While manufacturing has made great advances in productivity it has yet to turn its gaze fully on the potential benefits of attacking the waste in its non-labour resources.
Ten billion pounds a year, 314,000 new jobs and a reduction in CO2 emissions of 27 million tonnes. Staggering figures for the UK manufacturing sector. But that is what a new report from a group of academics predicts can be achieved by the UK if it embraces the next manufacturing revolution.
The report – published by Cambridge University's Institute for Manufacturing (IfM), Lavery/Penell and 2degrees – paints a tantalising picture of what can be achieved if the UK leads the way.
Despite being a much-derided sector, manufacturing directly generates 10 per cent of the UK's GDP and employs 2.5 million people – almost 10 per cent of the workforce. Over the past decade labour productivity improvements have reduced costs by 3 per cent a year. But the value of goods, services and materials has been rising each year and now stands at £340bn.
"We have never really lost the faith that manufacturing was alive, if 'not well', that it was rather broader than the very high-end aerospace that tended to be emphasised, and that it was important to the UK economy," says Professor Steve Evans of Cambridge University, a former manufacturer and one of the report's authors.
"We did [however] run out of enthusiasm for proclaiming those facts from the rooftops. Basically, everybody thought they knew you were wrong and it was too difficult. As manufacturers we would gather in bars and have a sort of 'Alcoholics Anonymous' moment; 'I believe in manufacturing'.
"What happened is that for external-logic and event reasons people are beginning to work out for themselves that manufacturing is important because it is obvious that it is connected to the rest of the economy; manufacturing is the driver for productivity improvement, which in turn is the key driver for growth in the long term.
"The manufacturing sector's background activity rate is twice that of the service sector. If you want to grow your economy you need manufacturing otherwise you will always be growing more slowly.
"In the best case the country that learns how to make its products, but uses less water, materials and energy in doing so is going to have a cost advantage, as well as an environmental advantage, as well as a resilience advantage in its own country.
"If you look to the worst case – one where there is nothing done about it – when there is an energy crisis, or a water shortage, or a geo-political event that makes a certain material unavailable, you are going to be impacted harder and faster than your competitors.
"The judgement is whether those scenarios are likely to be coming sooner or later. If these scenarios are not going to happen for 100'years then this is not going to be the next manufacturing revolution. On the other hand, if any of these scenarios come into play relatively soon then competitive advantage or competitive disadvantage is very quickly going to be realised."
In a perfect world both labour and non-labour elements would have been tackled simultaneously, meaning that manufacturing would have been on the path to recovery for a decade already. In fact some companies are already well down this route and their success was one of the prime impetuses for the report.
"What we have done in the report is take the data that we have gathered from the very best companies and multiplied it by the norm for the rest of the sector and divided it, generally, by half and in the end said that these are the benefits that are available. Dividing it by half is a pretty safe guess about the scale of benefits that are available. We are only dragging people up to the best-in-class standard of 2013. By the time others reach it the best-in-class standard will have moved on. So, what will the actual scale of benefits be to the real economy and the real individual companies? I would suggest it would be higher but rather more difficult to confidently predict."
Those of a certain era will remember the 'just in time total quality management debate'. "I remember having discussions in many a factory office about this idea that quality is free," Evans says. "You could get rid of inspectors and the idea that we should be reducing the amount of inventory in front of our rather expensive machines, which we like to keep working 24/7.
"That debate went on for 15 or 20 years. We now know that it would have been smarter to have picked up that debate in two years and got on with it. This situation is similar."
Whether or not the crisis that underpins the report actually happens, the opportunity is there to reduce the cost of products and become a better global citizen.
"Much in the same way that that particular revolution challenged our norms of how we were used to running factories in a particular way and somebody came along and said 'yes, this works but have you ever thought about this?'. It is hard to digest.
"It doesn't matter how many examples there are, or if you go and visit those examples, it is quite difficult for norms to change. One reason we have written this is because we think that the UK, in particular, is ready for further debate about changing those norms again. The lead companies have already done so, and are continuing to do so."
Optimising the chain
The core areas for the next manufacturing revolution are energy, waste, packaging, circular resource flow, transport and supply chain optimisation. Energy efficiency is a well-publicised strategy but others have lagged behind in adoption.
In waste reduction Korean steel manufacturer POSCO has been selling its blast furnace slag as a cement alternative. In packaging, companies across the range of manufacturing sectors have been gaining advantage by reducing packaging. Dell, Hitachi Chemicals, Atlas Copco and Toyota are all well above the industry average of just under 1 per cent reduction by weight each year. In fact Toyota has reduced packaging by 57 per cent over 15 years while Atlas Copco has shed 24 per cent in only five.
But despite these accomplishments there are the habitual barriers to change.
"I would go back all the way and look at what happened with 'Just in time'," Evans says. "There was a lack of vision that this was the sensible thing to do followed by a lack of leadership to say we are going to go ahead and do this."
Manufacturing is a broad-based discipline so it is logical that there will be sector differences. In the automotive sector energy is far more important than packaging. The background rate of improvement for packaging in the automotive sector isn't very high, but it doesn't need to be. The one thing that every sector has in common is that they all use electricity, energy and gas. Energy'efficiency seems to come through strongly for three reasons. Firstly, everybody does it. Secondly, the cost of energy is going up and people are frustrated. Lastly, energy is more often than not directly linked to the biggest environmental issue of our time: climate change. It gets primacy for those reasons.
The circular economy is an area of increasing interest for manufacturers. At its heart is the desire to capture the value that exists within products when they come to the end of their linear, or first, life. Strategies include product reuse, remanufacturing, cascaded use, recycling or recovery.
"You can only be circular when you have excellent infrastructure around you, for example, that collects end-of-life products and allows those products to be recirculated," says Evans. "What we are seeing is individual actors doing individual things, which inevitably is sub-optimal. Those companies that are determined to be circular are often investing in some small way in their own infrastructure whereas their preference may be to share that infrastructure to the economy."
As with all investment, a clear path to return of investment is crucial. Data is now flowing from companies that have been on this journey for 10 to 15 years and those companies are faced with challenge that they have applied their efficiency muscle, they have squeezed their system rather well and they are now reaching a point where significant amount of investment is required to get the next bit of juice out of the system. Many things pay back instantly, or within three to six months. Cleverer companies are targeting those techniques first and they are putting the money in the bank without spending very much.
Evans says: "Now the question we have to ask is why, if it is that good of a payback, is it not happening everywhere? It may be a simple thing, but it is not an easy thing. People need to learn the new behaviour of putting on these different glasses and actually finding the wastes."
Evans is clear that he feels that the report has been very conservative with its figures. "It seems strange as these are really big numbers," he says. "When you go back to other revolutions, again for example the 'Just in Time' revolution, over a period of about five or 10 years I learnt to put on a different pair of glasses and to see factories in a different way. All of a sudden I began to see waste that I had never been able to see before. Once you could see it, it really wasn't that hard to get rid of it. I think this revolution can draw great parallels to that one. You can put on a different pair of glasses and understanding that manufacturing is incredibly good at efficiency, but we have never bothered to use our efficiency muscle on this particular problem. When we apply it we will squeeze it very quickly and get a lot out of it."