UK manufacturing contributes 10% of the UK’s GDP and was worth £154 billion in 20111. In that year, 2.5 million people were employed directly by the sector, representing 9% of the UK’s employed labour force.
Manufacturing revolutions occur when companies seize opportunities to substantially increase the profitability of their operations. We now see three drivers for substantial profit improvement:
- Manufacturers, over the last decade, have focused on managing labour costs, which have reduced since 2001 at a rate of 3% p.a. to £75bn in 2011, a reduction of 1,000,000 jobs. However, despite spending £340bn annually on goods, materials and services (i.e. non-labour resources), these costs have been rising for UK manufacturing sector by 0.4% p.a. since 2004, adjusted for inflation and production volumes2.
- Structural changes in the global economy are driving non-labour resource prices up, including resource constraints and externalities such as carbon, water and waste disposal now being priced into the economy.
- Pioneering companies are already acting on new technologies and building new business models which better meet customer needs with a fraction of the resources traditionally required to do so. This is creating first mover advantage for them. Interface Carpets, for example, has cut its energy use by half, reduced its waste to landfill by three quarters, and is integrating post-consumer products into its feedstock – drastically reducing its costs. Xerox has changed its business model to lease photocopiers allowing it to manage the substantially longer life of its equipment and reduce its cost to serve. For further examples, please see the case studies page.
When revolutions occur, the economic benefits to those companies and countries at the forefront are disproportionate: profits rapidly increase, new industry leaders emerge with competitive advantages that can last for decades and host countries’ jobs, economies and exports boom. This next manufacturing revolution will also bring social and environmental benefits to the world due to the nature of today’s opportunities. That is, the ‘green economy’ is an integral part of the next manufacturing revolution that will bridge the cost difference between producing onshore and outsourcing to other nations with lower labour costs.
We therefore believe it is in everyone’s best interest to accelerate the transition and to this end are pooling our skills, experience and resources to turn this vision into reality. Our backgrounds assisting companies at the leading edge of the revolution to further extend their advantage provides us with unique insights into the transition.
Our initial focus is on the UK manufacturing industry; we believe the United Kingdom is well-placed to lead the next revolution if it so wishes, with its strong heritage of innovation, leadership of previous manufacturing revolutions, and need to revitalise its economy and create manufacturing jobs.
In early July 2012 we held a roundtable to discuss the Next Manufacturing Revolution and the value available with Coca Cola Enterprises and GSK – you can watch the video of the event below.
1 Source: Office for National Statistics, Annual Business Survey, Section C Manufacturing, release date 15 November 2012.
2 Source: Office for National Statistics, Annual Business Survey, Section C Manufacturing, release date 15 November 2012.