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The US manufacturing sector benefits from their nation’s global strategic goal to remain the most powerful country in the world militarily. This requires a large innovative manufacturing sector and the Department of Defence is a major spender on industrial and technical R&D.  Federal decisions need to be based on good analysis and the Institute for Defence Analysis operates three federally funded research centres to examine the scientific and technical aspects of national security issues.  Just over a year ago the Institute published a major investigation into Emerging Global Trends in Advanced Manufacturing. The report identified 5 overarching trends supporting the development of advanced manufacturing globally:

engineering_0071) the ubiquitous role of information technology
2) the reliance on modelling and simulation in the manufacturing process
3) the acceleration of innovation in global supply-chain management
4) the move toward rapid changeability of manufacturing in response to customer needs and external  impediments
5) the acceptance and support of sustainable manufacturing

The report concluded that in particular countries, the development of advanced manufacturing depends on some factors that a country’s government can influence, such as infrastructure quality, labour skills and a stable business environment. On the other hand, the size of the market and growth potential are the primary reasons why companies choose to locate in a particular country or countries.

Just over eighteen months ago, another US think-tank, the Third Way, published a report entitled Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy. The authors, Devon Swezey and Ryan McGonachy, concluded:

Advanced manufacturing is critical for the future prosperity of the U.S.economy. Not only does it have the potential to generate and sustain many jobs throughout the economy, but it is a key source of innovation, productivity gains, and exports. A robust advanced manufacturing sector is also a prerequisite for developing new technologies that will form the basis for tomorrow’s innovative growth industries.

An important context to this conclusion is the fact that at the start of this decade China became the country with the largest manufacturing sector in the world, in terms of value added, overtaking the US. Inevitably this has focused the US policy discussion and think-tanks like McKinsey have been investigating the likely future manufacturing trajectory of China.

Earlier this year McKinsey published a study that concluded as value chains become more complex, and consumers grow more sophisticated and demanding, China’s manufacturing must adapt significantly. Currently manufacturing growth in China is slowing more quickly than aggregate economic growth. The June 2013 manufacturers’ purchase managers’ index fell to 50.1 (in the UK it rose to 52.5). McKinsey have identified 4 factors which challenge China’s manufacturing growth.

LCD Touch Screen Tablet with USA Map1. Rising factor costs particularly labour costs.

2. Rising consumer sophistication:  McKinsey research suggests that by 2020, the income of more than half of China’s urban households will have moved  into the upper middle class. The members of this group already demand innovative products that require engineering and manufacturing capabilities many local producers do not yet adequately possess. This challenge confronts many sectors – appliances, chemical, electrical and office machinery, pharmaceuticals, telecommunications gear, and transportation equipment – sectors which compete on the strength of their R&D, technology, and ability to bring customers a steady stream of new products and services.

3. Rising value-chain complexity:  Greater affluence and rapid urbanization requires product makers to manage, make, and deliver an array of increasingly diverse and customized products to increasingly remote locations. Between now and 2015 almost two-thirds of the growth in demand for fast-moving consumer goods in China will come from smaller cities, which outnumber their major counterparts, such as Beijing or Shanghai, by a factor of 20.  Product proliferation and booming e-commerce also contribute to value-chain complexity.

4. Heightened volatility:  The uncertain global economic environment since 2008 has complicated Chinese manufacturers’ environment substantially.  Volatility makes planning difficult for China’s manufacturers especially those that routinely make large, long-lived capital expenditures whose returns are crucial determinants of performance.

McKinsey suggest that the best response to these challenges for Chinese manufacturers is development across their organisations. For example, significant potential remains in the application of Lean and Six Sigma. Plant managers in China often focus on “hard” technical tools at the expense of “softer” ones involving mind-sets and behaviour.  For example, a recent lean-manufacturing transformation at one state-owned enterprise fell far short of its efficiency targets when managers and supervisors failed to complement the otherwise excellent technical changes with the necessary softer skills – including leadership.

Product-development roadblocks need to be overcome. Accelerated product development with time compression and concurrent engineering have long been the desired norm in advanced countries and Chinese manufacturers must acquire these demanding capabilities to service the fastest growing segments of their consumer and related markets.

SCG-chainsMost Chinese consumers are changing faster than supply chains are adapting. As companies look to move their footprints closer to customers in Tier-three and Tier-four cities in China’s interior, a likely change will be the long-term development of logistics hubs and assets so that they are better positioned to serve booming demand for online purchases . However, these investments are risky.  Chinese companies with global plans must get also closer to customers in the West. There are reports that a few of the largest white-goods makers are thinking about expanding their assembly and test activities in the developed world, because they recognise that they can no longer adequately serve it from existing Chinese manufacturing hubs.

We noted in an earlier article that the National Advanced Manufacturing Competency Framework developed by the US proposed very high levels of skill for employees throughout manufacturing organisations including high levels of soft skills achievement. Indeed, the US vision of advanced manufacturing is soft-skills intensive. This approach makes clear strategic sense in view of the difficulties that Chinese manufacturers have encountered working with simpler models of operational excellence.

It is sometimes forgotten that Japan remains the third largest manufacturing country in the world after China and the US and ahead of Germany.  In terms of manufacturing value added per capita, Japan is second only to Switzerland, ahead of the US, Germany and Singapore.  Japanese manufacturing has maintained this position despite the rapid growth of nearby Chinese manufacturing.  Understandably, manufacturing in Japan today has developed to focus primarily on high-tech and precision goods. Part of the Japanese model is extensive global FDI illustrated by the recent Hitatchi decisions to establish railway engineering in the UK and to bid for a new nuclear power generation contract at two sites in the UK.

Japan is taking action at national level to maintain its global manufacturing  position and accelerate growth in new advanced manufacturing sectors.  In 2010, the government approved an economic growth strategy
re-released in July 2012, called the “Rebirth Strategy for Japan”, which lays out social and economic goals for 2020. This strategy seeks to leverage Japan’s strengths in manufacturing and technology, to deliver US$ 1.3 trillion in new industries and 4.7 million jobs by 2020.

It is important to tease out the implications of the vision of advanced manufacturing that is under consideration here.  The value dynamic starts with the consumer and her or his appetite for complex new goods and services which are customised to their particular tastes and quite possibly investigated and ordered while he or she is on the move. In the UK part of this dynamic has been explored by the Institute of Manufacturing in Cambridge for several years and latterly by Aston University in Birmingham. Aston have just issued  a new report which finds manufacturers that incorporate useful services with their existing products are realising business growth of 5 to 10 per cent a year.  The study explains ‘servitization’, the concept of adding technology-led services to manufacturing, and its potential to represent 50 per cent of a company’s revenues.

iStock_000012107866SmallAston’s ‘Servitization Impact Study’ finds that servitization also reduces costs of up to 30 per cent for manufacturing customers by helping them to simplify business operations and streamline labour-intensive processes. Manufacturing and service are still largely thought of as separate, self-contained sectors. Aston sees that a huge opportunity exists to promote more manufacturers to compete through services. Professor Tim Baines, Operations Strategy, at Aston University said; “The distinctions drawn between manufacturing and services are artificial and unhelpful, when in truth the two are already coming together in a way that is re-shaping the future of U.K. manufacturing.”

“Our work with Aston University and Professor Baines in recent years has revealed huge potential for our economy but it will take a shift in mind-set, organisational structures and operations before the promise of servitization can be truly realised,” said Alan Charnley, Managing Director of Xerox U.K. and Ireland, a co-sponsor of the study. He added; “Industrial operation is becoming increasingly sophisticated and services are a huge way to make that innovation count.”

The study was launched at the UK Servitization Summit for Industry, hosted by Aston University in May. The value dynamic we have been exploring aligns very well with the benefits of servitization. Within this perspective innovation is driven by better meeting the customer’s needs and wants in a manner which suits their lifestyle choices. Manufacturers who develop through servitization are engaging with the opportunity to make better connection with these drivers. This engagement requires a rich skills portfolio – one which combines technical skills with a high level of soft skills.

Throughout the value chain the best standards of operational excellence must be adopted. Industry Forum has experience in depth in working in both manufacturing and services and, particularly in the food sector, in working across the manufacturing/services boundary.

Further Information:

 

Last month we suggested, following the Workplace Employee Relations Survey, that across the economy at the moment too many workers are simply working harder, rather than increasing the output of their work groups. Training in team working and problem solving occurs in too few workplaces and the percentage of workplaces offering training in these skills has fallen. The number of firms training in quality control has increased slightly but there must be concern about the quality methods used. The competitiveness implications of these trends do not look promising.

Anticipating this conclusion, LLAKES, the Centre for Learning and Life Chances in Knowledge Economies and Society, published a study, Adult Training: The Implications for Competitiveness undertaken by Geoff Mason and Kate Bishop at NIESR. Drawing on the Labour Force Survey data between 1993 and 2009, they found that as far as younger graduates and employees holding NVQ4 qualifications are concerned, training levels were lower in 2009 than in the mid-1990s and that across the workforce, as a whole, training levels had fallen back to 1993 levels.

iStock_000015935079MediumThese trends have affected different groups in different ways. Training for low qualified individuals has remained level throughout the 2000s but they are still below those for more qualified employees.  The fall in training in the 2000s has been concentrated in the more qualified segment of the workforce. One hypothesis is that when graduates take on non-graduate jobs, employers do not see the need to train them.

Mason and Bishop contrast these trends with evidence that employers are increasingly aware of developments in the global economy leading to new training needs. Skills gaps do not emerge from previous patterns of training, they suggest, but stem from the need to introduce new processes  to keep up with global competition.

The Skills and Employment Survey 2012 has just published its first findings, which confirm that the volume of training has fallen. The proportion of workers engaged in more than 10 hours training annually has dropped from 38% in 2006 to 34% in 2012, although amongst workers at all levels of education there is a rising demand for training. Reviewing this trend, the authors (Francis Green, Alan Felstead, Duncan Gallie and Hande Inanc) suggest that the trend in training volumes is an indicator of changes in business strategies. Training volume is influenced by employers’ plans for work organisation and new technologies including their commitment to high value added strategies with complex and more dynamic product specifications.

The combined effect of this evidence from a variety of sources must be a concern about how much the continued flat-lining of the economy is the result of too few firms with ambitious strategies based on the pursuit of a globally leading competitive position.

pound notesThe Office of National Statistics (ONS) has started to measure the volume of investments in intangible assets – training, software, reputation & branding, R&D, design and business process improvement. So far ONS have only published data for two years – 2008 and 2010. Intangible investment dropped 15% to £33bn between these two years.  Only in design did the percentage of firms investing remain the same between the two surveys. In every other category the percentage of firms investing fell.  In training the percentage investing fell from 35% to 30%.

The average spend of firms investing in business process improvement fell from £45k to £32k between 2008 and 2010. The fall for training investment was less sharp – from £90k to £78k.

This survey also looked at the average expenditure in different kinds of intangible investment made by firms in the production and the service sectors. Production sector firms tend to invest more heavily in training, R&D and design. Service firms invest more heavily in software and branding. The two sectors are about equal in their tendency to invest in business process improvement.

As was the case in the previous survey, software is the largest category of intangible investment at £10 billion. Reputation and branding is the next largest (£8.3bn) followed by training (£7.3bn) and R&D (£5.7bn). Expenditures on the categories of design and business process improvement are both estimated at around £1 billion. As a comparison, conventional business investment in 2010 was £114.5bn – compared with £33bn on intangibles.

The forecasts published at the time of the 2013 budget foresaw that in the UK economy conventional business investment would increase by 8% per annum in each of the last two years of the five year forecast period but remain relatively static in the first three years. This suggests that investment in intangible assets, not least training and business process improvement, might follow the same slow trajectory out of the 2008 recession.

At Industry Forum we know that investment in business process improvement supported by appropriate training can have a rapid payback, partly by a reduction in working capital associated with more effective production organisation. These gains can be deployed in more ambitious investment, both tangible and intangible. If more firms were to adopt this approach in the next two years, the recovery might well be brought forward.

Further Information:

 

The following article reports on how Total Productive Maintenance (known to some as Total Productive Management) became a winning improvement tool for organisations worldwide and explains how you can put the TPM theory into practice where you work:

In an increasingly competitive global market, the only way that companies in the manufacturing and process sectors can survive is by becoming more efficient. For many years, tools such as Lean, 5S, Value Stream Mapping and Six Sigma have been used to reduce waste. But while these tools may eliminate waste around machines, a recurring problem that many companies in the manufacturing and process industries face is equipment breakdown. So why are maintenance processes not that effective?

When asked, many companies will say: “We’ve done TPM”. TPM means many things to many people. To some, it means maintenance personnel developing instructions and giving them to production operators to perform basic equipment maintenance. While this approach may have some short term benefits, it is often unsustainable, as operators are not given the appropriate skills and it’s seen as an initiative rather than a long-term, strategic culture change programme.

If we want to find out more about the true meaning of TPM, let’s look at how it’s evolved.

TPM was developed from the original preventive maintenance or productive maintenance (PM) concept and methodology introduced from the USA back in 1971. It’s been further developed and implemented in many Japanese companies, including the Toyota Group, and is now rapidly becoming a method that is applied worldwide.

Global success

In 1971, Nippon Denso Co first introduced and successfully implemented TPM in Japan. They won the Japan Institute of Plant Maintenance (JIPM) PM Excellent Plant Award for their activities. And this was the beginning of TPM in Japan. Since then, TPM has spread throughout Japan, especially in the Toyota group. The first example of TPM used in Europe to deliver world class performance was by Volvo in Ghent, Belgium. Volvo won the PM prize for their work in the paint shop, demonstrating evidence of reducing breakdowns and improving productivity. This was quickly followed in the early 1990s by other European automotive companies trying to close the productivity and quality gap to their Japanese competitors.

“TPM has been implemented in many Japanese companies, including the Toyota Group, and is now rapidly becoming a method that is applied worldwide”

Since the JIPM TPM awards were founded, over 3,000 organisations have won awards, including Unilever, Wrigley, Tetra Pak, Heineken and Arcelor Mittal. The first level excellence award typically takes three years of TPM implementation and up to 15 years to achieve. To win an award, an organisation has to demonstrate, through a two-stage assessment process, effective application of TPM and achievement of less reduction.

For the 2012 TPM ceremony, 12 Tetra Pak sites won awards, bringing their total to 70 awards over 12 years. The company’s La Rioja plant in Argentina received the prestigious Advanced Special Award for TPM Achievement at the 2012 award ceremony, reflecting the success it has seen since they began implementing TPM methodology in 2000. During his keynote presentation at the awards ceremony, Marcelo Loiacono, Production Manager at the La Rioja factory, said: “We started adopting the TPM methodology 12 years ago. Since then, we have turned one of Tetra Pak’s smallest converting plants into a facility which offers the shortest market lead time for customers. This achievement wouldn’t have been possible without a team-wide commitment to continuously driving operational performance improvement, supplying products of the highest quality, in the fastest lead-time, at the lowest possible cost.”

Defining moment

The JIPM definition of TPM is:

Total – must involve all employees at all levels of the organisation

Productive – effective use of all resources

Maintenance – keeping the man-machine-material system in optimum condition.

JIPM developed an eight pillar approach to TPM focused on achieving:

  • Zero accidents
  • Zero breakdown
  • Zero defects

The structure of JIPM’s TPM model is based on eight pillars as shown below. Each pillar has a well-defined step-by-step approach to implementation.

 

TPM 8-pillars

 

Putting Theory Into Practice

The mission of each pillar is to reduce loss with the ultimate aim of elimination of all losses. So how does an organisation start a TPM programme using this JIPM model? Firstly, top management need to understand that TPM is part of a long-term culture change programme, not just an initiative for the maintenance department. A TPM champion needs to be appointed and pillar leaders defined.

Next, a pilot area needs to be identified. Typically, this is selected based on reviewing data on breakdowns and quality issues. The operators involved in the area, along with other functions such as maintenance and quality, are then trained in the principles of TPM and what role they will play in the implementation of autonomous maintenance. In simple terms, autonomous maintenance is giving more responsibility to the operators to care for their own machines.

The machine operation is discussed within the team and any safety risks are identified in preparation for the first inspection and cleaning activity. This is more than just a machine clean up: the team inspects the machine in minute detail, often identifying problems that have built up over years. Each problem is tagged and logged. Responsibility to address each issue needs to be decided. In the early days of TPM implementation, most issues will need to be fixed by maintenance as the operators will have insufficient skills.

The team then needs to define cleaning and inspection standards to maintain the improvements made (step one of autonomous maintenance). After a period of stability – typically three to six months – the team starts work on trying to reduce cleaning and inspection time by eliminating sources of contamination and making inspections easier to perform (step two of autonomous maintenance).

At this stage, although operators typically feel more engaged and there is improved teamwork with other functions such as maintenance, new skills have not been learnt. However, a reduction in breakdowns and minor stops should already be visible.

Steps three and four of autonomous maintenance address the training issue. In step three, operators are trained to undertake some basic maintenance tasks, such as lubrication, while in step four training continues in other tasks subjects such as hydraulics, drive systems, pumps and valves. Completing autonomous maintenance to step four can often take up to three years. Once management is convinced that this approach delivers results, they develop a master plan to roll out across the whole company.

In parallel with this autonomous maintenance activity, work is ongoing with the other pillars, and losses are reduced using the same structured step-by-step approach. While this may take a massive investment of time and resource, the step-by-step approach has been proven to deliver results.

Proven Results

In September 2005, Sheffield-based Outokumpu Stainless Steel, manufacturer of stainless steel and high performance alloys, began implementing a TPM programme, called OK>1. Ian Wallace, Continuous Improvement Manager, told QW: “Before introducing TPM, our principles for working were that the equipment was owned by the operations department; maintenance activities were carried out by engineers working within the production teams; improvements were mainly initiated by engineers; simple checks, easy lubrication tasks and small repairs were performed by operators; there were no structural root cause analyses or countermeasures for breakdowns; and we did not have a business cost and loss deployment.”

“Rushing implementation has been proven not to work”

Since the introduction of TPM, Outokumpu has seen some real improvements: the equipment is owned by the operators, who get support from a small number of process improvers. Improvements are initiated by operators and process improvers, based on contribution to company KPIs. Both autonomous maintenance and planned maintenance activities are undertaken by operators. Operators also undertake simple and complex repairs of their machines and equipment, while mechanical technical advice is available from a small team of engineering managers.

The benefits are clear, according to Ian. “We haven’t had a lost time accident (no work days lost through accidents) in the last four years. This has been achieved by a concerted effort to change our culture. TPM plays a major part in the culture change. We need to beat our competitors in customer satisfaction, and to ensure customer satisfaction we have to deliver low cost good quality product on time and in full.

“From a manufacturing point of view, our vision is to have a safe, clean and well-organised plant where cost and losses are understood and which is easy to maintain. Our people are fundamental to that process. We have a flexible and well-motivated workforce, which responds positively when asked to work above and beyond expected norms. Continuous improvement is ‘business as usual’ at our plant. It’s the only way to work and it delivers results.”

Organisations should think long and hard before embarking on a TPM journey, because it needs to be part of strategic culture change programme if it is to deliver long-term sustainable results. It also needs to be driven by top management and involve everyone. Selection of a pilot area is a key to success. Once the benefits are seen, TPM can be rolled out across an organisation to a defined master plan, but don’t rush implementation – this has been proven not to work.

Case Study

Bottle of HHeineken finds the right approach to safety with TPM

In 2012, 10 people lost their lives working within the Heineken company, and, while this was a decline in comparison to the 27 fatalities of 2011, it was felt – understandably – to be completely unacceptable. Of the ten people who lost their lives, three were direct Heineken employees and seven were employed by contractors or suppliers. Six fatal accidents occurred in Mexico, two in Nigeria and one each in the Democratic Republic of Congo and Ethiopia.

In order to combat such statistics, Heineken took on the TPM approach to drive improved continuous performance within the areas of safety, quality, customer service and leadership. TPM is fully embedded in Heineken breweries and is being further expanded across the entire supply chain and newly acquired businesses.

Christopher Kerr, Director Global, Total Productive Management, explains: “We are able to leverage the tools, methods and systems of TPM to drive and support our Safety First Culture. In addition, the Heineken TPM Safety Pillar adopts a holistic approach and is regularly reviewed via benchmarking with best-in-class companies.

“In recent years, we’ve re-defined our Pillar to establish a management system incorporating the five core elements of the safety compass principles: educative, proactive, reactive, managerial and directive. The Pillar is made up of a cross-functional group of people from line management mobilised to progress safety performance, with the vision and target always being zero accidents. Awareness, engagement and communication programmes are key Pillar activities, as well as setting yearly key activity indicators on the leading indicators, comprising of the number and execution of behavioural-based audits, machine risk assessments, identification of hazards and operational risk reduction as well the implementation of the Pillar tools, methods and systems.”

These activities are managed via focused teams involving all layers of the organisation and the Safety Pillar is audited twice a year by a member of a global audit team. Performance is measured against the combined criteria of results and the effective use of the standards and tools.

Heineken has also developed a contractor safety toolbox to help reduce the number of accidents among contractors. The toolbox consists of safety cards for each contractor activity showing what has to be checked before starting a job, as well as the dos and don’ts of the job itself. As Christopher Kerr says: “Our safety performance is steadily improving, and it remains our first priority; every accident is one accident too many.”

Industry Forum’s TPM Courses

 To enquire about Total Productive Maintenance:

 

How the UK economy is developing in terms of jobs, skills, training and management is much clearer with the recent publication of two major surveys. The 2011 Workplace Employee Relations Survey (WERS) looks at the experience of managers and employees and is part of a series stretching back periodically more than 20 years so that trends can be determined.

The 2011 WERS returned to those workplaces that participated in the previous wave in 2004 to establish which were no longer in existence. Some 17% had closed down – the rate was 19% among private sector workplaces and 7% in the public sector. The overall closure rate during this time was in fact no higher than that observed between the two previous WERS surveys (1998 and 2004).
iStock_000005344345Medium
Employees were asked to what extent their workplaces had been affected by the current recession. 47% responded ‘a great deal ‘ or ‘quite a lot’ – the figure  for manufacturing was the same as the national average but other sectors were different. Construction (72%) and public administration (65%) recorded high figures in line with other evidence of the impact of the recession. At the other extreme the figure for Energy, Gas and Water was only 18% and in this sector 70% of employees said the recession had impacted on them ‘just a little’ or  with ‘no adverse effect’.  Surprisingly in the Wholesale and Retail sector 37% of employees reported ‘just a little’ or ‘no adverse effect’ of recession.

The most common impact of the recession reported was the freezing or cutting of wages (42%) and not filling vacant posts (28%). 16% of respondents said that training spend had been reduced. Overall about 30% of employees thought their workload had been increased. The percentage of employees feeling that their job was secure had fallen from 67% in 2004 to 60% in 2011 – not as much as might have been expected.

Nearly half (47%) of employees are located in a workplace with at least one on-site (employee or union) representative. The amount of time spent on representation revealed by the 2011 survey is the same as 2004 but the range of issues involved has expanded and includes recruitment and selection, performance appraisal, staffing levels, pension entitlements, discipline and grievances.

Generally there is evidence of more effort to engage employees in 2011 than in 2004. All employee meetings are the most popular method and in 2011 they were used  by 80% of workplaces compared with 75% in 2004. It is a matter of concern that problem solving groups are only used by 14% of workplaces in 2011; this is a fall from 17% in 2004.

Teacher lecturing to several students, with notebooksThe WERS found that training has been extended to more employees in the workplace since 2004 but the duration of training is shorter. Employee satisfaction with training has nonetheless increased over this period. Some managers have cut training in response to the recession, and as a result  satisfaction levels in these workplaces are lower. The proportion of workplaces offering training to 80% of their workforce or more (i.e. the most intensive trainers) increased to 41% in 2011 from 35% in 2004. The proportion of workplaces offering training in quality control increased slightly from 35% to 37%. Unfortunately the proportion of workplaces training in team working fell from  40% to 36% between 2004 and 2011.

It is also a matter of concern that only 31% of manufacturing workplaces offer training to more than 80% of their workforce – 10 points behind the all sectors average and three points worse than Wholesale and Retail.  Sectors who are above the national average on this measure include Electricity, Gas and Water, Public Administration, Education, Health and Social Work.

In 2011 more employees reported that they are required to work very hard in 2011 compared to 2004. Even so job satisfaction increased during this period. It has been suggested that this partly reflects increases in the autonomy given to employees over key aspects of their jobs.

The other major survey to report is The 2012 Skills and Employment Survey . The final section of this project is being launched later this month and we hope to cover these results in a later article. Nonetheless the WERS suggests an alarming picture as far as the aim to rebalance the economy is concerned. Across the economy too many workers are required to work harder rather than increasing the output of work groups. Training in team working and problem solving is present in too few workplaces and the percentage has fallen. The number of firms training in quality control has increased slightly but there must be concern about the quality methods used.

Industry Forum has extensive experience of improving workplaces using team working and problem solving as a foundation. This approach improves the quality of output and the total output relative to the size of the team is also significantly enhanced. It is a matter of concern that on the evidence of the WERS too few firms are following this approach.  The success of the automotive sector in the last decade reflects significant investment in this approach.

Further Information:

 

At the end of March the UK Industrial Strategy took a major step forward with the publication of sector strategies for aerospace, civil nuclear energy and oil and gas. The Life Sciences strategy has already been in place for 15 months. In all there are eleven key sectors, (including automotive manufacturing) and in coming months sector strategies will be published for each one. There are various dimensions to the overall Coalition Industrial Strategy but the key sectors are a direct way in which strategy and action come together.

For example, by 2040 70% of the UK’s energy requirements will still be met by oil and gas. Furthermore, the recent performance of the UK economy has reflected the contraction of oil and gas sector output. Without this the rest of the economy would have grown by 1.6% since the third quarter of 2010. In February 2013 Section B of the Index of Production, which includes Oil and Gas, was 8.4% down on a year ago.

It is not surprising therefore that the new oil and gas strategy aims to maximise the economic production of UK offshore oil and gas  and promote the growth of the UK industry’s supply chain in both domestic and international markets.  Fortunately, the UK supply chain is internationally recognised as a global leader in subsea engineering and a centre of excellence in project management, design engineering, asset and operational management and design and manufacturing of advanced equipment, all underpinned a large R&D spend.

The new strategy warns that amongst the general public, the oil and gas industry is currently perceived as a “sunset industry” making a diminishing contribution to the UK economy. There is a perception that the industry faces an unsustainable future and that it is coming to the end of its life. There is danger that if this perception persists, talented individuals might overlook the industry – compounding the skills shortage. The strategy proposes therefore that the industry, and the contribution it makes to the nation’s prosperity, become much more widely known. The industry and Government should be more visible and confident in championing the industry’s achievements.

Public perception and the impact on talent flow is also important for the civil nuclear strategy which covers expenditure of over £125bn up to 2030 on both building new generation capacity and decommissioning existing sites. The strategy involves a major drive to develop supply chain skills while other parts of the strategy are set to enhance innovation and R&D and to attract domestic and inward investment in nuclear projects.

The detailed skills objectives are:

  • The sector must be supported by a workforce with the skills, capability and capacity required to successfully deliver current and future UK nuclear programmes with the highest standards of nuclear professionalism, safety and competitiveness
  • The sector must have a supply chain with the skills and expertise to compete on a global basis for contracts
  • The UK nuclear industry and its approach to skills and workforce development should be recognised as an example of international best practice


Nuclear industry employers are even now reporting skills deficiencies.  The Nuclear Energy Skills Alliance has identified key skills shortages including project and programme management, construction project management, steel fixing, high integrity welding, safety case authorship, R&D, site/ construction supervisors and apprenticeships and higher level apprenticeships.

The sector priorities for workforce capabilities also include:

  • Educating new entrants on the basic requirements for working on nuclear sites in the UK and promoting awareness and understanding of the nuclear industry
  • The flexibility and mobility of the workforce and supply chain
  • The ability to demonstrate supply chain competence
  • Trained and qualified craft and technician personnel

On nuclear build projects construction, site preparation and engineering construction make up around 60% of the workforce. To deliver each build to time and to budget, it is essential that the construction and engineering construction workforce has the right skills and competences.

Oxford Economics and Atkins’ estimate that the UK’s  likely newbuild plans will create 30,000 – 41,000 jobs – 14,000–19,000 direct jobs and 16,000–22,000 indirect jobs. As things stand nearly 70% of current staff with management roles and subject matter expert roles, are due to retire by 2025.

The civil nuclear sector skills needs cannot be seen in isolation. There is likely to be fierce competition between aerospace, automotive manufacturing, oil and gas and nuclear for first class talent, not least because top UK engineering talent is sought by non-engineering sectors and other developed countries.

Professor John Perkins CBE, the Chief Scientific Adviser for BIS, is looking at the issue of engineering skills supply in the UK. Based upon initial analysis of demands/supply constraints, job market trends for rising skill levels, data on skills gaps and structural supply issues, he has concluded that the economy will need a substantial increase in the supply and the quality of engineers entering the labour market with the right mix of skills as sought by employers.  Perkins suggests this will require action on 6 fronts:

  1. Changing the perception of engineering making it much more accurate and positive, challenging outdated negative views of the profession
  2. Addressing the diversity issues in engineering including the ‘gender gap’ (only 9% of professional engineers in the UK being women), thereby reaching out to the widest possible talent pool
  3. Encouraging sponsorships and strengthening industrial links to students, making engineering courses more attractive and increasing students’ employability
  4. Helping engineers who have left the profession and wish to rejoin it and others who wish to convert to it
  5. Provision of the appropriate education to support engineering careers. Increasing the number of students with the right educational background (i.e. a strong grounding in maths and physics), providing modern educational infrastructure, and giving accurate careers advice
  6. Encouraging and supporting the provision of more engineering apprenticeships, particularly higher level apprenticeships

These proposals are equally relevant to the requirements of the aerospace manufacturing sector where the strategy is based on an ambitious long-term partnership between Government and industry with £2 billion investment.  The  goal  is to retain the UK’s position at the forefront of world aerospace manufacturing and to ensure that the UK remains Europe’s number one aerospace manufacturer and that it remains second only to the United States globally.  In the US strategists are considering the business implications of the expected expansion of civil aviation in emerging markets which will be the major growth opportunities in the next two decades.

The UK aerospace sector strategy stresses the importance of further strengthening the supply chain. The sector has for some years been operating the 21st Century Supply Chain programme to strengthen supply chain firms using a global quality standard. Further supply chain development will include collaborative research projects, improved access to finance and the embedding of world-class manufacturing processes and continuous improvement methods throughout the supply chain.

The strategy also suggests that the UK needs to find a means at national level for companies to enhance the management of their own supply chain and to work collaboratively with their suppliers and peers to boost competitiveness.  Capability analysis work is under way to identify those areas of high strategic value and where UK capabilities are at risk.

Industry Forum has experience in depth of supply chain development including integrated skills development programmes. In the last 12 months we have been working closely with a number of blue chip UK primes on the Advanced Manufacturing Supply Chain Initiative. We look forward to further work with the aerospace, civil nuclear and oil and gas sectors on supply chain and skills development as part of their sector strategies.

Reference file:

The United States and China have recently been neck and neck in the race to be the largest manufacturing sector in the global economy. United Nations Conference on Trade And Development (UNCTAD) reported that in 2012 China had definitely overtaken the US.

At first sight manufacturing does not appear to be a major factor in the US economy accounting for approximately 10% of national output – about the same share as the UK – compared with other advanced diverse countries, such as Switzerland and Singapore, where the share of manufacturing in their economies is up to three times larger. Several recent studies have found that every dollar of extra manufacturing output in the US creates a further $1.40 in other sectors suggesting that manufacturing is the driver behind at least quarter of current economic growth.

This helps explain why within the US a great deal of effort and interest is devoted to US manufacturing and its prospects. President Obama stressed his support and plans for manufacturing in the 2012 Presidential campaign and included a commitment to create a million more manufacturing jobs.  At the start of his second term Obama took up this theme in his 2013 State of the Union speech as follows:

“Our first priority is making America a magnet for new jobs and manufacturing. After shedding jobs for more than 10 years, our manufacturers have added about 500,000 jobs over the past three. Caterpillar is bringing jobs back from Japan. Ford is bringing jobs back from Mexico. After locating plants in other countries like China, Intel is opening its most advanced plant right here at home. And this year, Apple will start making Macs in America again.

There are things we can do, right now, to accelerate this trend……so tonight, I’m announcing the launch of three more of these manufacturing hubs, where businesses will partner with the Departments of Defense and Energy to turn regions left behind by globalisation into global centres of high-tech jobs. And I ask this Congress to help create a network of fifteen of these hubs and guarantee that the next revolution in manufacturing is Made in America.

If we want to make the best products, we also have to invest in the best ideas. Every dollar we invested to map the human genome returned $140 to our economy. Today, our scientists are mapping the human brain to unlock the answers to Alzheimer’s; developing drugs to regenerate damaged organs; devising new material to make batteries ten times more powerful. Now is not the time to gut these job-creating investments in science and innovation. Now is the time to reach a level of research and development not seen since the height of the Space Race. And today, no area holds more promise than our investments in American energy.’

Obama went on to cover the need for better links between schools and technical employment:

‘And four years ago, we started Race to the Top — a competition that convinced almost every state to develop smarter curricula and higher standards, all for about 1 percent of what we spend on education each year.  Tonight, I’m announcing a new challenge to redesign America’s high schools so they better equip graduates for the demands of a high-tech economy.  And we’ll reward schools that develop new partnerships with colleges and employers, and create classes that focus on science, technology, engineering and math — the skills today’s employers are looking for to fill the jobs that are there right now and will be there in the future.”

The governors of Ohio and Pennsylvania, both Republicans, are enthusiastic about Obama’s manufacturing plans. “We are seeing nothing less than the beginnings of a new Industrial Revolution,” Pennsylvania Governor Tom Corbett said in a statement on the National Additive Manufacturing Innovation Institute.  The new technology, Corbett said, “means that manufacturing, something we once gave up for lost, is going to come back.” The head of Ohio’s Department of Development called it “the next generation of manufacturing methods.” Pennsylvania gave $5 million and Ohio gave $2 million to the project.  In Illinois, Democratic Governor Pat Quinn has agreed that his state team up with the University of Illinois and the National Center for Supercomputing Applications to create an advanced manufacturing hub “where companies – big and small – come to learn and use the world’s most sophisticated tools and software,” he said in his State of the State address.

Part of the strength of US manufacturing has been the high level of centrally funded defence R&D. The Obama administration has made it clear that despite the military cutbacks planned, the fundamental defence industrial strategy will remain intact. The national goal is that the US will continue to sustain a rapid rate of military innovation based on a strong manufacturing sector to underpin its position as the most powerful nation in the world.

Another major advantage enjoyed by US manufacturing is its geopolitical position. Amongst developed countries Canada, according to Deloitte’s 2013 Study, ranks as third in manufacturing competitiveness behind the US and Germany. Canada’s manufacturing is located along the US’s northern border and effectively forms a single manufacturing zone with the US. Similarly along the southern border there is a substantial export oriented Mexican manufacturing sector with a high growth rate and lower labour rates. In South America Brazil is already ranked at eighth in global manufacturing competitiveness and in the next five years has been assessed as having the potential to rise to third position globally. In effect there is a continental sized cluster of manufacturing competitiveness in the Americas.

US policy makers are nonetheless very aware of the threats to their competitive position as a manufacturing location in the next five years such as high labour, corporate tax, and unemployment rates and potentially sluggish GDP growth. Like many countries in the battle for global manufacturing competitiveness the US is in a race to expand its advanced manufacturing sector. In particular the US has devoted effort to clarifying the skills dimension.

Working together the Manufacturing Institute, the National Council for Advanced Manufacturing and the Society of Manufacturing Engineers have produced a comprehensive competency model for advanced manufacturing. This starts with personal effectiveness competencies – interpersonal skills, integrity, professionalisation, initiative, dependability & reliability and willingness to learn. The next level is academic competencies which include communication, listening & speaking, critical analysis & thinking and active learning. Above that are workplace competencies such as teamwork, adaptability, problem solving, workplace computer applications and an appreciation of business fundamentals.

At the management level there is an additional formidable set of requirements which include delegation, entrepreneurship, supporting others, motivating and inspiring, developing and mentoring, clarifying roles and objectives, managing conflict and teambuilding plus developing an organisational vision. All of this suggests that in the US vision of advanced manufacturing the full battery of soft skills will be harnessed to the country’s unparalleled technical resources. Leveraging the US’s distinctive culture in this way will undoubtedly be a major asset in the battle for overall global competitiveness with India, China, Brazil and Germany.

How does the situation in the UK compare?  The UK Technology Strategy Board has published an impressive set of High Value Added Manufacturing Competencies. But the US published their model first and so far have done better at publicising and promoting it. The UK’s network of Catapult Centres is probably more developed than the US Manufacturing Innovation Institutes but not as well established as the substantial and successful network of Fraunhofer Institutes in Germany.  At the end of February 2013 the UK announced four new research centres to develop new ways of manufacturing in the fields of electronics, laser use in production processes, medical devices and food production via a £45 million package of investments. The new Centres, which will begin work later in the year, will involve academics from 15 universities across the UK and over 60 project partners from industry.

At Industry Forum we recognise the importance of changing people as well as changing processes. Our current Organisational Development model has four key areas which employ structured approaches to identify the current situation; define the target condition and close the gap between the two.

Effective Organisation Structures
Ensuring all parts of the company are arranged to efficiently manage daily activities and deploy policies to successfully achieve customer, business and employee requirements.

Policy Deployment
A framework for planning, implementing and reviewing the changes required to move an organisation towards its vision.

Operational Leadership Skills
A modular programme tailored to meet individual needs at all levels of the management team across the business. This programme is suitable for Plant Leaders, Functional Managers, Operations Managers, Supervisors and Team Leaders.

Further information on the Organisational Development model can be found on the Industry Forum website

Further Information:

 


The UK’s plans to replace its nuclear electricity generation capacity, with estimated expenditure of £60bn up to 2030, are often in the headlines, for example with the decision of Hitachi to join the programme.  There is also a major but less well known programme of nuclear decommissioning. The Nuclear Decommissioning Authority (NDA), formed in April 2005, oversees and manages the decommissioning and clean-up of the UK’s older Magnox power plants, the reprocessing facilities at Sellafield and the former nuclear research and development facilities previously run by the United Kingdom Atomic Energy Authority (UKAEA). The Nuclear Decommissioning Authority is sponsored by the Department of Energy & Climate Change (DECC) and is responsible for 19 civil public sector nuclear sites. It plans to spend some £67.5bn on decommissioning up to 2020.

Day-to-day management and delivery of the 19 NDA site programmes is the responsibility of seven Site Licence Companies contracted to the NDA who directly contract with the supply chain for the necessary goods and services.  Sellafield is the UK’s largest and most hazardous nuclear site and it is managed by Sellafield Limited under a NDA contract.

The NDA’s programme expenditure is public expenditure and has been scrutinised by the House of Commons Public Accounts Committee (PAC) who published a report on it at the start of February. The PAC recommended that the NDA and Sellafield Limited act with real urgency and improve project management to tackle the risks on the site in good time. It concluded that recent performance has not been satisfactory since in 2011-12, only 2 out of the Authority’s portfolio of 14 major projects were being delivered on or ahead of the schedule for that year.

The PAC found that basic project management failings had occurred on major projects which could and should have been avoided and were not excusable by the uniqueness of the projects or the circumstances. Costs on one project had gone up by almost £250 million since 2009 and the project was 18 months behind its original schedule because of Sellafield Limited’s failure to spot deficiencies in a key element of the design, or to adequately check the capability of the supply chain.

There will be an official reply to the PAC and we will have to wait to see what that says. It is likely that the reply will build on the National Nuclear Supply Chain Action Plan which was published in December 2012. This plan includes the objective to boost job creation in the nuclear industry, and to ensure that potential skills shortages do not act as a barrier to the future development of the industry in the UK. The Plan identifies the key skills issues for the programme:

  • Defining the Industry skills requirements for the UK Nuclear Programme
  • Ensuring robust, unified labour market intelligence for accurate workforce planning
  • Ensuring funding is available for key training
  • Ensuring availability of specific skills in key workforce groupings:


The DECC Secretary of State co-chairs the Nuclear Industry Council  with Lord Hutton of the Nuclear Industries Association which will oversee how the action plan is taken forward. Day to day management of the implementation of the plan is the responsibility of the Head of Supply Chain and Skills in DECC who will work with the Council and wider industry to ensure that a decent implementation structure is in place. The Plan recognises that the UK supply chain may need assistance in closing gaps in capability and competitiveness.

The Plan also recognises that  the length of time since the last new build project, the high average age of the existing nuclear workforce and the scale of the UK’s nuclear generation plans, make it essential to act now to prevent skills gaps developing over the course of the new nuclear programme. Within the Plan, the development of an overarching skills strategy for the nuclear industry is the responsibility of the National Skills Academy for Nuclear, working in close partnership with Sector Skills Councils and Industry Training Boards.

The co-ordinated delivery of skills action across the sector, including in the key areas of Construction, Engineering Construction and Manufacturing, is to be progressed by the Nuclear Energy Skills Alliance (NESA) which brings together the skills bodies with Government to co-ordinate work on the skills challenges.  NESA members are working with employers to research labour market intelligence for a Nuclear Workforce Tool. This project, led by Cogent with the input of all NESA member skills bodies, will help to define industry-wide skills requirements over the course of the nuclear programme with an evidence base for skills actions and workforce planning.

BIS has established the Nuclear Advanced Manufacturing Research Centre (AMRC) at Sheffield and Manchester Universities as part of the Advanced Manufacturing Catapult. The Nuclear AMRC works with companies to improve capabilities and performance along the nuclear supply chain. It has been awarded £37m by the Regional Growth Fund to support a large-scale programme of supplier development and manufacturing research in partnership with key industrial members.

The AMRC runs the Fit For Nuclear (F4N) programme which helps companies measure their current operations against the standards required to supply the UK’s new generation of nuclear power stations, and take the necessary steps to enter the global market. F4N is delivered by the Nuclear AMRC with the Manufacturing Advisory Service in partnership with top-tier industrial partners. The initial diagnostic covers Strategy and Leadership, Design and Project Management, People Excellence, Process Excellence, Safety and Quality.

In addition £1m is available to establish new Knowledge Transfer Partnerships in the field of nuclear technologies for civil power generation, decommissioning and waste management. The aim is to help businesses improve their competitiveness, productivity and performance in the nuclear sector through better use of the knowledge, technology and skills that are available within the UK knowledge base.

Securing a commercial return on the enormous sums invested in nuclear generation depends partly on making sure that the supply chain operates according to the best project management disciplines during the construction phase. But equally important is world class operation and maintenance over the decades that these assets are in use.  Some form of structured approach such as Total Productive Maintenance (TPM) is the key to securing optimal performance over the whole length of an asset’s life. TPM is a structured approach to deploy a comprehensive set of tools and techniques in order to eliminate all losses across a whole organisation and throughout the value stream. TPM involves the capabilities of the whole workforce to ensure effective and sustainable improvements are implemented. Improvements to the organisation are made by improving the two core elements of people and equipment

Industry Forum has strength in depth in TPM and Paul Hardiman, Global Best Practice & Assessment Services Principal, SMMT Industry Forum, has been invited as the guest of honour at a TPM Excellence conference in Krakow, Poland on the 21st-22nd March 2013.

Further Information:

The UK aerospace industry currently has about 17% of the global market and aims to maintain that share to 2030 as the global market expands substantially. In 2012 the global aerospace and defence industry increased its revenues by over $7bn. Sales from the production of commercial aircraft increased by over $13bn. The defence segment, on the other hand, contracted by about 1% on top of a 3% contraction in 2011. Earnings in the defence segment were broadly level while for the commercial sector earnings increased by nearly 30%. Despite the recent differences in growth rates, the global aerospace defence sector market remains larger than the commercial sector market for the time being.

The US is the top spender on defence aerospace globally and is likely to keep that position for some while. In January 2012 the US published a defence strategy review, Sustaining US Global Leadership. The strategy included a commitment to maintain an adequate industrial base with appropriate investment in science and technology. The US strategy aims to balance reductions necessitated by resource pressures with the need to sustain key streams of innovation with potential for significant long-term payoffs.

Overall the proposed reductions in US programmes plus the strategic military shifts are expected to bring increased competition for top US defence contractors.  The US military aircraft sector fell 2.4 % over the past year and is projected to sink more than 10% in 2013. Continued growth will come from exports of civil aircraft, engines and parts which represent just under 90% of all US aerospace exports – a segment which grew by 12% in 2012.

In the UK in 2012 the House of Commons Public Administration Select Committee criticised the lack of strategic capability in UK policy making in general  amidst a debate on the relationship between UK foreign policy goals and defence and industrial capability. DefenceSynergia put the case to the Select Committee in the following terms:

‘There is a way forward being proposed by those most closely associated with the economics of the defence industrial complex. They cogently argue that an articulated Industrial/Defence Strategy—part of a wider UK Grand Strategy—should form part of the mix that ensures the future security of the United Kingdom by promoting prosperity through a vibrant defence industrial complex that is able to directly support the wider UK economic recovery. This thesis postulates that if the British economy is to recover more rapidly than currently forecast and the Armed Forces are to be structured and equipped to meet the requirements of Future force 2020 then Government investment in the various indigenous defence support industries is not only vital to help kick-start economic recovery but to ensure British strategic security’.

In December 2012 the UK Defence Growth Partnership was launched. The Partnership will look at how links between civil and military technologies can be better exploited. It will also look at the skills required for the sector and how there can be more flexibility in the workforce between the defence sector and other advanced manufacturing sectors.

The Minister for Defence Equipment, Support and Technology Philip Dunne said at the launch of the Partnership:“The MOD has active engagement with the defence industry which faces testing times as defence budgets come under pressure across the world. It is important for Government and business to understand each other and work together. The Defence Growth Partnership will help us to confront these challenges and build on existing relationships and industry successes to date – helping the UK defence industry maintain its position as the world’s second largest exporter of new Defence products and services.”

BIS estimate that the UK’s defence industry has more than £22 billion of annual revenue of which £5.4 billion is exported and directly employs more than 107,000 people.  The new Defence Growth Partnership builds on the Aerospace Growth Partnership model which is the focus for the strategic relationship between the Government and the aerospace sector. BIS Minister, Michael Fallon, co-chairs the Partnership with Steve Wadey, who is UK Managing Director of missile systems company MBDA, a multi-national group with over 10,000 employees in the United Kingdom, France, Italy, Germany, Spain and the United States.

The UK sector strategy for aerospace is expected to be published early in 2013 in the first tranche of UK sector strategies planned by the Coalition. The Government has set out the principles for the new sector strategies. They are to be developed for business and should not just concentrate on Whitehall policy levers. They should be co-created with business with industry taking a central role in shaping development and long-term delivery. They should be based on cross-government consultation and buy-in.

Each strategy must set out a shared long term vision – where we are now, where we want to be, and how we will get there with a full SWOT analysis as well as horizon scanning. The private sector should lead both development and delivery. There should be explicit and specific pledges from government and business about what will be done to deliver each strategy .

Technology will be a key theme of the strategies which will contain a long term plan for investment in innovation plus support for emerging disruptive technologies such as robotics and autonomous systems. On skills, the emphasis will be on giving firms more direct control of vocational skills spend.

Global competitiveness in aerospace is reviewed by the McKinsey Global Institute (MGI) in the major report it published in November 2012 entitled, Manufacturing the Future: The next era in global growth and innovation. MGI identify aerospace as one of the sectors where global skills shortages are already appearing despite the limited current global economic growth. It is also a sector where the pace of change in development, process and production technologies is particularly acute; for example the cost of automation relative to labour in advanced economies has fallen by up to a half since 1990.

MGI segment global manufacturing into five groups. Transport equipment(including both automotive and aerospace), machinery and chemicals (including pharmaceutical) are grouped together under the heading, ‘Global innovation for local markets’. Key success factors in these industries include the ability to innovate and the quality of the supply chain.

In the case of aerospace and defence currently more than 90% of production capacity is in the US, Canada and Europe. More than half of airline deliveries in the next 20 years are expected to be to emerging markets. Nonetheless MGI estimate that by 2020, only 10% of global aerospace production will be located in China. The extent to which an advanced country will maintain its share of global aerospace production will depend how effectively it leverages innovation, skills, technology and upgrades the supply chain relative to other advanced countries.

Illustrating many of the factors identified by MGI, a recent supply chain development  in the US involves Boeing working with BMW to research how to automate the production of ultra-light carbon fibre and how best to recycle the material. The research is targeting cheaper production of carbon fibre. This is the first collaboration between the two companies and follows the opening of BMW’s new carbon fibre plant in Washington, USA, where Boeing also has facilities. The plant produces carbon fibre for the automotive group’s new electric car being released in late 2013, the BMW i3, and the BMW i8 that will follow, the company’s first vehicles with a carbon passenger cell. As part of the collaboration agreement, Boeing and BMW will share carbon fibre manufacturing process simulations and ideas for manufacturing automation.

Industry Forum engineers have plenty of experience of transferring leading edge practice between aerospace and automotive supply chains. We look forward to studying the forthcoming aerospace sector strategy to identify areas where we can support the national approach.

Further Information:

In July 2012, Nesta, the UK’s innovation foundation, published a report, Our Frugal Future: Lessons from India’s Innovation System. Frugal Innovation (FI) is a response to limitations in resources, whether financial, material or institutional which turns those constraints into an advantage. Through minimising the use of resources in development, production and delivery, or by leveraging them in new ways, Frugal Innovation results in dramatically lower-cost products and services. The low cost Tata Nano is frequently cited as the exemplar of this approach.

Although interest in FI has grown this year, the term frugal has quite a history. The expression Frugal Engineering  was coined by Carlos Ghosn, the joint chief of Renault and Nissan, who stated in 2006, “Frugal Engineering is achieving more with fewer resources.”  Frugal Engineering has developed into the science of breaking up complex engineering processes into basic components and then re-building each component in the most economical manner. The end result is a simpler, more robust and easier to handle final process. It also results in a much cheaper final product which does the same job qualitatively and quantitatively as a more expensive complexly engineered product.

The Dacia Logan, the low cost car which is currently made in Romania, Brazil, Colombia, India, Iran, Morocco, Russia and South Africa, is an example of the frugal approach. It was started by Ghosn’s predecessor, Louis Schweitzer and developed at the Renault Technical Centre near Paris via a project which started in 1999.

FI has become strongly associated with the Indian innovation system as the recent Nesta publication suggests. The Hindi slang term ‘Jugaad’ has become the label for a particular approach to FI. Jugaad is also a colloquial Hindi word that can mean an innovative fix or a simple work-around sometimes pejoratively used for solutions that bend rules or a person who can solve a complicated issue. It is often used to signify creativity to make existing things work or to create new things with meagre resources.

This year three leading Indian researchers,  Navi Radjou, Jaideep Prabhu and Simone Ahuja  published a book about Jugaad which analyses this approach into six fundamental principles.  In October 2012 these three authors published a Harvard Business Review blog encouraging CEOs in Western majors to take up FI as an important tool in addressing current global market conditions.

This looks likely to provoke an interesting debate. Capgemini’s Global Chief Technology Officer, Andy Mulholland began to explore the relationship between Jugaad and Lean in an article published in January 2010. He commented, ‘Every CIO I speak to recognises that there is a lot of Jugaad going on across their business. Readily available virtual machines or platforms, paid for on a per-use basis, have provided increasingly technology-literate end users with the ability to do it. So is this classic Jugaad? I reckon so. It accomplishes the immediate objective, but ignores the bigger impact that such improvisation can bring.’

He contrasts this phenomenon which clearly concerns him with Lean Software Development which marries the principles of Lean Manufacturing with those of Agile Development. Requirements must be scrutinised to manage out all possible sources of waste. Mulholland suggests that the Lean principle of empowering people matches the FI approach of putting the power to solve problems in the hands of those most closely involved. Mulholland concludes, ‘Adding Lean as the bridge from Jugaad to Agile may be the answer.’

The collaborative approach to Jugaad is developed by Rajnish Tiwari and Cornelius Herstatt from the Hamburg Technical University in their article, Frugal Innovation: A Global Networks’ Perspective. They consider the links between Lean, Disruptive Innovation and Jugaad. The goal in FI in their view is the development of innovative products and services that “seek to minimize the use of material and financial resources in the complete value chain (development, manufacturing, distribution, consumption and disposal) with the objective of reducing the cost of ownership while fulfilling or even exceeding certain pre-defined criteria of acceptable quality standards”.

Looking at the overlap between Lean and FI, they observe, ‘One of the core elements of Lean Innovation lies in defining, structuring and prioritizing “values” for specific innovation projects. While frugal innovations undoubtedly seek to rationalize the innovation value chain…. the end outcome of a lean innovation project need not necessarily be a low-cost product.  It takes much more than efficient management of the innovation process to come up with a successful disruptive, game changing innovation.’

The Lean concept of the value chain is likely to emerge as an essential tool for the frugal approach. Lean holds that value always exists in the eye of the customer. With frugal projects this remains true but the boundaries of who the customer might be are extended, usually so that newer poorer customers in expanding emerging markets are brought into the aims of the project.  Within a global organisation the best understanding of the values of the target segment for a frugal project may well be well away far from the technical HQ –  near the bottom of the organisation. The most disruptive innovations may well come from the front line, the part of the organisation that is closest to the customer.

Developing this thought, Bernhard Doll observes that ‘designing and delivering “Frugal Innovation” requires a certain skill set, which is not quite common in many R&D departments of companies across Europe. The starting point is to really understand the customer’s job a new product or service should try to get done. Doll recommends that observing the world, understanding contextual constraints, listening to customers to learn and finding the right blend of embedded value and reduced waste in the product or service to be designed, are all key activities in the “frugal” innovation process.

He explains that ‘a new (human) work culture is required to successfully design “Frugal Innovation”. Social prototyping, ethnography, realtime collaboration, co-creation, crowd-sourcing, running projects in 5 weeks rather than 5 months are just few examples of effective methods in this domain.’

Approached from this point of view, FI has similarities to another methodology which Nesta have developed and promoted this year – Radical Efficiency (RE) – which has been identified from a series of case studies.  RE has been developed in the UK public sector and aims to achieve a dramatic change in value for money in public services which face serious resource challenges. This is achieved by a ruthless focus on the core values of users and a dramatic reduction in cost mostly achieved through a complete overhaul of processes.

Savings are achieved by:

  • Stopping services that have little or no impact
  • Identifying and developing new resources especially through user energy and involvement
  • Identifying and addressing core problems rather than simply tackling symptoms

The RE approach stresses the importance of building a multi-skilled team which may include ethnographers, a discipline which has also been of value in FI projects. To get a fresh perspective on the core challenge, a variety of tools may be used – horizon scanning, data mining and resource audits

The idea of improving the value stream is at the heart of most of the projects undertaken by Industry Forum. This core approach can be adapted to a wide variety of different contexts. IF Engineers are experts at generating improvement suggestions from right the way across an organisation, including from the basic operational level and customer-facing staff. We also have experience of applying these approaches on a global scale.

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The debate about the growth prospects of the UK economy often focuses on the role of infrastructure investment, especially road and rail investment. The potential of the rail sector has been recognised by the European Community’s in its ambitious plan for investment this decade in R&D, Horizon 2020. The European rail sector has emerged as one where Europe has genuine global strengths, ahead of major global competitors, where it can win an increasing share of world trade.

The climate for rail investment in the UK has been influenced by a major study by a team led by Sir Roy McNulty – the Rail Value for Money Study.  The final study report, Realising the Potential of GB Rail, was published in May 2011. It included a rigorous benchmarking exercise comparing the rail performance of this country with other similar European countries.  McNulty concluded that GB rail suffered from a 30% efficiency gap compared with the best performance in Europe. The report set out a number of recommendations to remove the whole efficiency gap by 2018/2019.

The McNulty recommendations are very wide ranging and cover leadership, clarity of objectives, devolved decision-making, structures and interfaces and regulations. In terms of increasing efficiency the report stressed the importance of improved supply chain management, programme and project management and asset management. The role of innovation, standards and safety is also covered as are various aspects of HR such as training and management development.

In July 2012, the Department of Transport published The High Level Output Specification (HLOS) which sets out information for the Office of Rail Regulation and for the rail industry about what the Secretary of State wants to be achieved  during railway Control Period 5 (April 2014 – March 2019).

The HLOS announced rail investment in excess of £9bn by the end of the Control Period, of which about £5.2bn involves projects already underway and the remainder being for new projects.  The strategy is built around four priorities. The first of these is the creation of the “Electric Spine”, a high capacity passenger and freight electric corridor running from the South Coast through Oxford, Bedford and via the Midland Main Line to the East Midlands and South Yorkshire, with a link from Oxford to the West Midlands and the North-West.

The second strategic priority is to increase capacity and accelerate journey times between key cities, investing in faster trains (Intercity Express Programme) and route improvements. Major new investment is focussed on the Great Western, East Coast and Midland Main Lines. The third strategic priority is better commuter travel into major urban areas, helping people to access a wider range of jobs. A significant investment project is the electrification of the Welsh ‘Valleys’ lines to support the long-term economic renewal of the Welsh economy. There is also investment to support economic growth in the North East, Yorkshire, North West, Midlands, West, and London and the South East. By boosting rail capacity and capability in West and South Yorkshire, enhancing North-Eastern connectivity and completing the Northern Hub, this investment is expected to unlock major economic benefits in the economies of the northern cities and conurbations. The fourth strategic priority is to improve railway links to major ports and airports.

Following the McNulty recommendations the Secretary of State for Transport has set a High Level Output Specification in terms of a limited number of quantified metrics and non-quantified requirements, covering Safety, Reliability, Capacity and Environment plus a high level specification of certain major projects and other investments which the railway sector is to deliver in the Control Period.

Hitahtci has committed to build a new purpose-built factory in Newton Aycliffe to manufacture the trains for the Intercity Express Programme. Building will start in 2013 for opening in 2015. Trains will enter operations from 2017. This project will create 730 jobs with Hitatchi and many times that number in the supply chain. In addition Hitatchi has announced that it will build its new European R&D centre at the same location. They are also building new maintenance depots at Bristol, Swansea, London and Doncaster.

Atkins,  Bechtel, Carillion, CH2M Hill, Parsons Brinckerhoff, Siemens and the Railway Industry Association have come together to form the High Speed Rail Industry Leaders Group. This is intended to be a centre of excellence in rail engineering, operations, funding and regulation. The immediate priorities for this group include assessing the supply chain to identify skills and resource shortages and other constraints. It will also benchmark UK expertise against international experience.  It will establish best practice in terms of cost management and operational management, showcase UK expertise and identify skills development avenues.

BS11000 is proving to be an important standard for the modern GB rail industry as it tackles the efficiency gap. In May 2012 Atkins’ UK rail division is one of the first in the industry to achieve BS11000 accreditation, which provides a framework for collaborative business relationships. The accreditation will require Atkins’ rail business to apply best practice principles to its current ways of working to get the very best out of its business relationships.  Douglas McCormick, managing director of Atkins’ UK rail division, said: “I am delighted that we have achieved BS11000 accreditation. While collaboration has always been around, it has become all the more important to the rail industry following the McNulty Rail Value for Money Study.

Atkins’ BS11000 submission was based primarily on current re-signalling projects in the North of England and the Midlands, particularly the Northampton Silver Re-signalling scheme. Northampton, is being delivered in partnership with Network Rail, has been greatly helped by the collaborative approach that has been taken. From the outset, the combined Network Rail/Atkins project team held joint workshops to establish a ‘Collaboration Charter’ outlining project behaviours, interactions and how the project would be run. The team is also co-located on site which has led to the quick resolution of many issues so far and has meant that the project’s June 2012 commissioning has been kept on track.

The new atmosphere in the industry can also be seen in the recent award by Crossrail and TfL of a £190m contract for 100 escalators. This contract requires a 60% improvement in reliability in a deal which will see Otis maintain the escalators for 30 years. The installation of the new escalators for the tube network is scheduled to start in early 2013, with work commencing from 2014 at the Crossrail stations. According to TfL, each of the 428 escalators across the London Underground network operate intensively for 20 hours a day and need to be built to last.

In addition, under a £45m deal, Kone will install 54 incline lifts on the TfL network, including 49 at Crossrail stations and five at Bank, Greenford and Hammersmith Tube stations . Kone beat Otis, Fujitec, Stannah and Schindler to win the contract for the installation of the lifts.

Industry Forum has in-depth experience of supply chain management, high specification asset management, standards development and certification and the use of high level performance indicators in operational improvement. We are actively evaluating how best to bring our capabilities to support the improved performance that is being sought across the GB rail industry.

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