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Can Industry 4.0 transform UK supply chains in the face of Brexit?

BY TIM PADGETT AND TINA SALIH, PA GOVERNMENT EXPERTS

Exploit the UK's leadership in technology innovation at home to reduce our dependency on imports

We are a nation of exporters. In the year to April 2016 the five most successful sectors in the UK economy exported products worth £209.7bn. However, we are also a nation of importers with those same five sectors importing goods worth £253.4bn. Given the UK’s long-standing trade deficit, it will be more important than ever for the Government to develop effective policies to support exporters to make the most of a post Brexit world.

These policies must be based on detailed intelligence about the strengths of individual sectors of the economy; have an increased focus on small businesses; and drive the rapid adoption of new technology and innovation across UK industry.

How will we achieve this?

Value trade intelligence over trade data

Securing the trade intelligence we need, we must start with a detailed and ongoing analysis of the interdependence between different parts of the economy and the markets in which they operate. Only this can inform the UK’s position in trade deal negotiations. 

For example, UK electronics manufacturers are central to the UK’s ability to exploit many emerging consumer trends such as the Internet of Things, autonomous vehicles and tele-healthcare.  To secure export markets, all those involved across the different sectors and their supply chains must understand their relative strengths, and how they can support each other.  

Then there needs to be detailed work to understand how companies have been affected since the referendum result, and crucially how each of them could realise commercial opportunities from future trends. This also means looking at the implications of any new trade deal. A shift that favours overseas electronics importers could have long-term implications across many sectors. This kind of detailed analysis is needed across all the key sectors of the economy. 

Prioritise healthy, sustainable growth

A new range of support is needed to help UK SMEs access and compete in overseas markets. The focus for this business support should align with the objectives of the Industrial Strategy, as it is being developed. It must also address the funding criteria for grants, currently biased towards the number of jobs directly created by a project. The emphasis needs to change and the success of these programmes should be measured instead against their ability to create sustainable business growth, rather than job numbers.

The Mayor’s International Business Programme, a three-year programme to provide intensive support to 800 SMEs in exporting to international markets is an example of how support programmes can take a wider view. It is tailored to fit companies with specific growth ambitions across three broad sectors including technology, life sciences, and urban infrastructure. It provides a bespoke mentoring scheme, expert advice and workshops, targeted trade missions and access to leads and opportunities. The program generated £3.4m in sales in new markets its first six months and provided support for over 119 businesses, with 82 new jobs created. 

Tackle the challenge of a high wage economy 

UK manufacturers have high costs compared with many other parts of the world and to be competitive they need to make things in more efficient, automated ways. Automation brings huge benefits to our economy, as the components brought together require skilled people to design them, programme the software that controls their assembly, and negotiate complex procurement contracts that bring them to the assembly line at the right time. Companies like to co-locate these roles with assembly to speed commissioning, problem solving and continuous improvement.  A renewed focus on automation would support UK industry to look for the most modern, productive processes that could help us to compete internationally.

Go beyond technology 

Technology can reduce production costs or radically change product and service offers. We are already seeing some of these developments from self-driving cars to 3D printers. However, businesses attempting to provide these new services using old structures and practices soon discover that this approach can negatively affect traditional revenue streams and customer relationships.  

Blockchain, the technology underpinning digital currency Bitcoin, has been identified as a solution to facilitate safe international trade between SMEs. Institutions are spending millions on proof of concept and collaborating with industry-wide bodies to figure out how to use the protocol to speed up transactions and take significant costs out of the system. 

However, implementation has been unsuccessful in some cases, with large losses incurred for both institutions and customers. Effective decentralisation is the backbone of blockchain technology that makes the network valuable and robust, yet some banks failed to address this due to regulatory restrictions or a desire to use existing IT infrastructure instead of utilising the open and distributed network the blockchain technology provides. Holding onto the old business models will bring implementation problems.  

A national Industry 4.0 accelerator and outreach programme must be implemented to accelerate the adoption of innovative technology and the transformation of business models. For the benefits of technology to be fully realised, this accelerator programme should provide support to exporters and coach them to re-design their businesses to fully exploit new technologies. This should include advice on how they can keep hold of their current customers and how the help staff to adjust to the changes.  This is second nature for FTSE100 companies when they face new external operating conditions. However, this level of support is required now more than ever to help small and medium businesses develop sustainable models for the future.

Another challenge that needs to be addressed lies in the way the UK often fails to exploit its technology to benefit its domestic industries. For example, in advanced automation and robotics currently available technology can bring significant reductions in labour costs and improve the quality of manufacturing operations. The UK is a leader in this field, reflecting work that is going on in universities and the catapult and technology centres set up by Innovate UK. Yet the take up of these technologies across UK industry has been slow. Indeed, the Government has often seemed to be focusing on selling these capabilities abroad rather than exploiting them at home.

The reality is that we should be doing both. We should be developing our own SME manufacturing base so that it can make the most of the work being done by our research institutions and innovators.  That will then help us truly become a nation of exporters.

All these actions across trade intelligence, SME support, and new technology will  give our manufacturing industries the best possible chance of developing attractive products and achieving significant improvements in manufacturing productivity that are critical to winning in export markets.

The Chancellor recently announced a further £120m for tech transfer offices to bring together entrepreneurs with universities in order to help commercialise UK innovation. Whilst this is a welcome development, it does not address the major issues UK manufacturers are facing, or alternatively, the opportunities they could be exploiting. Simply put, universities and entrepreneurs would have to be interacting with thousands of SME manufacturers over the next 2 years to drive the type of change required before trade tariffs come into play.

Countries such as Germany and the US are already working on major Industry 4.0 programmes. They are putting in similar levels of investment to the Chancellor’s tech transfer initiative, but there is one significant differentiator; they are also engaging with major corporates like AT&T, Deutsch Telekom, General Electric, Intel, SAP and Siemens. This collaboration provides the large-scale industrial focus and commercial drive to accelerate tangible progress across supply chains. The Government must adopt a similar approach to galvanise UK industry into action before it’s too late. 

For more information, visit www.paconsulting.com/government 

Find out more about our work in manufacturing.

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