The issue: What are the opportunities for, and barriers to, growth in advanced manufacturing in the North East?
The North East’s dependence on a successful manufacturing industry is an incontrovertible fact, delegates asserted as they got to grips with BQ’s latest live debate.
An equally unshakable truth is that, for the region to compete globally long into the future in this crucial sector, the opportunities emerging among the industry’s frontline pioneers must not be missed.
The Adonis Review and numerous other analytical sources have identified advanced manufacturing as a vital part of the current and future economy of the North East.
And manufacturing experts gathered in the Stadium of Light’s James Herriot suite recognised a need to embrace innovation in the sector to help build long lasting success.
John MacIntyre put the issue into context. His employer, the University of Sunderland, has a long history of working closely with manufacturers to help them achieve growth and better conduct their business.
A forerunning facility of the university, Sunderland Engineering Technical College, became the first institution in the country to offer industrial sandwich degrees in 1904 and more recently the university has forged close ties with major manufacturers, including Nissan.
“Manufacturing is vitally important to the North East,” MacIntyre said before explaining that around 14% of the workforce in this region is in manufacturing, representing around 130,000 people, which is proportionately higher than other regions of the UK.
But does that mean the North East is more vulnerable if things change in the manufacturing markets as indeed they did in the late 1990s and early 2000s?
“What we saw then was the advent of low cost competition and an awful lot of manufacturing activity being offshored. We were being defined as an area of branch manufacturing, with employers having their head office somewhere else. We were working with a lot of companies at the time and the entire conversation was about there being no stickability to the manufacturing situation here.”
Since those darker days in the sector, success in the North East has been partly built on a growing reputation for increased productivity through innovation, as exemplified by Nissan.
“One of the elements that defines advanced manufacturing is a commitment to innovation. The great success story at Nissan is predicated on innovation but not on invention. It’s based on being extremely good at making vehicles in a very productive and efficient way. They innovate their manufacturing process but they are not doing the product design of the vehicles.”
While the ability to innovate creates new opportunities, STEM (science, technology, engineering and maths) skills shortages are a threat to the industry, MacIntyre warned.
However, amid talk of a manufacturing renaissance, there remains cause for optimism, so how can the North East take full advantage?
Clearly the ability to diversify into new markets or towards emerging opportunities has an important role to play. Under various guises over more than 65 years, Gestamp Tallent has certainly shown the agility to do so in a lifespan that has taken in such disparate product lines as washing machines and women’s compacts. Today the Newton Aycliffe firm is a thriving automotive parts supplier.
Roger O’Brien said: “As we moved through some of the difficult times that we had, as recession hit, we did look at whether we needed to diversify to keep people within the business and retain the skills. But we are very much focused on automotive as we’ve grown and become part of a multinational parent with Gestamp [its Spanish parent] then I don’t think we have the agility now to retransform ourselves from being an automotive supplier into something else.”
Another large manufacturer with a long history in the North East, Caterpillar, has also pondered diversification in search of new opportunities.
Phil Handley, managing director at the group’s articulated trucks division in Peterlee, explained how evolving emissions regulations and carbon directives have led it onto the road of new product development.
“For the past seven years we’ve been on a path to improving the emissions that come from the product and this year we launched an emissions compliant engine that’s used in the higher regulated areas of the world like America, Europe and Japan. Next year, as we’re now compliant with emissions, our focus will probably change towards looking at what weight reduction we bring to the machines, what cost reductions can we make and what features can we build in that customers want.”
Alongside market conditions like new carbon legislation, what part does the workforce play in advancing manufacturing into new areas?
Andrew Hodgson: “We talk a lot about economies needing skills and economies needing manufacturing and value added. I actually think it’s the other way around, whereby economies arrive because you’ve got value added and you’re creating spaces and sectors. That’s not to say that those don’t then need services and support. But you need value creation to create an economy and if you want to create a high value economy, you create that by having the highest level of skills.
“We try to get the best skilled people and give them the biggest amount of scope to develop and grow and come with ideas and innovate and try to develop the business. There’s no such thing as a stupid idea. Renewables and mining are two examples of sectors that we’ve got into because someone’s come into my office and said ‘we should try this kind of stuff with our capability’. Not because we had a strategic plan to go into those sectors. So if you have bright, skilled and intelligent people, they are what create the business, not the other way round. Advanced manufacturing for me is where intellect and knowledge are the key drivers and creators of value, not the factories, space, physical manpower.”
Agreeing that intellect underpins advanced manufacturing, Roy Sandbach said: “Advanced is a rather old term. It resonates with the word ‘innovation’ but as soon as you say ‘innovation’ people automatically think of product or process. In reality, in the manufacturing organisations around this table, their innovation is in product, process, business model, cost, marketing, sales, design, skills development or organisational form. It’s all of those things. In an advanced manufacturing organisation, there’s some degree of innovation happening all the time in virtually all of those areas.
“The issues are skills – have we got the people who are capable of grasping that novelty? – and also risk, because every time you try to get to leading edge, you are risking something.”
Andrew Hodgson: “Risk is very important. It is perceived as a negative statement but it’s actually positive and smart and intelligent people apply their skills to manage risk. Financially, that’s where you actually make your return, by taking risk. If you don’t take or manage risk, you’ll never make a decent return out of a business. That’s why you need to be in this advanced state.” John MacIntyre highlighted prominent examples of where a combination of risk taking and innovation around business models had paid off among North East manufacturers, while Odin Taylor explained how his organisation was able to do this in its shift out of automotives into oil and gas and other sectors.
Chris Hylton, who works with small businesses in his role at the North East BIC, was asked whether there was a steady stream of start-ups with innovative ideas blossoming in the region.
“The vast majority are continuing with conventional business and just wanting to make good business decisions and try to make a profit, and they deserve a medal if they do in these competitive conditions. People have got to be fairly determined to make a change if they come in with an innovative idea because it takes up so much resources, time and money, and despite the fact that on the BIC the innovation programme has been giving away tax payers’ money, it’s surprisingly difficult to do so because people of course have to fit the criteria.
“With nearly all grant funding schemes it is paramount that jobs are created. But with a lot of good business decisions and a lot of investments in capital, you’re going to need less people after the investment rather than more. So I would ask that grant funding schemes reprioritise their criteria so that job creation is second, third or fourth on the list. It has to be a good business decision that leads to more business, more exports, wider markets, new products and growth, which then perhaps leads to taking on people. And that would improve our international productivity which I’m told is still woefully low. We need to improve our output per person.”
Gavin Townsend: “Surely defining advanced manufacturing is about providing something that’s better and more completely supports a market or a customer need – perhaps an unmet need. Perhaps what leads from that is the design and development of manufacturing processes and value adding products that provide competitive opportunities. So they might not provide the jobs in the first instance but the innovation comes from that and the jobs will follow thereafter.”
Chris Hylton: “It’s a brave politician who says ‘it’s not about job creation’ though.”
John MacIntyre: “Increased productivity has resulted in a reduction in jobs and being more efficient and lean does potentially need fewer people. The strategic economic plan from the North East LEP talks about ‘more and better jobs’ and it’s the ‘better jobs’ that I think is the answer in manufacturing.
“In trying to support manufacturing, is there a conundrum there? The lead time between the innovation and when jobs follow is potentially an economically and socially challenging issue, but it’s the inevitable consequence of being at the head of the value chain.
“In the 1990s and 2000s we saw the effect on the North East manufacturing industry that had been large but was not at the head of the value chain. We were only competing on price and if you’re doing that with South East Asia, you’re going to lose and that was the drive to offshore.
“More and more now the market is looking at the challenges that came with offshoring and reversing some of that policy. But the problem is we’ve lost both capability and capacity in the North East manufacturing base. Once you’ve got out it’s pretty hard to get back in.”
Chris Hylton: “Initially we’d have to bring people from abroad to help us fill the gaps.”
Paul Varley: “I look at advanced manufacturing as effectively brains not brawn. If it’s brains we’ve got a competitive advantage but if it’s brawn then we’ll never be able to compete with the Far East. So it starts with great ideas from great people and we then have to drive it through the businesses that get located here and cultivate them, invest in them and support them.
The biggest challenge, and also the biggest opportunity, is collaboration within the region. We need to collaborate better because for me, when you’re at the top of the tree in an organisation in this region, and you’ve got a smart idea to do something, you’ve then got to look at your supply chain around here and ask if it’s a local supply chain. It may just be that instead of using the brawn in Asia, it’s better to do it here.
Then you get the better jobs – because you’ve got the brains – and you get the more jobs, because you’re bringing lower skilled work.
Andrew Hodgson said there is a clear recognition within the LEP’s 30-year strategic economic plan, that manufacturing in the region needs higher spec rather than simply more jobs. “We’ve got some systemic issues within the region and we need to face up to them and short-termism isn’t going to get us there.
The easy reaction is just to say ‘let’s do some job creation stuff’ but we’ve proven now that’s not sustainable. It’s going to mean some very challenging conversations in the next few years. Are we going to be brave enough to say we’re only going to support companies who are bringing an R&D centre here, for example? There are going to be some really difficult calls.”
Vince Taylor: “In manufacturing the GVA generated by an individual is around £35 to £40k. In financial services in the North East it’s about £15k. It’s barely paying the wages because we have customer service desks here. In some respects it doesn’t matter how many people are employed in manufacturing because, if the economy is aligned to it, and if the service sector understands it, then it works well.”
Taylor also questioned whether manufacturing could be used to help boost tourism.
“We can celebrate the industrial heritage of the region but maybe even look forward as well. One of the problems with our museums and our education is that it looks backwards. It doesn’t say what manufacturing is like now, or even 10 years ago, and certainly doesn’t say what it’ll be like in 10 years time when the people at school now might be leaving. Part of the problem in getting young people interested in manufacturing is getting them to understand just how exciting it can be.”
The discussion then moved on to the issue of cost associated to R&D and in generally pursuing the opportunities at the advanced end of the spectrum. As a drugs manufacturer, Dianne Sharp works in a field which is perceived to have a particularly expensive route to market.
She said: “The pharma sector has an awful lot to learn in terms of efficiency of manufacturing and embracing new manufacturing. It’s got by over the years on very good returns and blockbuster drugs. Now they’re having to look at the efficiency of the entire supply chain. Up until two years ago the number of drugs being licensed each year was dropping but the R&D bill was increasing. So they were getting less bang for their buck.
Where my business is seeing efficiencies is in embracing that old technology around agility and flexible manufacturing. While our science is great, the manufacturing [processes] are not as cutting edge as you might think.“
On the issue of R&D, Sharp underlined the quality of work being undertaken at the region’s universities but also warned that beyond academic circles R&D is being scaled down in the pharmaceutical industry.
“It’s much more about spinouts and not about companies having big R&D sites. [Big firms] are watching what’s going on in the market place, allowing spinouts to make the expensive mistakes, and then buying into them.”
So what of the prospects for growth in the white-coated quarter of manufacturing?
Sharp said: “The process sector is massive in the North East, it’s thriving. Ok there might be divisions rather than UK headquarters but let’s not underestimate the amount of people, technology and GVA that’s being generated in this region. It’s growing and vibrant.”
Meanwhile, in terms of small businesses which might drive future opportunities in advanced manufacturing, few are showing as much promise currently as Tyneside-based iEvo.
Having last year received a £250,000 boost from the Finance for Business North East accelerator fund, the fingerprint scanning technology firm is eyeing up global markets ripe with opportunity.
Managing director Shaun Oakes said: “We’ve utilised as much resource as we can within the North East but we’ve had to use some resources overseas, which puts me in a very uncomfortable position because I like to be able to control stuff and do it locally.
Five years ago I had a dream on how I wanted to future proof our business. To be able to achieve that we had to come up with some forward thinking ideas. Ultimately to bring more things in-house we’ve had to look at what I would class as advanced manufacturing techniques. To me this means going back to the core design of your product and thinking, ‘ok we’ve done it this way for so long, these are the problems that have been attributed to that so how can we redesign our product to future proof us, enhance the technology and bring us more manufacturing and use more local sources?’ ’’
Moving on to the issue of bringing new innovative ideas into the manufacturing industry, it was acknowledged that colleges have a vital remit to deliver.
Judith Quinn: “The need to give young people the skills ready for employment will always be there. But also there are other courses where you are trying to teach them to be innovative, come up with new ideas and present themselves in a way that is suitable for employers.
“The hard thing is making sure the advice and guidance we’re giving is putting them on the right path and leading to something that makes it worth them investing in their education.”
And are colleges working closely enough with manufacturers to bring talent into the sector?
Paul Gough: “I would like to think so, with half of our turnover now coming from employer-led provision. In terms of advanced manufacturing, the biggest skills gap we’re addressing is multi-skill maintenance technicians. We’re doing that through apprenticeships and we’re in a fortunate position that Nissan is our biggest client. We have 200 multi-skill maintenance technician apprenticeships on five-year programmes but the issue in the sector is that we just don’t have a critical mass of employers wanting to take on apprentices.”
Shaun Oakes: “We’ve employed five apprentices in the last four years. I think there’s an opportunity here with start-ups. A small enterprise has the opportunity to take a younger individual and mould them into that new business to help them grow with the business. I wouldn’t give our apprentices up for anything.
“We need to get small enterprises to understand that they can get a valuable worth from the apprenticeship scheme and even dip their toe in the graduate schemes.”
John MacIntyre: “There is also an issue of how many young people want to go into manufacturing in the first place. Couple that with the population decline and there’s going to be a point when there are fewer 16 years olds anyway, and even fewer wanting to go into manufacturing. There’s an ageing workforce and companies like Nissan needing to refresh their workforce with technical and production skills. There’s a deep, systemic problem that I don’t think anyone’s cracked yet.
There are lots of examples around the world of people trying to solve it at the macro level. We’ve seen one example in Australia where schools and employers are working as a consortium and taking a completely different approach to the teaching and inspiring of engineering and technical skills. But we don’t have anything like that here but we need it.”
Roy Sandbach: “It’s easy to whinge on about this. We could deal with this if we really wanted to. Look at the JCB academy, for example. It’s JCB oriented with a full curriculum, an orientation towards STEM and it’s a straight forward academy for 14 to 18-year-olds. We could do that in the North East, there’s absolutely no reason why not, it simply requires businesses to get together to do it in a series of different places with the support of the further education colleges. This is what I call disruptive innovation. It’s not incremental stuff, it’s disruptive, so let’s just get on with it.”
Paul Gough: “The Volvo system in Sweden would deal with lots of the issues we’ve got here because it’s an engineering school which covers all the main trades, and at 14 they do STEM subjects at school. At the same time they get four years in the studio. So after four years in the system, by age 18, they’re at the level that a level three apprenticeship would be in our system. It has a 98% success rate, with the other 2% channelled to go to university to benefit Volvo in due course.”
The conversation moves to the issue of graduates and Robert Trimble is asked whether there is still a reluctance among university leavers to enter the manufacturing sector.
“It’s always been difficult to get students to come into engineering. We try hard to push it as a career on school visits and also have put in a new pathway into engineering by having a foundation year which students can do without the relevant qualifications. So there are ways around the problem. Another issue is that there are already current employees who may have been with a company for a number of years with the knowledge and capability but not necessarily the higher qualifications which would take them onto that next level.”
Returning to the issue of enticing more young people into engineering, Iain Pritty said: “The highest number of undergraduates at the moment are going into law degrees but there are no jobs in law. When I visit clients like SMD, I see these fantastic bits of kit being built which are being used in situations like oil disasters and I think we need to use things like that to get youngsters to understand what being an engineer is. If you’re making biometric fingerprint readers, that’s exciting, as are things that can go three miles under the sea, but nobody understands it as engineering.”
John MacIntyre: “And it’s not 14 that we need to reach back to, it’s eight or nine. By the time they get to 14, it’s too late in terms of making educational choices. There has to be a real paradigm shift in the way we present and teach the core disciplines like maths and physics. We’re almost limiting half the population with very few girls going into engineering disciplines. Is there a way to get more girls enthused by the idea that the sector is a viable choice for them?
“We also need new approaches to teaching the subjects to link them to the creative process. It is a creative process – you take a lump of something and turn it into something else – and there’s also a design element to it. We’ve fallen into a kind of outmoded lazy way of teaching the fundamental skills and the principles of engineering and manufacturing. It’s not a schools, further and higher education or an employer issue, it’s an everybody issue.
In Australia everyone’s working together on it and they are engaging more girls and do everything in the context of the creative process, and that seems to be having better results than anywhere else and that’s something we can learn from.”
Phil Handley: “Last year we had 12 apprenticeship places and 1200 applicants. We’re working with local schools in Peterlee and have some great partnerships, but there’s an issue around funding. When we take somebody out of their sixth form, the school loses funding. The schools are not encouraged to try to put people through to engineering. So there’s definitely a conflict of interest there.”
Paul Gough: “In schools the advice has always been, if you’re bright, do A-Levels and go to university. But now we’ve got this higher apprenticeship offer. Parents can see the choice between the £60k cost of going to university against the year of college and day release, the chance to be an engineer, travel the world and have no debt. Principals are asking how can they do STEM at a much earlier age and how can they improve information, advice and guidance. So we’re moving away from the conventional route of degrees. The problem we have is if a sixth form loses its students to higher apprenticeships they lose income.”
Dianne Sharp: “There’s lots of things we want to push in terms of policy, but what can we do tomorrow that might change this agenda? It’s about creating a pull from the young people so they want to work in this industry. With work experience we have a two week programme where you have to spend time in every department. So no department is taking on a burden of more than half a day and there are actually work books they go through to understand what business really is. So when someone leaves the programme, there are 20 jobs they have experience of and might get interested in. If you bring the opportunity closer to the young people then nine times out of 10 they’ll reach for them.”
Gavin Townsend: “It’s interesting that a relatively high proportion of students choose to go through an engineering degree and don’t do engineering at the end of it. Perhaps academics need to be fresher in their thinking about the education programme and perhaps there’s a need for collaboration at that end.”
John MacIntyre: “The problem is there aren’t enough who choose it as a subject in the first place. We’ve got to rethink the way we present engineering and say it’s a creative career.”
Chris Hylton: “We really have to wrestle this word creative back from the arts. The ingenious solutions that people come up with to solve the world’s problems is incredible.”
Hylton also argued that the salaried value of engineers is mismatched to the importance of the work they do. “The Germans worship their engineers, the French worship their scientists. We’ve got to be doing a bit of both there.”
Suggesting that the undervaluing of engineers may be a misconception Andrew Hodgson said: “I’m losing engineers in their 20s who are going to Aberdeen typically for significant six-figure packages. Engineering does create significant amounts of wealth. We have to break that perspective without giving kids the wrong message that it’s about making money. But actually from a lifetime career it creates a significant amount of wealth. We have to ensure people know that.”
Iain Pritty: “Surely that comes down to the PR of the businesses doesn’t it?”
Andrew Hodgson agreed and explained that he continues to push hard to replace outmoded perceptions of what manufacturing is in the North East with new and exciting undertakings. “If it means I have to take people round a robotics factory I will,” he said.
Roy Sandbach suggested the North East might learn a lot from a programme in the US he witnessed in his days at P&G.
He said: “Cincinnati [home of P&G’s HQ and a major GE base] initiated a programme called Strive, a cradle to career engagement between businesses, schools, local authorities and universities with the intention of building a greater and better number of skills, going through to STEM-based education and then careers. It’s been unbelievably successful, driven by businesses, and has expanded out to 20 different cities.
It’s interesting that we don’t have schools around this table – this is often a gap at discussions on this issue. The teachers just don’t know about the stuff we’ve mentioned tonight. If we were really together on this we could apply one of these best practice examples. This is only a two million population region and it is manageable.”
Andrew Hodgson said such programmes are in the offing, but also warned that, as well as education and government, businesses also must do more to fix the skills shortage hindering advanced manufacturing. “The best people to provide information, advice and guidance and to inspire young people are businesses.”
He also cited recently launched regional initiative, the North East Schools Challenge, as a step in the right direction. It encourages businesses to boost sector skills by interacting with the hundreds of primary and secondary schools in the region.
As the debate neared conclusion, a statement was read from Ralph Saelzer – managing director of Sunderland-based crane maker Liebherr – who was unable to attend the debate.
In it he warned that: “The lack of will of businesses to invest is the biggest challenge – unfortunately a large number of businesses are not willing to invest in equipment and staff development. As long as this hurdle can’t be cracked the region will struggle to be competitive.”
Summarising, John MacIntyre recognised that, despite numerous barriers, there is a will from businesses and educational organisations to work together to tackle the barriers to accessing new manufacturing opportunities. He acknowledged the importance of innovation in all aspects of business, not just process and products and concluded that of the points raised, the need to enthuse young people about advanced manufacturing is the most pressing.
He said: “Engineering and manufacturing is creative and can inspire young kids. If we can get that across, we’ll be on the right path.”
Going forward: barriers that must be broken down
It was recognised in the debate that opportunities for growth in advanced manufacturing will increase if the following barriers are removed:
A reluctance to invest in the most advanced equipment available, which might result in fewer employees being needed.
The need for far more collaboration among businesses of all kinds, to share ideas and develop indigenous supply chains.
Realisation and acceptance of the need for long term perseverance in looking for rewarding results.
Reluctance among companies to accept a risk factor in seeking to take products on.
While more jobs need to be created in the North East, they need to be increasingly highly skilled jobs.
The need to loosen the politically motivated tying of grants and loans to the number of new jobs created alone, looking more at benefits achievable in other aspects of a business such as growth and exports.
Not enough effort made in present manufacturing to see rewarding opportunities to be had in supporting the service and leisure sectors, including museums that currently look too much to the past and not enough to the present and future in exhibiting.
Not nearly enough manufacturers are taking on apprentices despite incentives.
Flaws in apprentice funding often making it uneconomic to provide the necessary training.
A lack of dedicated academies in the North East to compare with the JCB Academy in Staffordshire, the Volvo School in Sweden and other paragons in Australia and Cincinnati.
Lack of awareness about the financial and vocational rewards engineering offers.
Not enough endeavour made to attract young women into apprenticeships and
A lazy approach to teaching skills is a weakness on all sides.
Schools are not encouraged by the existing funding system to encourage engineering.
A need for engineering to recapture from the arts the associations with ‘creativity’.
A need to acknowledge that innovation does not necessarily mean devising new products but that it can be nurtured in any department of an organisation.