1. Strengthening UK Supply Chains

2. 2 Strengthening UK Supply Chains: Context Challenge of Globalisation UK trade deficit since 1998 Driven by a high deficit in manufactured goods. Manufacturing accounted for 39 per cent of all offshoring job losses in the period 2003 to 2013 Offshoring decisions have been driven by lower costs of business overseas Main offshoring locations – China & India But higher wages and ‘hidden’ costs of offshoring may provide an opportunity for the UK

3. Strengthening UK Supply Chains: Impact on manufacturing supply chains 3 Headline findings from ONS data on sourcing of intermediate inputs. Value of UK content rising but imported content rising more quickly, so proportion of UK content is falling Fall in share of UK content more marked in manufacturing than services or other sectors Almost 50% of manufactured components in the UK now sourced from overseas Comparisons of data with EU competitors suggest in 2010 UK had lower proportion of domestic manufactured content than Germany, Italy and France.

4. Strengthening UK Supply Chains: Why should we care? Reduced risk and improved supply chain transparency Quality Collaborative innovation Agile design and production –responsiveness to changing customer demands. Reducing lead times and logistic costs 4 Stronger UK Supply Chains Benefit Businesses Stronger UK Supply Chains Benefit Individuals Safeguarding UK jobs in all regions and at all skill levels. Creating skilled jobs

5. Strengthening UK Supply Chains: Why should we care? 5 Stronger UK Supply Chains Benefit the UK £5bn of extra automotive sourcing opportunities Offshore wind supply chain: 30,000 jobs by 2020 Shale gas supply chain could be worth £33bn in 15 years Nuclear supply chain could add £4bn to UK. CBI report, Pulling Together (Oct 2014), suggests a total £30bn opportunity

6. Strengthening UK Supply Chains: Why should Government act? A critical mass of effective supply chain companies underpins the competitiveness of our high value manufacturing sectors. Loss of UK supply chains can lead to a vicious circle – loss of key skills & know-how results in more companies sourcing overseas No single company has the incentive to act alone to solve this – Government has a role to co-ordinate and kick-start action Action will have wider economic benefits –UK less reliant on imports –boosts the potential for exports –encourages more inward investment –reduced trade deficit –regional rebalancing 6

7. Strengthening UK Supply Chains: What should our ambition be? Limited data on current picture, and hard to know what might be possible to achieve But if this strategy is successful, might hope to see: –A reduction in the rate at which UK companies are turning to overseas suppliers –The UK maintaining a significant market share in the supply chains of mature sectors and sub-sectors –The UK establishing a strong long-term presence in the supply chains of key new and emerging sectors (e.g. Offshore Wind, Nuclear new build, Composites) 7

8. Strengthening UK Supply Chains: Underlying issues Key issues that affect all businesses naturally impact on supply chains: Innovation and technology Skills Access to Finance Need to grow SME capability UK Business environment 8

9. Strengthening UK Supply Chains: Underlying issues Additionally, there are a number of specific supply chain issues: Supply chain information and communication failures Fragility of supply chains Lack of standards for newer sectors like advanced materials 9

10. Strengthening UK Supply Chains: What are we already doing? Government & Industry already doing a lot Industrial Strategy – sector strategies Advanced Manufacturing Supply Chain Initiative Manufacturing Advisory Service Reshore UK Sector specific programmes Industry good practice e.g. Crossrail achieved 97 % UK content in some parts of their supply chain But all this not enough. The Action Plan will aim to build on and support existing Industrial Strategy activity 10

11. Strengthening UK Supply Chains: Innovation 11 Existing action includes: Catapult centres Innovate UK programmes Sector programmes like NATEP Key supply chain issues: Lack of investment in manufacturing technology by UK suppliers How can we incentivise more collaborative R&D Fostering greater communication so primes understand supply chain innovation and suppliers understand likely future sector tech developments

12. Strengthening UK Supply Chains: Skills 12 Existing action includes: Apprenticeships programme, national colleges, Sector programmes like Aero masters programme Primes like Rolls Royce using their brand power to over-recruit and over-train, to cascade through their supply chain Key supply chain issues: How can we encourage more ‘over-recruitment’ and ‘over- training’ by UK primes, or other bodies like Catapult Centres, to support the skills needs of manufacturing supply chains? Can we encourage suppliers to come together to recruit or train?

13. Strengthening UK Supply Chains: Access to Finance 13 Existing action includes: RGF funded tooling finance programme Engagement with banks through sector finance forums in some sectors Many primes providing supply chain finance to unlock working capital Prompt payment charter and codes of practice in some sectors Key supply chain issues: On working capital: Is there more we can do to tackle late payment, and to release funds through greater use of supply chain finance programmes? Financial strength: Performance bonds or other financial assessments of strength may prevent capable UK companies winning work. How do we tackle this?

14. Strengthening UK Supply Chains: SME Capability 14 Existing action includes: MAS national offer Sector specific SME mentoring and support programmes like ‘Sharing in Growth’ & SC21 in Aero, NW Automotive Business Excellence programme Local business mentoring programmes Benchmarking, or best practice clubs Key supply chain issues: These programmes are often small in scale and are not widespread in every sector. How can we encourage and spread use of such programmes to build UK capability?

15. Strengthening UK Supply Chains: Supply Chain Communication 15 Existing action includes: Some sectors, like Auto, promoting ‘meet the buyer’ events Some excellent good practice in some procurements e.g. CrossRail undertook significant pre-procurement communications and achieved very high UK content In some sectors, publication of forward planning roadmaps e.g. Renewable UK now publishes Offshore Wind Project Timelines Key supply chain issues: Such actions are not widespread in every sector. How can we encourage and spread such practice to build a culture of greater supply chain collaboration and more open communication?

16. Strengthening UK Supply Chains: Supply Chain Resilience 16 Existing action includes: Inward Investment Orgs in some sectors are bringing investment in to tackle gaps in UK capability UKTI export support to SMEs boost supply chain resilience Some LEPs also active in this area In some sectors, action is in place to help companies diversify into a new sector e.g. NAMRC is supporting suppliers from other sectors to diversify into the nuclear supply. Key supply chain issues: Should UKTI be working to target export support at sectors with more fragile supply chains? Are there gaps in IO work? Can we encourage further diversification across sectors?

17. Strengthening UK Supply Chains: Producing an action plan Deputy Prime Minister announced a Supply Chain Action Plan will be published in the New Year Suggested approach: –Discussion of policy issues/ idea generation over next 4-6 weeks –Write up / clearance – late January/ Feb –Launch ‘Action Plan’ in Feb 17