Future of manufacturing
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I just want to say a couple of thank yous. This report was initiated by my predecessor Sir John Beddington - I very much came in at the end - so it’s to him that any thanks are really due. I want to thank Sandy Thomas and her team in Foresight for all the work they put into it. And I particularly want to thank Richard Lapthorne for chairing the lead expert group, and all the members of the lead expert group for all the work that they’ve put into this important report.
There are 3 straight forward messages of this report, so I’m going to give you 3 brief ‘elevator pitches’.
The first key message is that manufacturing matters. The absolute contribution is 10% of our gross domestic product (GDP). But it’s also extremely important for our exports; 53% of our exports in 2012 came from the manufacturing industry. It’s an R&D intensive part of our activities, so about 75% of total UK business R&D spend between 2000 and 2011 came from manufacturing companies. The growth has been good in manufacturing and it provides highly skilled and well paid jobs. A diverse manufacturing industry provides resilience in the face of recession.
I don’t think anyone here will argue that manufacturing is, and must continue to be, an essential part of the UK economy. I think that is absolutely non-contentious. However, there are some challenges. Manufacturing as a total share of GDP has fallen between 1990 and 2010 in the UK. The challenge now is to have an inflection in this and move it in the other direction.
Manufacturing is changing
The second key message is that the world of manufacturing is changing. The old view of manufacturing - that a widget is produced in a factory, it leaves it and that is the end - is no longer the case. It’s about packaging of services with products, for example the in-flight information you get from a Trent engine as it travels around the world. It’s about selling technological know-how, such as the chip design of ARM. It’s about making sure that products last longer - re-manufacturing them - the sort of thing that JCB and Caterpillar do. So the value chain of manufacturing is now much broader, but it’s not clear that the current metrics really capture the whole of that value chain.
As we move to IT embedded in products, we’re going to start seeing mass personalisation of products on demand. And we’re going to begin to see a whole range of different environments in which manufacturing occurs. There will still be the classic big facilities, but we’re also going to see modular facilities. The pharma industry is beginning to move in that direction. We’re beginning to see manufacturing actually happening directly for the end consumer with additive manufacturing at home. We’re going to see mobile manufacturing, much greater design freedom and flexibility, with design being a key part of that value chain. And, as I’ve already implied, there will be much more in the way of digital connection along the value chain.
There are clearly new demographic, new market opportunities. So we have the demography of ageing populations around the world. We have the rapidly changing shape of the global economy, with the enormous importance of India, China, Brazil, Russia, and a whole series of countries developing very fast indeed. We’re seeing globalisation of manufacturing, with the whole value chain being fragmented across the globe. But we’re also seeing on-shoring. It’s no longer a question of pile it high, sell it cheap, manufacturing, it’s actually manufacturing it in the best possible place, and some of that involves on-shoring back to the UK.
With all of the changes in the natural environment, there’s the issue of sustainability for manufacturing going forward. So how do we deal with shortages of water and with other mineral shortages? We’re going to have to be much more frugal with how we use our resources. There’s also the challenge that we face with the volatility in the price of resources - we’ve seen that dramatically in the case of food. Again, increasingly as we look to more sustainable consumption of our natural resources, then the re-use, the re-manufacturing, the recycling of products is going to become ever more important.
We are going to depend on skilled workers. The number of jobs in manufacturing has fallen very dramatically since the 1960’s. There are now something like 3 million workers involved in manufacturing, but that has plateaued. With retirements, there will probably be a need for around 800,000 new workers in the manufacturing industries. That creates a very important skills agenda.
The people we need in the future will have different qualifications from the people we needed in the past. I think one of the key messages is the importance of STEM in education, because this has actually got to start with enthusing young people. I must say that one of the privileges of my job is going round and seeing manufacturing facilities around the country and internationally. Once you’ve seen a few of these places I can’t see why everyone doesn’t want to work in manufacturing.
The third key message is; what are the policy implications of this future world of manufacturing? The first I’ve already signalled, which is that we need to have better metrics to assess what is happening with manufacturing. It’s about going beyond measuring output, it’s about capturing that whole value chain, because it may be contributing much more to our GDP once you look at that extended chain. It’s then about policy instruments, targeting the support, recognising that a lot of policy issues about manufacturing cross a number of government departments. It’s about enhancing capability, and the foresight report draws attention to both the United States and Australian Office of Manufacturing. And of course in the UK we’ve set up Infrastructure UK as a way of coordinating infrastructure decision making across government. Finally, it’s about building on successful existing initiatives such as the Catapults.
So that’s a very short elevator pitch from me. I’m now going to hand over to the Secretary of State, the Rt Hon Vince Cable.