4 Supporting Supply Chains
86. The aerospace and defence industries have
around 9,000 suppliers,[128]
and the motorsport industry consists almost entirely of SMEs,
with 4,500 small companies making up the core of the industry.
Therefore, supply chains play a crucial role in supporting both
industries. As we discussed earlier, it is these companies that
have borne the brunt of the recession, with those in the motorsport
industry being particularly badly affected.[129]
87. The majority of submissions to this inquiry
which addressed the role of SMEs in the industry were highly complementary
about the contribution that SMEs made to the sector. For example,
BAE Systems wrote that: "SMEs play an important role across
the complete aerospace supply chain, providing valuable contribution
in terms of intellect, technologies and products."[130]
Thales praised the innovative nature and flexibility of SMEs stating
that those qualities were "significant factors in our ability
to offer tender-winning proposals to our customers."[131]
88. However, that praise was not universal. During
our visit to Derby, Rolls-Royce argued that the British SME supply
chains compared unfavourably with those in France and the USA.
It argued that the UK supply chains were trading on an historic
legacy, and that it needed to invest in new machine tools and
equipment. Rolls-Royce also felt that the SME supply chains tended
to look to the past not the future and needed to adopt a more
scientific outlook. It concluded that steps needed to be taken
to drive up the quality of the supply chains. [132]
"Supply chains for the 21st
Century"
89. In 2006, the aerospace industry launched
the "Supply chains for the 21st Century"
change programme (SC21) to address shortcomings in the supply
chains. The initiative was designed to accelerate the competitiveness
of the UK aerospace and defence sectors by raising the performance
of its supply chains.[133]
The Society of British Aerospace Companies (now part of A|D|S)
was the lead organisation on this project. Since its inception
500 companies have signed up.[134]
Airbus said that the programme was introduced to "overcome
problems of an often disconnected and fragmented supply base operating
with non-standardised processes with high levels of waste and
duplication."[135]
As part of the project senior personnel from the major manufacturers
including Airbus, and BAE Systems, spend time with SMEs acting
as mentors.[136]
90. The Government has given its support to the
project, but what form that support has taken remains unclear.[137]
We asked the Minister to clarify whether the Government's support
was primarily "moral", or if it had also made a financial
contribution to the cost of running the scheme. The Minister responded:
It is certainly morally supported, but it is also
supported through regional development agencies that do provide
financial support for improvements in manufacturing processes,
lightening manufacturing and through improving production techniques
and competitiveness for businesses.[138]
In its supplementary memorandum the Government set
out the financial support provided by RDAs for the scheme, as
set out below:[139]
Regional Development Agency
| Support Provided |
East Midlands | The total budget for the period 2009-2012 is £375,000 provided to the Midlands Aerospace Alliance for SC21.
|
North West | The North West Aerospace Alliance runs the Aerospace Supply Chain Excellence programme which is consistent with SC21. Phase One was backed with £4.2 million from the North West Development Agency funding.
Phase 2 has now commenced with £7 million from the North West Development Agency.
|
Scotland | In Scotland the model adopted for the delivery of SC21 is as part of an integrated service offering from the Scottish Manufacturing Advisory Service and therefore not funding separately. SMAS is committed to supporting all companies requiring support for SC21 accreditation
|
South East | SEEDA let a £6 million three- year contract to the Manufacturing Advisory Service in 2009.
|
South West | £540,000 over the past couple of years, the programme delivered by the West of England Aerospace Forum and the Manufacturing Advisory Service.
|
West Midlands | £1.5 million of funding for the period 2009-13 to the Manufacturing Advisory Service for SC21.
|
Yorkshire | The Northern Defence Industries support SC21 through its £8 million for the Manufacturing Advisory Service, which is open to aerospace companies. In addition, between 2005 and 2008, Northern Defence Industries (for the regional aerospace sector as a whole) was provided with £900k funding to raise awareness of SC21.
|
91. We also asked the Minister what specific
help the Department had provided to SMEs in these sectors during
the recession. Ian Lucas MP was not able to provide any specific
examples, although he did highlight a number of general schemes,
such as Repayable Launch Investment and Train to Gain which the
industry as a whole has benefited from.[140]
The Department subsequently confirmed that "there has
been no specific support aimed at motorsport and aerospace SMEs",[141]
but listed a number of generic support schemes which SMEs were
able to access through Business Link. These included the Enterprise
Finance Guarantee Scheme; Export Credit Insurance; Grant for Business
Investment; Innovation Advice and Guidance; Innovation Vouchers;
Knowledge Transfer Partnerships; Manufacturing Advisory Service;
Small Loans for Business; Train to Gain, and Understanding Finance
for Business.[142]
92. We congratulate the aerospace
industry on the proactive steps it has taken to improve the quality
of the supply chain through the SC21 programme. We are encouraged
by the steps taken by Regional Development Agencies to support
this scheme and by extension small businesses.
Diversification
93. One step that SMEs can take to increase their
resilience to sudden shocks in one market is to diversify across
a number of sectors. Mr Manahan, Managing Director of Lola Group,
said that this had been "absolutely and utterly essential"
in enabling his company to weather the downturn:
If we were relying on just the motorsport business
to keep Lola afloatit is a very, very simple thing to saywe
would be dead.[143]
94. The motorsport industry has been particularly
pro-active in encouraging companies to branch out into sectors.
The MIA has run a number of initiatives aimed at increasing cross-over
between motorsport and other industries. For example, the Motorsport
to Defence (M2D) Initiative, launched in 2007, was created to
bring motorsport companies into the defence sector. The initiative
has seen motorsport-derived radiators, charge coolers, gearboxes,
brakes, fuel tanks, telemetry, suspension components and seals
being used in defence land vehicles.[144]
Similar initiatives have been established to encourage diversification
into the aerospace (M2A) and marine industries (M2M). While the
Government has not provided financial support for these initiatives
Mr Aylett credited Lord Drayson, the current science Minister,
as one of the initial driving forces behind the project:
In actual fact it was led by Lord Astor and Lord
Drayson, so they were the kind of sparring partners [...] they
kicked it off, and then they left it to the intuition of businessmen
who needed to face up to business opportunities.[145]
95. The motorsport industry argued that motorsport
companies possess a number of qualities which make them attractive
suppliers to other sectors. As the Motorsport Industry Association
note:
Unlike conventional suppliers, motorsport businesses
do not merely produce/manufacturethey focus on fit-for-purpose
innovation, where a component produced this week performs better
than one made last week.[146]
Mr Manahan, Managing Director of Lola Group, spent
a large proportion of his career in defence and aerospace industries
before entering motorsport.[147]
He argued that the speed with which motorsport companies responded
to demands meant that they were well placed to enter other sectors:
something which actually every single day [and] never
ceases to amaze me is how fast we do things. It is a bit of a
joke that in the defence and aerospace world there is a 16-week
rule; if you want to change something on a drawing, put a little
bit on a widget, anything, the answer will always be, "16
weeks". Sixteen weeks is a lifetime in the motor industry;
16 days is almost too late in motor racing. The whole thing about
motor racing is innovation and time, and they were two things
which from my experience I found sadly lacking in the defence
and aerospace industry.[148]
Mr Aylett agreed with this point:
Time is one of the resources we are all running out
of and really gaining in value every day, every minute, and motorsport
uses its time very profitably and they do not realise how rare
that is in an engineering delivery sensethey really do
notbecause perforce they would lose their customers without
delivery on time. Strangely enough, because they are focused,
they are so very focused, they never recognised their abilities
to diversify, they did not realise these jewels they had.[149]
96. This form of diversification has the potential
to deliver significant benefits. In addition to creating more
robust and secure supply chains, spreading the "motorsport"
ethosproviding rapid, tailored response to engineering
challengesto the rest of the high performance engineering
supply chains, has the potential to provide the UK supply chains
with a genuine edge over its international competitors. This was
not lost on our witnesses who argued that these competitive qualities
offered a "marvellous opportunity" for Britain's motorsport
industry to connect with the American defence industry.[150]
97. This is not a new idea. Mr Aylett told us
that in 2002 "the DTI, as it was then, came up with a programme
of 'harnessing a world-class industry cluster in Motor Sport Valley,
to gain general competitive advantage for the UK'."
[151] The DTI
commissioned a report from the MIA, (subsequently entitled Cluster
Development: Industry Commitment Report) to explore how the
"concept of harnessing the power of the world-class high
performance engineering and motorsport industry cluster, to gain
competitive advantage for the connected sectors, and for the UK
as a whole"[152]
could be implemented. The MIA Report concluded that this concept:
moves the high performance engineering and motorsport
industry from its originally perceived position, as a sub-sector
of the Automotive industry, and places it at the centre of a new
community of advanced engineering and services industries.
In this position, the high performance engineering
and motorsport industry will act as a stimulating business catalyst
between the other industries, increasing collaboration, and transferring
competitive advantages in high added value, knowledge based development;
teamwork; rapid innovation; technology and best practice, across
all sectors.[153]
98. In producing the Report, the MIA secured
written commitments of over £10 million in support, to match
government funding to take this work forward. The MIA told us
that the details of this funding were passed to the DTI but they
were neither utilised nor acknowledged.[154]
The proposals in the Report were never taken forward by the Government.[155]
99. In its evidence the Institution of Mechanical
Engineers argued that the Government should do more to support
knowledge transfer between the industries and to encourage SMEs
to diversify. The Institution suggested that more targeted advice
and support could be provided through the Manufacturing Advisory
Service (MAS).[156]
When we asked the Minister if he thought the MAS could help companies
diversify he replied "Absolutely. [
] The number of
companies that have benefited from the advice of the Manufacturing
Advisory Service is enormous and those companies become more competitive,
become more productive and real progress is made as a result of
the advice that they provide."[157]
100. Encouraging SMEs to diversify
into other sectors has a number of benefits; it creates more robust
supply chains, it can facilitate the spread of best practice and
it can drive up the quality of supply chains. However, government
backing and support are needed to take this work forward. We recommend
that the Government revisit the Motorsport Industry Association
Cluster Development Report as a matter of urgency
and report back on how it will proceed. It is regrettable that
the ideas contained in the Report were not acted upon and were
instead left to languish on paper.
101. During the course of this inquiry we heard
a specific concern about the difficulties facing SMEs in entering
the aerospace supply chain from other sectors. Witnesses highlighted
the fact that the level of regulation in the aerospace industry,
and costs involved in gaining accreditation were significant obstacles
to entry. Mr Aylett, Chief Executive of the MIA, told us that:
Aerospace we found hard [
] because we are an
unregulated industry but innovative and in a non-regulated form,
so we are really tremendous partners to aerospace because we can
go off, test and develop, but the legislation involved in aerospace,
the accreditation, the processes through safety, slow it down.[158]
Mr Manahan agreed:
It is not terribly easy for the very small SMEs,
the likes of the 20/30 staff SMEs, to embrace and to pay for the
accreditations that you need.[159]
While we accept that a high level of regulation is
necessary in the aerospace industry to ensure the safety standards
are maintained these should not be an insuperable barrier to entry.
102. We recommend that the Government
explore ways in which it can facilitate SMEs entering the aerospace
supply chain. In particular, we recommend that it undertakes a
simplification review of regulations governing entry to that industry
and explores how it can reduce the costs to SMEs seeking accreditation.
Guidance on how to comply with existing programmes should be produced
as a priority.
128 Ev 79 Back
129
See para 11 ff and para 43 ff. Back
130
Ev 94 Back
131
Ev 140 Back
132
Visit to Rolls-Royce, see Annex Back
133
Ev 66 Back
134
Ev 66 Back
135
Ev 86 Back
136
Ev 87, 94 Back
137
Ev 66 Back
138
Q 305 Back
139
Ev 71-72 Back
140
Q 300-301 Back
141
Ev 71 Back
142
Ev 71 Back
143
Q 128 Back
144
Ev 122 Back
145
Q 130 Back
146
Ev 121 Back
147
Q 128 Back
148
Q 128 Back
149
Q 129 [Mr Aylett] Back
150
Q 132 [Mr Aylett] Back
151
Q 158 [Mr Aylett] Back
152
Motorsport Industry Association, Cluster Development: Industry
Commitment Report, March 2002, p 11 Back
153
Motorsport Industry Association, Cluster Development: Industry
Commitment Report, March 2002, p 11 Back
154
Ev 127 Back
155
Q 158 [Mr Aylett] Back
156
The MAS is a government advisory service for the manufacturing
sector. Ev 111 Back
157
Q 308 Back
158
Q 129 [Mr Aylett] Back
159
Q 154 [Mr Manahan] Back
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