up history of confidence and capability here. But in other technology areas we’ve had to bring in that capability from overseas – dare I say it? Trains are an example.

“Offshore wind is another example where you’ve got to have the capability, government support and a local intent to invest.

“As a company that is perhaps recognised more for foreign ownership than for what it has here in the UK, there isn’t an issue about creating knowledge and intellectual property here. The question is ‘is there a capability that can be tapped into?’. Traditionally the answer has been ‘no’. The gap between university research the commercial application has been too great.

“More recently, thanks to institutions like the Catapults that has changed and we have brought corporate technology functions to the UK.

“You’re right to say that offshore wind as a big opportunity. But we need a combination of government taking it seriously and showing that we have local capability and matching that with local intent.

“Of course we [Seimens] want to create jobs as the British entity of a global company. But we are looking for the levers to help us make that happen.”

DF: “So is the UK doing enough to make itself attractive?”

Deidre Fox, director strategic business development, Tata Steel

BH: “I’ve actually been quite impressed with government on this. There’s a danger that we [Britain] could slip into rampant xenophobia. We could look at companies headquartered overseas and say that their interests cannot be aligned with the interests of British manufacturing. And yet I am passionate about British manufacturing an Siemens footprint here in the UK, of about 8,000 people, creates a broader footprint of around 54,000 British jobs.

“That’s a fantastic outcome. And much though I’d like to bring all of Siemens manufacturing to the UK you have to except that complex decisions have to be made in global supply chains. That is something which is often overlooked – especially by media – when some high profile investment decisions are made in certain technology areas.

“I think government have done a good job in taking a balanced line between supporting clearly domestically owned and manufactured products but not closing the door to international companies that want to play here both in manufacturing and research. We [Siemens] feel well supported.”

DF:  “I have been in the steel industry for all of my career and I would agree that we see today, a much greater will from government to start to rebuild the manufacturing base in the UK. I think that’s stronger than we have seen it for some time.

“What is happening in automotive at the moment is a fantastic good news story and we should applaud it. We are not very good at celebrating when we get something right.”

CM: “The thing with automotive is that it’s been realised it not just manufacturing. It’s about design, art and culture.

“We’ve talked about all the talent that is in UK universities. But more companies ought to be taking that and nurturing it to new levels.

“The KTPs [Knowledge Transfer Partnerships] are brilliant. We’ve had six and it has massively upskilled our company. Normally, we wouldn’t have employed those people. If we’d had to pay their whole salary instead of getting 40% paid by government, we would not have taken them on.

“Some of them have now left the company – one has gone to the Royal College of Art and is now teaching others to become great car designers. I am very proud that he spent five years at my company.

“It’s not just about making the right acquisitions. Bringing on new talent makes companies confident and proud of themselves.

“We do have the potential to reinvent a period of greatness in British industry where many, many things are designed and made here to outstanding quality.”

AW: “When we acquire companies we make sure we do not do so aggressively. We’ve had to develop skill in courting the businesses we want. A lot of them are run by clever graduates who are extremely proud of what they do. So when a bigger company comes knocking they really want to know what you are going to do for them.”

TJ: “There is some public domain information about our strategy to that level. We did an investors workshop about 8 months ago and there’s a section on our website which talks through some of the critical scientific capabilities and technologies we’d like to develop. So that makes clear the kinds of companies we’re interested in.

“There’s around seven areas, each with a range of techniques within them. Our strategy revolves around acquiring technologies and techniques that are complementary to what we’ve already got.

“The next step would be to align that strategy and the gaps we are looking to fill with the curricula at universities and the kinds of abilities they can develop. We need to find synergies between where we, as a business’ see the future and the courses they are teaching. Then everyone can be assured that the skills will be taken on.”

HA: “In terms of finding the right people to support growth I would imagine Cab Automotive has had as big a challenge as any company in the country. John told me earlier that the company has grown from 125 staff in 2009 to over 500 today. How are you coping?”

JF: “With difficulty. As we bring youngsters in and develop and train them, out customer stake them. That doesn’t do much for supply chain development. But its difficult to see how you can stop it when our customers are growing at a similar rate – especially in this area where we have Bentley and Jaguar Land Rover just up the road and BMW within commuting distance.

“Last year we took on six apprentices and lost two of them before they finished their training to larger firms. I’ve lost another five members of staff in the same way.”

PH: “Do you know why you lose them? Do they get paid more?”

JF: “It’s the draw of the brand. An interiors company in Tipton can give you some qualifications, perhaps get you a degree and then you disappear – build up the CV. It’s painful.”

Plant Manager, GE Aviation, New Market

JK: “You’ve made a critical point about the draw of the brand. I spent 20 years in Wales making my way up from apprentice to management.

“We discussed this brand problem last year [at the first TM-IBM Annual Supply Chain Excellence Dinner]. In Wales GE takes on around 20 to 25 apprentices a year and we get 950 applicants.

“Partly that is due to the brand. GE is a well-known name, it pays well and it offers security. But the other dimension is that we work very hard to secure interest from talent.

“We work with schools. We work to support the image of STEM and with other organisations to promote engineering and Aviation.

“Don’t get me wrong – I know that as a large organisation we have the luxury of being able to afford that time and resource but you really do have to work hard with a brand to attract top talent for the future.

“We keep promoting our brand because we want that top talent. But not all locations have the same culture, event within the business.

“The new facility I’ve moved to in Newmarket is very different to the GE Wales facility. There’re just 75 people on site – and there are no graduate interns. In Wales we took on 55 a year.

“Immediately on taking on my new role [as plant manager] I’ve started talking about getting interns in and I got a note put in the local paper to promote that fact that we’d just taken on the site’s first five apprentices.

“I’m going to work hard on promoting our brand and in a two to three year period I expect to see us drawing talent in.”

RL-H: “I wonder whether SMEs could leverage social media tools to promote their brands more. Young people are so switched on to social media. They have to raise awareness in their locality of what they do and what they can provide in order to entice people in.”

AW: “I’ve started apprenticeship schemes in my past two businesses. But people don’t know about it unless you advertise. I went into schools and gave presentations. They needed to know what went on in the factory they could see out of the window.”

R-LH: “This is so important in facing all the supply chain problems before business. Whether it is cost containment, risk, globalisation, customer intimacy or logistics visibility that concern you, it’s skills that are needed to be able to tackle the issues.

“If you don’t have the skills and the knowledge, then your aspirations for your supply chain are not grounded.

“And I think particularly on the globalisation issue – which is demanding that supply chain become more flexible, agile and sustainable – the skills issue is going to be massive.”

AW: “We use a lot of suppliers in Malaysia because they have fantastic technicians – all trained on City & Guilds qualifications that were exported there.”

JG: “I think this raises a question about complacency and competitive advantage. We hear a lot said about the value-add and high-value manufacturing capability that is meant to differentiate the UK’s competitive offering. But, while this might have been true in the past, is it now becoming outdated?

“We are exporting our best training and other nations have high-value manufacturing strategies based on growth of services and solutions as well as straight forward production. China’s manufacturing base was 1% service-driven five years ago. Today it is 15%.

“In the same time, the UK has sat at about 30% service-driven manufacturing. So we are not growing or innovating in the arena that is meant to be our competitive differentiator.

“Tim – we talked before dinner about the risk management that you factor into supply chain management and procurement decisions. What kinds of risks are key?”

TJ: “Because we are so diverse geographically the biggest risk is in exchange rates. We sell globally, so we have to manage our supply chain in synergy with the proportions of sales in different regions, otherwise we are wide open to exposure from fluctuations in currency exchange.

“It’s not the key drive in supply chain decision making, but it is a key risk issue for us. When we make a supply chain decision or when we transfer money we have to carefully consider the impact it will have on our holistic distribution of spend.

“On this point though – and on the skills need by industry for growth in global market – I’d refer to my own career experience.

“I worked for 17 years in a big blue chip rail firm. I got my job with Oxford Instruments because I had experience working globally.

“Going back to John’s difficulty in retaining his skilled people. The fact is that the GE’s and JLR’s of this world can offer that broader horizon and build that global perspective. Perhaps those people will return to smaller firms in due course.”

JF: “I admit my own career was similar to yours. I worked for Jaguar Land Rover for 15 years. It’s only when you come down into the supply chain that you perhaps realise what you have learnt in those years. It makes you a very rounded person.”

GH: “I find it endlessly interesting to listen to the skills debate. I think people can be

Gareth Humphreys MBE, programme manager, MBDA

more assertive on solving the problems they want. For example; we touched on the lack of women in industry.

“There is a very simple process to solving this. For every engagement you carry out with schools and education, you can insist on a 50-50 representation of boys and girls. As a result of MBDA doing this, for the last seven or eight years our manufacturing apprentice population has been half female.

“It’s not difficult, but it took us about ten years to achieve the results we wanted. It’s a simple case that, as a whole, manufacturing does not look far enough into the future.

“MDBA has never raided its supply chain for people because we know it is a false economy. We take the approach where we bring apprentices in from our supply chain and show them what we do, so we build understanding of our business and processes in the supply chain. But we never recruit them.

“Furthermore, we have never lost an apprentice in 13 years from our Lostock Site.

“It’s all about sustainability. We only recruit from schools within ten miles of our site. There’s no need to go further. There are twenty schools in that catchment. It’s the simple old fashioned basics of apprentice recruitment and management that people have forgotten.

“If more large companies acted as we do, as a nation, we’d have a lot healthier manufacturing and supply chain relationships.

“We’re not good at selling what we do as an industry. Manufacturing probably does more for schools in its support for STEM subjects than any other industry. But we don’t tell anybody.

“Also, I was sat in a meeting last week where everyone was complaining that young people are coming out of school without the right skills for business and industry. But what are the right skills? We are duty bound as employers to develop people into what we need. There are talented people out there and we just keep knocking them.

“We need kids with great potential at the age of 16 than we can mould. I don’t need them at 19 or 20 – when we have to fund their education. I need my supply chain of skills to start younger.

“But I can’t get them because there’s a mix of different types of education fighting for them. UTC’s studio school, STEM centres – there are so many different types of school all fighting for student and industry can’t get in.

“What the hell’s going on in education? My supply chain is young people.”

TJ: “I agree. But I’m also worried that there’s not the same opportunity for kids in different areas of the country. I live in Derbyshire and work in Oxfordshire. I s see Oxford as the land of opportunity. We work a lot with local schools and they are receptive. But in Derbyshire it is not the same.

“I want my kids to know about and have the same opportunities as the kids in schools around my business.”

BH: “Department for Education seems to be moving in the opposite direction by dissolving the Connections service and devolving control of careers advice to individual schools.

“Gareth – what you talked about is absolute best practice for developing a local skills supply chain. But I think more broadly there is an image problem. We don’t have enough air time with young people. So yes, people are selecting brands over a generic engineering career and because schools don’t get it [industry] they are not going to help us on this.

“I too feel there is a responsibility for industry to step up.

“My supply chain is the network of systems integrators that deploy Siemens technology in industry. They consistently tell me that if they had more people they could grow. They could do more.

“And yet they are not able to navigate the complex skills system to draw down funding and find ways to engage on their own.

“We’ve used the Employer Ownership of Skills initiative to try and lead an initiative that encourages young people to join an apprenticeship scheme that will place them in our supply chain. That means we can use our brand, and the massive oversubscription we experience to our own apprenticeships and graduate placements.

“We can find opportunities for that surplus and we have a number of schemes going now for apprenticeships in systems integration. We are looking to do more.”

RL-H: “I’d like to pick up on the merits or otherwise of recruiting locally. I’ve heard that young people in the North cannot move to get jobs in the South because of the price of housing.”

DF: “I’d like to link this conversation on skills back to the conversation about supply chain openness we had earlier. I was with the Bloodhound project last week. It’s very inspiring but I was particularly struck by the fact that they have around 2,500 primary schools and 2,500 secondary schools following the development of technology and manufacturing capability for the next land speed record attempt – all of which has completely open IP.

“They monitor hits on their website every time they do something new and the spikes are enormous.

“IT just proves that if you can latch on to something that is sexy you will inspire interest.

“I took my children to see the Formula Student competition at Silverstone and was very pleased to come away with my son saying he would love to design and make cars.”

CM: “We have around 22,000 people through our factor every year. Half of them are still at school. It’s all about making you theatre of business seem glamorous to them.

“And this is actually where smaller companies can win because I believe there is something intrinsically uninteresting about mass production. It’s mechanised and impersonal – there’s not a lot to see.

“Of course the interest in knowing how it is achieved is immense. That is fascinating. But when it is all in place and working right – it often doesn’t look that impressive.”

PH: “I’d like to know how you can make making frozen ready meals sexy.”

DF: “You just made me feel better about steel!”

BH: “There’s a serious point here. If we accept that engineering has an image problem we need to look for examples of companies that have made the magic happen. JLR does this. It has brought design and manufacturing together to create an inspiring proposition.

“Charles, you said the automotive industry includes art as well as science. We need more universities and companies to acknowledge that. It would make jobs in the industry seem appealing to a wider range of people with the characteristics and skills we really need. It might also attract more girls.”

CM: “I like to talk about the theatre of the process. The excitement within that theatre is huge. You start out with nothing and you create.”

DF: “There is something about the age at which you attract people in though.

“Steel has a chequered past and a lot of associations with smoke stack industry. But three has been a lot of innovation in steel in the last decade. It’s a very different industry today, driven by energy efficiency, but that is not necessarily recognised.

“We’ve started a cadet programme that gets in ahead of the preconceptions. This takes children between the ages of 14 and 16 – much younger than we’re taken them in before. We place them in finance and technical roles, in operations, and they get to see the processes happening. They sit in the operations room in a rolling ill and in a blast furnace and, I can tell you, they are blown away – if you ever have the chance to do it I would highly recommend it.

“The real advantage of the cadet scheme though is the genuine feedback it has created. The kids that come here tell their mates at school abut their experiences and slowly but surely we are getting more people looking back at us in terms of a career.

“Now we are under pressure to deliver in terms of apprenticeship programmes and career development. But the earlier you get them the better. Personally I’d love to go in to primary schools.”

JG: “There’s an underlying message there in the innovation that has taken place in steel, matched with the sustainability challenges which are driving still more innovation – that you are actually nurturing a supply chain of skills for jobs that didn’t exist ten years ago.”

DF: “There’s a huge debate around the energy efficiency of steel production in Europe versus China and our ability to build the right skills base to be as efficient as we can will define our competitiveness in years to come. The cost of energy per tonne of steel produced in China is a lot lower than the cost of energy per tome in Europe.

“Mix that in with the added challenges around regulation for climate change and CO2 emissions in Europe and we will need people to be able to run very different types of business in the near future.”

JG: “Last year regulation was introduced which means UK-based companies must account for the Carbon emissions produced overseas in the total sustainability credentials of their business or products – what impact will that have on competitiveness?”

AW: “That is actually good for UK companies and for UK steel because UK manufacturers will be discouraged from buying Chinese steel.”

DF: “In theory that is true. But the challenge is that regulation is not yet visible enough. There are still too many supply chains – including the energy markets – that are fixated on cost of acquisition and therefore still buy steel from China because its upfront price tag is lower.”

RL-H: “This morning I caught a snippet of a report from the United Nations on sustainable supply chains. The report is online. It surveyed 7,000 companies globally. Virtually all of them said they have a sustainability policy and 87% said they had tried to communicate that policy down into the supply chain at tiers 2 and 3. Fifty three per cent said that this had failed. It seems to come down to a conflict between sustainability and current supply chain models which are all about containment of cost, agility and flexibility. Sustainability requires something different and is not supported by consistency of legislation and regulation across different nations.

“Everyone’s concerned about climate change and climate variability and we need to coordinate a response to that. But in the meantime we have to service our shareholders.”

HA: “Isn’t it a problem that China doesn’t care about these sustainability issues? It sees today as its time for industrial prominence?”

RL-H: “They do care. Because they’ve lost four fifths of their fresh water supply and there are areas with seriously detrimental air quality. They know they cannot continue on their current course and they are investing far more money than we are into developing sustainable best practice.

“Of course at the same time they are planning to build an infrastructure the size of the US’s by 2030 which means laying enough concrete to cover and area the size of Switzerland”

“So there are twin pressures at play on a grand scale, but they are responding to them and they are building their skills base.

“How long will it be before they can build an aircraft engine that is as reliable as one which is made by GE or Rolls-Royce; but at half the cost because they have a sustainable energy infrastructure and lower labour costs”

“This is why the Catapult Centres are so important. We’re good at research, which is about taking money and turning it into an idea. But innovation is about taking an idea and turning it back into money. We need to accelerate the rate at which we do this because at the moment we can’t win on energy and we won’t be able to win on labour.”

IG: “There’re energy costs that you incur through energy procurement and there’s energy costs that you generate with internal processes but so much of the sustainability agenda goes with the grain in reducing consumption and costs.”

“Marks & Spencer’s Plan A initiative is a perfect example of a programme that has made an overt link to sell to the board between the sustainability agenda and the internal cost agenda.”

DF: “There’s a bit around energy and making yourself efficient in businesses which – like we all are here – are high energy users. Then there’s the bit around the level playing field and the taxation regime across Europe. If we look at the energy costs for Tata’s production of steel in the UK we are 30-50% more expansive than our European counterparts purely because of tax regimes.

“So irrespective of what UK manufacturers do around efficiency – and clearly that is important – we’re got a negative position.

“To be fair, UK government is trying to take a sympathetic approach in terms of its ability to relax certain levies against energy intensive industries and we have benefited from that. But there is a big gap to close.

“I’d be interested to learn how other feel the cost of energy – including taxation – impacts on their business and what they are doing about it.”

TJ: “To summarise how you see the issues: the input plus the tax mixed with the issue of availability in the future – it’s likely there will be less supply and more demand in the country. We’ll be mothballing coal power stations but we don’t have enough nuclear power stations and there’s still a lot of debate over space and efficiency for wind farms etc.

“So as a business how do you deal with that? You can’t do anything about tax….”

DF: “Except through lobbying.”

T: “Right, that can help….but then we come down to the ability to invest in technologies and skills for sustainability. Tata is at the high end of the spectrum in its ability to invest. Other companies –while their costs may not be as large as Tata’s which is obviously extremely energy intensive – have less ability to invest.

“The challenge takes us back to our conversation about creating mechanisms for sharing non-IP related, non-competitive, information.

“How do we take Tata’s learning and capability in handling energy costs and share it among the many supply chains that could benefit.

“We have all sorts of green teams looking at efficiency in terms of swapping out electric lighting for LEDs and so on. But how do we come up with the best energy saving idea – I think the secret lies in sharing.”

DF: “A good question. I think there’s a parallel requirement to create a system which doesn’t just incentivise action on energy use and but incentivises the use of cleaner energy.”

AW: “But I think there are some big questions over renewable energy in terms of the base load needed to support them. Particularly wind. And then you get a low pressure are over the country and the turbines don’t turn.

“I have a real problem with some renewable energy policy where the level of subsidy for a chosen few is actually detracting from research into alternative forms of energy which could give us an edge against the US and its fracking policy.”

DF: “Your point is fair, but we can be a lot more creative around energy sources. We also segment all the different energy sources too much. We need to think more creatively about the energy network as a whole.”

JG: “Is that creative thinking something industry can do in spite of government. Look at the rate at which manufacturers are investing in creating their own energy. Yes that is influenced by feed in tariffs in terms of the type of technology they use, but it shows a will to have more control over security.

“Could this be taken further in terms of supply chains incentivising energy generation and sharing in a way that works for its own processes?”

BH: “I have an example if this.

“We do suffer from a long term legacy of under investment in energy infrastructure and government needs to change its view.

“But 60% of energy consumed in industry is consumed by electrical motors. One of the best ways to reduce that is through the use of variable speed drives. Obviously Siemens has a vested interest in saying this – we have a big factory for variable speed drives in Congleton. But actually we do know what we’re talking about.

“Yet incentivising companies to invest in technology which could dramatically reduce their energy bills is so bloody difficult despite all the obvious mathematics.

“We got to the stage with one of our glass sector clients where we said we were so convinced of the energy and efficiency saving we could achieve that we will install on a risk-profit share basis. Then they started to listen.

“They had government incentives but it was only when we offered to structure our contract so that we rolled out the technology and were then paid on the basis of the money we saved that they were willing to move forward.”

DF: “That is the kind of thing which makes far greater progress. Because it is about sharing risk and ultimately, any supply chain is about managing risk from start to finish. How do you shape up and share that risk and split the returns.

“That’s a beautiful example.

“Tata is not doing anything similar except in-so-far as it is developing ways to give customers visibility of long term steel prices.

CM: “This is a lovely story. But let’s be realistic. We are all in business and we are all trying to make advantage.

“I suggest that the bigger companies tend to use the smaller companies but actually don’t share the risk at all.”

JF: “I agree. To start with, larger companies expect smaller companies to be their bank which is ‘interesting’. But then you’ve got you cost-down initiatives where you have to deliver in order to sustain your business with a customer. So you deliver 3% year-on-year saving or, if you want new business you deliver a 5% saving on your existing business. So you are forced down a route of drastic action.

“During the recession that caused us to vertically integrate. We make a seat for the Land Rover Defender. Eighty five to ninety per cent of that seat is now made on one site and the efficiency of the new strategy has brought benefits. But the customer wants those benefits back again.

“It’s an unfair world out there and unless larger organisations refrain from some of the actions they are currently taking its going to get worse.”

JG: “Picking up on the point of customers wanting to absorb the benefits of the advances and investments made by smaller firms, I’ve heard that the food manufacturing supply chain is particularly badly affected by this.”

Conversation after this point was not recorded.