Can the region’s manufacturers work as one?

Supply chains have faced huge disruption since the first lockdown, forcing OEMs to contemplate where they will source goods and materials in the future, and SMEs further down the line to become more agile. Now experts believe there’s an opportunity to create a “Midlands as a factory” concept in which the region’s manufacturers compete as one, rather than against each other. Dan Robinson reports from a discussion at a recent Midlands Engine Economic Observatory event.

The aerospace industry, once booming

thanks to globalisation but ravaged by the pandemic-induced collapse of international travel, should be strapped in for a long-haul journey towards something resembling normality.

As Andrew Mair, chief executive of the Midlands Aerospace Alliance, says: “Aerospace supply chains are going to be what I’d call a ‘long Covid’ industry, as we’re not going to get the recovery for three or four years.”

Fault lines in an unco-ordinated supply chain were already exposed last summer when the lack of certainty in the economy meant aircraftbuilding plans were halted but middle-tier companies continued ordering parts.

Although Andrew calls it a “car crash” scenario for the industry that highlighted why greater collaboration was needed, many in the industry are searching for opportunities in line with the old adage of never letting a crisis go to waste.

WHILE THE MIDLANDS seeks to bring together the region into a single living, breathing and making entity that acts in unison, research by the Warwick Manufacturing Group (WMG) illustrates the stark variations that exist across its geography at the Midlands Engine Observatory’s latest quarterly economic briefing.

For example, manufacturers in the West Midlands lost 89% of orders when Covid-19 struck – making it the second-hardest hit region – yet the East Midlands fared better than any other location with a 67% loss of custom between April and May 2020.

Janet Godsell, a professor in operations and supply chain strategy at WMG, which sits within the University of Warwick, says: “The impact on the West Midlands is potentially because of the industry’s reliance on the aerospace and automotive industries, which have helped to make the region slightly more productive than the East Midlands.

“They’re critical to the economy but not to life. So when a shock like Covid happens and demand for them is essentially switched off overnight, it’s not just the OEMs that are hit but also the supply chains that are very dependent on those sectors.

“But the East Midlands has a much more diverse manufacturing portfolio, which may have provided some natural resilience for its order book when Covid hit, but at the same time it’s one of the least well-performing regions within the UK in terms of productivity.

“So what we can’t get away from is this link between productivity and resilience, which are incredibly important to our region – but even within the region there’s some disparities that require further investigation.

“One idea to address this could be to compete through economies of scope, not scale, and having a manufacturing capability that responds to changes in either demand or supply, rather than being locked in.”

IF THE AEROSPACE industry is suffering from the effects of “long Covid”, then the 2020/21 experience for supply chains across manufacturing has been akin to a bad night in the ballroom.

“The stop-start nature of lockdowns created a hiatus in the supply chain and it’s bit like knocking someone out of a waltz then asking them to jump back in,” says Charlotte Horobin, Midlands and East of England membership director at the manufacturers’ representation group Make UK.

“It’s really not easy to turn a production line back on – you’ve got to have that critical demand in order to run.”

With 95% of British manufacturers exporting to some degree – and the industry accounting for half of UK total exports – the disruption to international trade from Covid, and exacerbated by Brexit, has been monumental.

Three-quarters of firms in the industry have reported delays in the first three months of 2021, leading to rising costs for half of those and lost revenue for a third.

Andrew Mair

‘We have to understand our regional and national supply chains much better’

Make UK is not about to condemn global supply chains due to the complex integration already deeply rooted, but is calling for a review of UK supply chains.

“For some products, it’ll never make economic sense to manufacture in the UK,” says Charlotte.

“But we’ve got to establish what is strategically important for our country so companies know where to invest in R&D.

“We have to understand our regional and national supply chains much better, boost their competitiveness so they play a bigger part on the global stage, and think more about quality and environmental values.

“There’s a tremendous opportunity to transform our traditional industries to go from making a widget for a certain sector to talking about the capabilities and clusters we’ve got in the Midlands’ supply chains that can be beneficial for different sectors.”

Professor Janet Godsell Charlotte Horobin

Taking a lead in the circular economy could be key to giving the Midlands a competitive advantage, believes Prof Janet Godsell.

The circular economy model, according to the Ellen MacArthur Foundation, is based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems.

As more companies seek to improve their sustainability credentials, the region’s manufacturers could develop a USP by designing high-quality and reusable goods with long lifespans.

Prof Godsell explains: “We consume lots of stuff and things have got cheaper and cheaper over the years. When something breaks, it’s usually because it’s been costengineered down to be as cheap as possible so things like screws are replaced by welds and rivets.

“But when it breaks, you can’t repair it and have to throw it away. This is a challenge because we’re running out of materials so can’t just keep making things and, secondly, we’re not particularly competitive in terms of forward-facing manufacturing processes.

“If we want to make things cheap, there are other places in the world that can make things cheaper.

“So a different way of thinking to compete – which balances the challenges of society, the economy and ensuring we have a prosperous manufacturing community in the region – is to go back to making things that last.”

This would involve retraining the manufacturing focus on longevity and reuse, where materials would only be reclaimed from goods once all possibilities of repair and redistribution have been exhausted – with the added bonus of building up the UK’s stock of raw materials.

IN 1992, PROF Martin Christopher, an internationally-renowned academic in logistics and supply chain management, coined the expression that “supply chains compete, not companies”. But turning this into reality has been a struggle across the world.

‘Short-term priorities should be to focus on sectors that support growth in a more circular economy’

THE CIRCULAR ECONOMY

Prof Godsell believes the Midlands has an opportunity “to be right at the forefront” of this ecosystem, highlighting a Repowering the Black Country project as an example of using low-carbon energy sources to reindustrialise the region.

But she stresses it will take new ways of thinking as, despite PPE supplies being sourced more locally during the pandemic, it’s likely businesses will revert to buying goods from countries like China post-Covid due to cheaper costs.

“So we need a new competitive advantage,” she adds. “At the moment, we’re the largest net importer of carbon in the world because we basically offshore the problem.

“As we start to take into account the cost of carbon, there’s a real opportunity to actually think about how we can again manufacture in the UK – and in our region.”

While there’s many different perspectives in defining what a supply chain even is, Prof Godsell believes creating a regional end-to-end supply chain would give the Midlands a competitive edge and help close the productivity gap.

This would protect against the volatile demand and supply shortages witnessed during the pandemic, as well as the trade issues –including increased tariffs, customs delays and longer lead times – arising since Brexit.

But Prof Godsell admits it’s easier said than done, adding: “While the Midlands region is concerned about issues of productivity, sustainability, employment opportunities, economic growth and foreign direct investment, firms have other priorities. They’re concerned about competitive advantage, operational continuity, efficiency, cost reduction, collaboration and agility.

“There’s no joining of those two sets of objectives and there’s a language void between them.

“So perhaps the link between those regional measures around labour productivity and employment, and the business-level measures of cost, quality and time, is to use the supply chain at a regional level to bring the two together.”

Although it begins with looking at resources –issues such as skills shortages, lack of investment, poor cashflow and limited production capacity – breaking down silos and enhancing digital visibility will create an alignment between businesses that cuts down waste, while ultimately improving resilience and productivity.

Short-term priorities should be to focus on sectors that support growth in a more circular economy, invest in infrastructure to enable lowcarbon and connection regional supply chains, develop skills in the fundamentals of manufacturing and supply chain management, and create the visibility and co-ordination that enables supply chains rather than businesses to compete.

In the long term, Prof Godsell believes this will feed a vision of “the Midlands as a factory” to the rest of the world with green growth at its core.

“This technological shift will make distributed manufacturing the norm and have a huge levelling effect that breaks down barriers between OEMs and SMEs,” she adds. “By harnessing the amazing potential we have in the Midlands, we can become the most supply chain-savvy region in the country.”