House of Commons - Full speed ahead: maintaining UK excellence in motorsport and aerospace - Business, Innovation and Skills Committee

Full speed ahead: maintaining UK excellence in motorsport and aerospace - Business, Innovation and Skills Committee Contents

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 21^st Century"

89. In 2006, the aerospace industry launched the "Supply chains for the 21^st 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 afloat—it is a very, very simple thing to say—we 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/manufacture—they 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 sense—they really do not—because 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" ethos—providing rapid, tailored response to engineering challenges—to 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