The UK Mechanical Engineering industry (UKME) employs some 210,000 people, 6.7% of the total employees in the EU Mechanical Engineering Industry (EUME). UKME contributes €13bn gross value added per annum to UK GDP, 7.4% of the EU27 value added total for the sector. This makes it the fourth largest ME sector in the EU27 in terms of gross value added, just behind France.

Germany and Italy are the largest EUME sectors. Between them, the four largest nations account for nearly 75% of EU27 gross value added in ME. With 36% of the world market, Europe is the world’s largest producer and exporter of machinery, ahead of the US, China and Japan with major export markets currently in Russia, India, Turkey, Brazil and South Korea.

Construction and mining machinery and non-domestic cooling and ventilation are significant subsectors in UKME and between them account for nearly 30% of UK sector output. Lifting and handling equipment, engines and turbines account for a further 20%. UKME has maintained its share of UK manufacturing output over the last two decades.

The structure and value chain in EUME is different from automotive and aerospace in the sense that OEMs do not have the same level of purchasing power. Larger firms can be found throughout the ME value chain. Numerous EUME suppliers possess a strong position in the market, based upon their technical expertise and ability to manufacture components with unique characteristics.

ME is an industry with a sophisticated division of labour. Numerous subsectors are suppliers to other companies within the industry.  Supplier specialization is needed to design and produce high-tech parts and components to deliver outstanding quality and performance in final goods. Upstream linkages to other metal industries, electrical engineering and the electronics industry mean that a rich industrial infrastructure is needed for global competitiveness in ME and helps explain the success of EUME.

Looking at global productivity, Japan is in the lead closely followed by US. The EU-27 comes third but with a much lower level.  None of the EU member states comes close to the US or Japan in terms of productivity. Germany, with the highest EUME labour productivity at €70k per person per annum, is more than 20% below the US ME labour productivity.

Chinese ME’s labour productivity grew at an average rate of more than 10% per annum between 2000 and 2010. In 2010 it reached €26.4k per person – approximately half the EUME average and of the same approximate value as Slovakia, Poland and the Czech Republic. Nonetheless, the EU-27 share of Chinese machinery imports had increased from 28% in 2000 to 37% in 2010.

The competitiveness of EUME is most under threat in terms of labour costs and labour productivity. EUME labour costs are broadly similar to Japan and the US, but productivity is substantially lower. The richness of the EUME industrial structure and the strength of its technical base and continued R&D spend have been able to compensate for the lack of labour competitiveness.

In the period up to 2015 EUME will exhibit a sizeable demand for professionals, technicians and associate professionals.  Technical skills will be in high demand all over Europe, and ME will face competition from other sectors (like the aerospace and the automotive sector) for these skills. SEMTA summarise the UK position in ME as follows:

“Although overall employment is declining, there is still a need for the sector to recruit – particularly managers, skilled craftspeople and operatives. A lack of technical and practical engineering skills is the major cause of skill-related problems. The biggest skills gap is in CNC machining. Strategic management, entrepreneurship and technical skills such as advanced design skills are crucial to improving productivity. There is also a need for the current workforce to have skills that make them more flexible and adaptable. By 2014 skilled craftspeople and operatives are expected to make up a lower proportion of the workforce. High-value work will bring opportunities for more managers, professionals and technicians. Support occupations within the sector such as administration, sales and customer service will also grow.’

If EUME companies are to utilise an even broader range of technologies to remain competitive, they will require technical staff (from skilled workers to engineers), who are able to use and integrate know-how and techniques from a variety of disciplines, and are able to perform in cross-disciplinary teams.  The rapid introduction of new technologies will mean that skills will have to be learnt mainly in the working environment via workplace learning.

 

Employers want to recruit graduates who are not only skilled technically but also exhibit:

• team working skills
• communication skills
• computer skills
• ability to adapt to and act in new situations
• analytical and problem-solving skills
• decision-making skills
• foreign language skills

Industry Forum has a lot of experience of process improvement and supply chain improvement in the UKME sector, initially with firms in the automotive and aerospace supply chains and subsequently with UKME primes.  IF can also help improve the skills base of UKME in key skills for future competitiveness.

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The recent announcement at the Geneva Motor Show that Nissan will build a new compact model, the Invitation, at its factory in Sunderland follows a whole series of similar investment announcements by vehicle manufacturers in the UK throughout 2011.

One of the  most important is the decision by Jaguar Land Rover to construct a new 800,000 sq ft engine plant in Wolverhampton on the new i54 Business Park at Pendeford . The new plant will create about 600 new jobs and up to 400 more in the supply chain. It is the biggest single investment in West Midland manufacturing since BMW launched its engine plant at Hams Hall more than a decade ago. This project is part of a wider commitment from Tata Motors who said last month that they will double their investments in their Jaguar Land Rover brands to £ 1.5 billion pounds a year. C.R. Ramakrishnan, Tata’s chief financial officer, said recently, “Over the past 5 to 6 years, JLR has spent around 700 to 800 million pounds annually on capital expenditure and product development. Going forward, we will double that.”

This upbeat mood contrasts with mainland Europe where weaker macroeconomic fundamentals are expected to slow demand for vehicles in 2012.  Most European automotive suppliers are likely to see single-digit declines in revenues in their home markets. IHS Automotive is forecasting that total vehicle production will fall by up to 8% to 18.50 million units in Europe this year. While Eastern Europe was able to offset some of the slowdown in 2011, output in Eastern Europe is expected to contract in 2012 following the end of the Russian incentive program.

Suppliers everywhere are looking for growth opportunities in emerging markets where the outlook is much brighter than for Europe. The largest UK-owned supplier, GKN, already generates less than 40% of its revenues in Europe. GKN is well placed with its global strategy, in comparison with suppliers such as Faurecia and Valeo, which have large exposure to automakers in France.  GKN attributes its 15% year-on-year increase in pre-tax profit to £417m during 2011 to the sustained growth in demand for premium vehicles globally and the strength of Chinese demand.

Massive restructuring efforts in GKN’s autos division during 2009 and 2010, together with new products and acquisitions should help increase overall performance in 2012. GKN has diversified its presence and made strong inroads into the key emerging markets of Brazil, China and India. It is also well-placed to tap growth in Japan and North America, thanks to its increased focus on supplying advanced electric and hybrid drivelines.  In June 2011, GKN acquired a 25.1% stake in EVO Electric and formed a joint venture with the electric drive developer, a move that will help GKN significantly increase its participation in the electric vehicle segment. In October, it acquired the all-wheel-drive (AWD) components businesses of Germany’s Getrag in a deal that made it a global leader in AWD and eDrive Systems.

The BRICS – Brazil, Russia, India, China and South Africa – continue to be the best automotive growth prospect globally. For example, Brazil has the potential to become the world’s third largest automotive market by 2016, by when new vehicle sales could reach 5.65mn units a year. China overtook the United States to become the world’s top auto market in 2009. Growth of the Indian passenger car market hit 31% in 2010, but dropped off sharply in 2011 due to rising interest rates, higher commodity prices and economic uncertainty. Nonetheless the Indian vehicle sales growth rate in 2012 might be 7% or more.

The U.S. auto industry is poised to enjoy its best year since 2007.  J.D. Power have recently revised their 2012 U.S. auto sales and production forecasts to 14 million vehicles, up from 13.8 million vehicles – compared with sales in 2011 of 12.8 million vehicles. They see no signs that the lagging European economy will hold back U.S. sales which are responding to a rebound in leasing, more available credit and long-term financing as well as pent-up demand.  January US auto sales were surprisingly robust, showing a seasonally adjusted annualized rate of 14.1 million vehicles.

Sales of new cars in Japan this year are projected to top 5 million for the first time in 4 years, thanks to planned government subsidies and tax breaks for eco-friendly vehicles. The Japan Automobile Manufacturers Association agree that sales of new vehicles are expected to total over 5 million units, an increase of 19.1 per cent from 2011.

Business Monitor International has been tracking the risk-reward ratios in the automotive sector in different European countries throughout 2011. The UK and Russia have come top of the rankings throughout 2011 which helps explain the continuing high level of vehicle manufacturer investment in the UK.

On the basis of a special study, SMMT have concluded that improving access to finance, aggregating national demand and leveraging down the supply chain are the ways to boost automotive OEMs’ £7.4 billion annual spend on UK sourcing.  There is a real opportunity to boost the £4.8 billion value added from the supply chain to the UK economy. These were some of the findings from SMMT’s recent Supply Chain Group meeting, which brought together more than 50 OEMs and large tier one suppliers, to discuss how to maximise the supply chain business opportunities and keep it an attractive business proposition to global OEMs.

SMMT has announced that the next instalment in the series of Open Forum events will take place on 14 March 2012 at Northampton Saints Rugby Club, Northampton. On the back of the £4 billion investment committed by major OEMs to the UK in 2011, the theme of the Open Forum event is ‘Growth and investment in the UK supply chain’ and will focus on examining the opportunities created for UK suppliers. Free to both members and non-members, the event will include presentations from the Automotive Council Co-Chairman, Richard Parry Jones as well as Jaguar Land Rover and Aisin Europe (UK), followed by a networking lunch. For more information and to book your place, contact Claire Balch, cbalch@smmt.co.uk or telephone +44(0)20 7344 1636.

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The Coalition Government is moving ahead rapidly this year with its Employer Ownership of Skills Pilot. The UK Commission on Education and Skills has just published a prospectus for the programme which sets out a very tight timetable for the first round of funding.  The deadline for employers to register is 13 April 2012 and full applications must be in by 26 April 2012. Successful projects are expected to start in August 2012.  Nine employer briefings are scheduled around the country between 6 March 2012 and 4 April 2012 to explain the scheme and answer queries and the full application and guidance notes for applicants will be available by the end of February 2012.

The minimum cash investment from Government towards projects will be £250,000 for collaborative projects with SMEs – firms which employ less than 250 employees.  Projects with large employers, either singly or in consortia, will bid for a minimum cash investment of £1 million. The pilot is making £250m available in total – £50m in 2012/13 for this first phase and £200m in 2013/14. Funds will be paid directly to employers.

Employers are invited to develop proposals which:

• Increase the impact of work readiness, workforce development and Apprenticeships activity
• Allow employers to secure the training they need by influencing the quality and content of training
• Encourage collaboration by employers to tackle cross-sector or supply chain skills challenges
• Increase employer leadership, commitment and investment in skills with the involvement of employers who do not have a track record of investing in skills

Employers are invited to take the lead through new employer designed and delivered training and employment programmes with:

• Clear articulation of the skills needs within an industry and why public funds are required to complement private investment
• Employers defining what quality skills and learning programmes should be in their sector
• More sustainable models of funding training that encourage greater private investment alongside public investment
• Employer-designed payment and monitoring systems that safeguard public funds, demonstrate value for money and are simple for business to operate

The Government also wants to see collaborative proposals such as:

• Large primes and small businesses in a supply chain developing a mutually beneficial programme of learning
• Leading employers investing in a sector by providing up-front funding to support learning opportunities in smaller businesses
• Employers working together, with the support of their employee representative bodies, to secure greater apprenticeship and sustainable job opportunities
• Groups of employers, who individually may find it difficult to meet their skills or training requirements, coming together and developing a collective proposal
• Local employers developing a strategic skills offer through appropriate geographical infrastructure

Proposals will be assessed by an Investment Board chaired by Charlie Mayfield (Chair, UK Commission). The Board will be looking for:

• The understanding and support of the CEO and/or leadership team
• How the impact of the programme on business will be measured and reported to the CEO and/or leadership team
• Commitment to transparency over the costs and level of private and public investment

Industry Forum has a long pedigree of designing and delivering skills programmes which deliver improved competitiveness and benefit employees in supply chains using industry specified standards. We will be actively seeking partners to develop proposals for this important skills pilot. If you would like to discuss the possibilities that this programme offers please contact Industry Forum using the details below.

The main website for this programme is on the UKCES site

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The ADS, which is the premier trade organisation for all companies operating in the Aerospace,Defence, Security and Space sectors, has just launched a major campaign – Flying Forward.  The campaign was launched on 17 January in the Strangers’ Dining Room in the House of Commons. Business Minister, Mark Prisk, delivered the key note speech. Emma Reynolds MP, Chair of the newly established All Party Parliamentary Group Aerospace also spoke in support of the campaign.

Flying Forward stresses that UK’s aerospace industry is a major national asset, crucial to the country’s economic future. It sets a target of retaining the UK’s existing 17% global market share over the next two decades. This would mean that the UK aerospace industry would be worth an estimated £352 billion by 2029. The global aerospace market is predicted to increase significantly in the coming decades and to achieve the targeted growth over that timescale the aerospace industry needs to work in a much closer partnership with the UK Government and work together as an industry to greater effect.

The UK aerospace sector starts from a position of strength.  It is number one in Europe and the largest aerospace industry outside the United States. Turnover in 2010 was £23.1 billion. New orders are worth £29.1 billion with 70% of industry revenues come from exports. The UK’s maintenance, repair and overhaul business has  a 17% market share of a $45 billion per year global industry. The UK is a world leader in the manufacture of aircraft wings and engines with a 35% market share in the engine sector.

One key to securing the future is the emerging markets, particularly India, China, Brazil and the Middle East.  Another is to make further progress in meeting the environmental challenge. Aircraft today already produce 70% less carbon dioxide emissions compared to the equivalent from 50 years ago and 75% less noise nuisance than the equivalent from 30 years ago. The Airbus A380 burns 17% less fuel per seat and produces around 10% less NOx than the previous largest aircraft model. It burns 3 litres of fuel per 100 passenger kilometres – as fuel-efficient as any car currently on the market.

The European aerospace industry has set itself targets to reduce CO2 emissions by 50% per passenger km, oxides of nitrogen by 80% and noise by 50% in new aircraft compared to their 2000 equivalents all by 2020. In 2050 the aims are:

• To have technologies and procedures available to allow a 75% reduction in CO2 emissions per passenger km and a 90% reduction in NOx emissions. The perceived noise emissions of an aircraft in flight should be reduced by 65%. These are relative to a typical new aircraft in 2000.
• Aircraft movements should be emission free when taxiing
• Aircraft should be designed and manufactured to be recyclable
• Europe should be the centre of excellence on sustainable alternative fuels, including those for aviation, based on a strong European energy policy

ADS have concluded that the UK needs to position itself properly to win a substantial amount of this new business and safeguard the long-term sustainability of the industry. In particular it is important to secure major UK involvement on new aircraft replacement programmes, such as the A320 and 737 replacements, wings, engines and high-value systems. To achieve this there must be:

• A strong industry-Government partnership
• A technology plan in place with demonstrators
• Sustainable infrastructure and facilities

Europe must address three key challenges: increasing the level of technology investment, enhancing its competitiveness in world air transport markets and accelerating the pace of policy integration.

Industry Forum has substantial experience of working with aerospace firms including the analysis of current and future supply chains and the development and delivery of comprehensive improvement plans. We look forward to working with UK aerospace in the future to deliver the goals of the Flying Forward campaign.

(Taken from the ADS publication Flying Forward – http://www.adsgroup.org.uk/articles/27855 )

 

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On 17th November 2011, the Prime Minister announced a new pilot initiative to move towards an employer-led skills system, committing up to £250 million over the next two years to test this new approach. The central aim of the employer ownership pilot is to give businesses the space to step up and develop new and innovative proposals for tackling the current and future skills needs of sectors, supply chains and local areas. The pilot will test the potential for employer ownership to deliver the changes needed to secure a competitive skills base for the UK.

In the pilot, businesses will be asked to work together to develop radical proposals to train and develop the workforce and support their productivity and growth ambitions. Businesses will set out the public investment needed to support their investment in skills, training and Apprenticeships. Public funds will be provided directly to businesses to complement their private investment. Employers will need to show how public investment can leverage business investment aimed at raising skills levels in their sector, supply chain or local area. The pilot will be launched early in 2012 with a prospectus issued by the Government and the UK Commission of Employment and Skills (UKCES)

In December 2011 the UKCES published an explanation of the thinking behind the employer ownership of skills pilot.  Over the past two decades successive governments have driven the reform and expansion of the vocational skills system but during this time the UK has become less competitive globally on skills. Many employers have found the skills system is too complex and have been put off by a system that appeared to them excessively centralised.

UKCES suggest that Government should create the space for employers to step up and take ownership of the skills agenda as part of the growth strategy of their industry. In the past skills policy tried to engage employers in a Government led enterprise. The new approach is to create the conditions where the best employers, working with their employees and training providers, can take charge and develop quality training.  Employers are invited to drive the design and delivery of skills solutions to secure a world class skills base.

UKCES find that the UK currently has two training markets: a publicly funded market providing qualifications built around government priorities, and a private training market delivering skills in response to business need.  What is needed is a single market for skills development, where further education colleges and other training providers respond to genuine  demand rather than state funding incentives. Training should deliver economically valuable skills, which people and businesses are prepared to pay.

UKCES propose that Government funding should follow ownership. If employers are to collectively own the skills agenda, public expenditure should shift from  provider grants to incentives and investments which flow through employers into a single market for skills development.  The current publicly funded skills system is built around a complex funding model that often leaves employers and individuals unaware of government’s contribution which makes it difficult for employers and individuals to make a considered decision based on quality and value for money. Employers and employees should be prepared to contribute more to a system in which they own the training which brings them real benefits and value.

Industry Forum competes globally, offering training and coaching, which is highly valued around the world.  Some of this training is based on international standards such as ISO/TS16949, VDA 6.3 and the JIPM TPM Excellence Award – standards which are often specified by customers for their supply chain. In this way IF already meets the basic idea behind the employer led training pilot of delivering training which has been specified by business and contributes directly towards global competitiveness. IF’s client list includes a number of blue chip companies from the UK, from Europe and from the US who work in this way. Currently Industry Forum is evaluating the employer led pilot and keenly awaits the more detailed specification which should be published shortly by the Government and UKCES.

 

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