Northwest Automotive Cluster Development Strategy 2009 to 2019

Jan 29, 2012 | Publisher: edocr | Category: Business & Economics |  | Collection: Migrated Docs | Views: 0 | Likes: 1

- 1 - Northwest Automotive Cluster Development Strategy 2009 to 2019 January 2009 - 2 - Contents Page No. Executive Summary 3 1. Purpose of the Strategy 5 1.1 Key Objectives 1.2 Links to Regional Manufacturing and Economic Strategies 1.3 Measures of Success 2. Policy Context 6 2.1 Background 2.2 New Automotive Innovation and Growth Team (NAIGT) 3. Market Analysis 8 3.1 Sector Definition and Size 3.2 Global Issues, Trends and Drivers 8 3.2.1 Global Competition 3.2.2 Overcapacity 3.2.3 Consolidation 3.2.4 Outsourcing 3.2.5 Environmental Legislation 3.2.6 Consumer Demand 3.2.7 Technology 3.2.8 Skills and Employment 3.3 The Northwest Automotive Cluster 11 3.3.1 Economic Profile 3.3.2 Size and Scope 3.3.3 Supply Chain Analysis 3.3.4 Value Chain Analysis 3.3.5 Business Sectors 3.3.6 PESTEL Analysis 3.3.7 Strengths, Weaknesses, Opportunities and Threats 3.4 Future Trends 19 3.4.1 Logistics and Infrastructure 3.4.2 Technology 3.4.3 Design & Manufacturing Processes 4. Cluster Vision 20 5. Strategic Themes 22 6. Activities to Deliver the Strategy 24 6.1 Activities 6.2 Alignment with Regional Manufacturing and Economic Strategies 6.3 Indicators of Achievement 7. References 28 Appendix 1 Sector Analysis – Evidence Base 29 Appendix 2 Activity Plan - 2009 to 2019 30 Appendix 3 Summary of Northwest Automotive Cluster Strategy: 2009 – 2019 32 - 3 - Executive Summary The overall vision for the cluster is to have: “A globally competitive cluster with world-class standards of excellence in Manufacturing, Engineering, Supply Chain Management, Innovation and Workforce Skills”. Based on the evidence gathered four strategic themes have emerged: The primary context for ths strategy is the Northwest Regional Economic Strategy and the Northwest Manufacturing Strategy. The findings from a mapping study undertaken in 2007 (5) and the additional work undertaken by the Institute for Manufacturing at Cambridge University (6) together with intelligence gathered regionally, nationally and globally regarding the issues, drivers and future trends in the sector have all informed the strategy. The evidence gathered examined the context as well as the structure and configuration and capabilities and competencies of the cluster. The findings are summarised below: A globally competitive cluster with world class standards of excellence in Manufacturing, Engineering, Supply Chain Management, Innovation and Workforce Skills ST1 Support the regional sector through the current economic situation by, 1.1 understanding the impact it is having and provide support where possible 1.2 preparing the sector for a future upturn 1.3 ensuring all public sector support is co-ordinated and customer focused ST2 Enhance current supply chains by, 2.1 enhancing the logistics capability of the vehicle manufacturers 2.2 providing the right infrastructure and facilities 2.3 developing people with the right skills 2.4 supporting continued investment in the regional based companies ST3 Develop future value chains by, 3.1 exploiting new/emerging technologies 3.2 building on and exploiting regional competencies 3.3 facilitating collaborative networks 3.3 supporting inward investment ST4 Respond to the environmental agenda by supporting companies to, 4.1 use resources efficiently 4.2 minimise waste 4.3 respond to climate change - 4 - Strategic Context: • The current downturn in the economy is having a major impact in the sector and is affecting the whole of the supply chain. • The vehicle manufacturers and their related support companies are the prime sectors for employment and economic activity. They are also under significant threat and need to maintain their competitive position within their parent company group. • To maintain employment levels it will be necessary to attract new business into the region. • Multi-nationally owned Tier 1 suppliers are under threat regarding future investments since the majority of them supply out of the region and in some cases outside of the UK. • The current exchange rates are making UK based suppliers more competitive in terms of cost than their European counterparts. • The smaller companies (tier 2 and 3 suppliers) are in the main locally owned, responsible for their own value chain and can determine their own strategy. • Public sector initiatives are fragmented, reactive and confusing, with awareness limited to vehicle manufacturers. Cluster Configuration/Structure: • The traditional industry classification for the Northwest automotive cluster would benefit from alternative perspectives based on their value chain footprint and supply network configuration. • The majority of the automotive companies in the Northwest work independently of each other. • There is significant variation in the material and financial flows in and out of the region’s vehicle manufacturers and consequently their contribution to regional/national value-add. • Tier 2 companies are increasingly located outside the region. • The value-chain of smaller firms is within the region, but amongst the larger vehicle manufacturers it varies considerably with some having either a European or global footprint. • Logistics and infrastructure is of particular interest to vehicle manufacturers but not particularly at Tier 1 and below. Cluster Capabilities and Competencies: • Innovation is seen as well managed at company level, but regional innovation capability is seen as a weakness, with no regional strategy. • There is potential to use current regional competencies in just in sequence (JIS) capability to promote more local outsourcing, • There is a skills deficit at graduate engineer and technician level, although numbers suggest a ‘cohort’ scale approach is required to develop a highly skilled group to support the regional needs. • There is a need to upgrade the business processes of Tier 1’s (and Tier’s 2/3s); this is recognised by both the vehicle manufacturers and the Tier 1’s themselves. • There is a lack of knowledge on the capability of the Northwest automotive sector. • There are exemplar supply chain competencies within the Northwest which should be shared with non-competing partners. Appendix 1 provides a summary of the sector analysis gathered from the recent mapping study (5) and the work undertaken by the Institute for Manufacturing at the University of Cambridge (6). The implementation of the strategy is through the delivery of an industry led rolling 3 year action plan. A high level 10 year Activity Plan is presented in Appendix 2. Appendix 3 provides a 1 page summary of the strategy, evidence base and activities to deliver the strategy. - 5 - 1. Purpose of the Strategy This document sets out a ten year strategy for the Northwest Automotive Cluster and identifies a series of key activities to deliver that strategy. In developing the strategy consideration has been given to the global issues, trends and drivers in the industry. Extensive consultation has taken place with key stakeholders including automotive companies within the regional cluster. Consideration has also been given to the Northwest Manufacturing Strategy, the Regional Economic Strategy and the initial findings from the New Automotive Innovation and Growth Team initiative. The automotive sector in the Northwest has been identified as a key internationally competitive sector for the region. In order to sustain and grow the sector it is important therefore that the stakeholders have an informed and industry led strategy. 1.1 Key Objectives The key objectives of the strategy are to: • Support the cluster through the current economic situation. • Ensure the continued presence of and future investment in the regions’ automotive manufacturing community. • Be recognised nationally and internationally as a premier location for automotive manufacture. • Develop a world-class automotive supply base that can compete in the global market. • Exploit expertise which is relevant to the present and future manufacture of vehicles and automotive components in the region. • Ensure that the companies within the cluster respond effectively to the global environmental agenda. 1.2 Links to Regional Manufacturing and Economic Strategies The strategy for the automotive sector is aligned with the regional manufacturing strategy and regional economic strategy. More specifically the strategy seeks to, • Support businesses to develop productivity, enterprise and skill levels • Help businesses to work smarter and increase their capacity and capability to innovate • Improve the interaction between businesses and the science/HEI base • Help companies respond to global opportunities and risks • Support companies to use resources efficiently and respond to climate change • Develop a highly skilled workforce at all levels • Improve the image of manufacturing • Ensure that places, spaces and infrastructure are fit for the purpose of manufacturing. - 6 - 1.3 Measures of Success The key measures of success of the strategy are: • Continuing presence of a significant automotive cluster in the region which is bigger, better and stronger. • Continued investment into the regionally based global automotive companies by their parent companies. • The presence of a common sequencing/logistics park for the sub assembly and sequencing of components into the region’s vehicle manufacturers. • Increase in GVA of the cluster. • Increased output from the vehicle and component manufacturers in the region. • Increased levels of overseas export. • Increased level of employee skills relevant to the current and future needs of the companies in the cluster. • New inward investment into the region. • Improved quality and delivery performance levels of component suppliers. • Engagement of companies and universities with technology development initiatives relevant to the design, development and manufacture of future vehicles and the infrastructure required to support future vehicles. • Improved use of resources and reduced levels of waste. 2. Policy Context 2.1 Background The primary context for this strategy is the Northwest Regional Economic Strategy (3) and the Northwest Manufacturing Strategy (9) and the actions identified within these strategies. Other national, regional and sub regional strategies have been considered. The national strategy for supporting the Automotive manufacturing industry in the UK over the last six years has been based on the recommendations from the Automotive Innovation and Growth Team Report (1). The future technologies which the industry has identified and which supports the research, design and development projects in the UK automotive industry is articulated in the Foresight Vehicle Technology Roadmap (2). In addition the strategy in the Northwest has been aligned with the RES 2006-2009 Transformational Actions (3). That strategy focused on a number of areas all aimed at improving the competitiveness of Northwest based automotive manufacturing companies through e.g. supply chain competitiveness, workforce development, innovation, inward investment and international trade. A business plan (4) for the formation and development of the Northwest Automotive Alliance (NAA) was approved for funding support from the NWDA in 2003 covering the period 2003 to 2006. The business plan was based upon the needs of the sector as determined from the - 7 - Automotive Cluster Mapping Study (5) carried out in 2002 and the Automotive Innovation and Growth Team (AIGT) report also published in 2002. The cluster mapping study identified the structure of the cluster and the contribution made to the economy of the region whilst the AIGT report identified a national strategy to improve the competitiveness of the industry in the UK. A SWOT analysis was conducted as part of the mapping study and this together with the findings and recommendations of the AIGT report, led to the development of the NAA strategy and action plan, 2003 to 2006 (4). This was endorsed by the industry led NAA Board who have overseen the implementation of that strategy and action plan. In 2007 a further mapping study of the Northwest automotive cluster was undertaken (6) the focus of which was to evaluate the evolution of the cluster over the last five years, identifying the key reasons for the successes and failures. As part of the study a view of the expected changes over the next five years was presented by identifying the key drivers, risks and opportunities. Further work on the issues and priorities in the Northwest has been undertaken by the Institute for Manufacturing (IfM) at Cambridge University during 2008 (7). Also in 2007 a parliamentary report into the success and failures of the UK car manufacturing industry was published (8). The findings from these reports and from focused events held with representatives of the cluster companies and key stakeholders, together with national and international intelligence on the global automotive industry, have helped in the formation of this strategy which aligns with the Northwest Manufacturing Strategy (9). 2.2 New Automotive Innovation and Growth Team (NAIGT) The original Automotive Innovation and Growth Team review, conducted in 2002, gave rise to initiatives such as the National Supply Chain Groups Programme; the Low Carbon Vehicle Partnership; the Automotive Academy (now part of the National Skills Academy for Manufacturing); and two technology centres of excellence – Cenex for Low carbon and Fuel Cells Technologies and innovITS for Intelligent Transport Systems and Services. The previous AIGT has reached a natural shelf life with a number of the programmes and initiatives having been subsequently implemented, or reaching maturity The Department for Business, Enterprise and Regulatory Reform (BERR) have commissioned a new AIGT which will develop an integrated strategic action plan capable of lasting 15 years with milestones aligned with other related policy initiatives that is supported by key stake-holders. Also an improved understanding of the policy levers available to government that can be deployed in support of the automotive sector. The work of the NAIGT is being delivered through an industry-led Steering Group (chaired by Richard Parry- Jones CBE), which has overall ownership of the NAIGT. Expert sub-groups are addressing a series of linked issues in the areas of Supply Chain Development, Technology and Low Carbon Product Development, Technology and Low Carbon Infrastructure, Business Environment and Key Performance Indicators. The final report of the NAIGT is due around March/April 2009. Early indications are that there is a need to • retain both vehicle manufacture and maximise added value and future supply chain activity in the UK, • increase supplier competencies particularly at tier 2 and 3 levels in the supply chain, • strengthen the internationalisation of UK based suppliers • have a better framework for industry-university collaboration • review ways to exploit the strength of the UK niche vehicle sector - 8 - 3. Market Analysis 3.1 Sector Definition and Size In accordance with the original Northwest Automotive Cluster Mapping report (4) the definition of the automotive sector in the Northwest is: “Everything upstream of vehicle making, extending as far as the point where it is meaningful to describe the activity as inside the automotive industry. It does not include anything downstream of vehicle making such as car retailing and after market supplies”. This is the basis upon which most studies of the automotive sector in the UK have been conducted. The SIC code which best describes the sector is SIC 34 covering vehicles and engines, bodies, automotive components and automotive electrical components, although a significant number of companies who are in the automotive supply chain do not necessarily categorise themselves in terms of SIC 34. The industry classifies itself in terms of sub sectors: • Volume vehicle manufacturers (>100,000 units p.a.) • Prestige cars • Commercial vehicles • Specialist and low volume vehicles • Coach, trailer and body builders • Body shell and trim • Power unit and drive train • Chassis equipment and systems • Body equipment and systems These sub-sectors are supported by related and supporting industries such as transport and logistics, sub-contract engineering services, general engineering, design and test. Despite the current downturn in production due to the global economic situation, almost 70 million vehicles were produced worldwide in 2007 with almost 52 million of them passenger cars and nearly 18 million utility vehicles. The world growth in automobile output has continued for several years (+4.3% in 2006, +4.5% in 2007). More recently this growth has been driven by China , India , Korea and Japan. Likewise in Europe there has been a growth in output, with Russia ’s market increasing significantly, so much so that Europe and Asia advanced at an almost comparable rate in 2007. There has been a considerable downturn in output in North America with South America showing increased output. In the UK output increased by 5.6% in 2007 to 1,750,255 units (compared with 1,656,961 in 2006). This is still short of the 1,856,126 units recorded in 2004 and even further from the 2,332,000 units posted in 1964. Japanese brands Nissan, Toyota and Honda now account for 60% of British output. Output in the UK is predicted to fall dramatically in 2009 and by as much as 50% in some areas, due to the downturn in the economy. 3.2 Global Issues, Trends and Drivers 3.2.1 Global competition The globalisation of the automotive industry greatly accelerated during the last half of the 1990's due to the construction of important overseas facilities and establishment of mergers between giant multinational automakers. Increasing global trade has enabled the growth in world commercial distribution systems, which has also expanded global competition amongst the automobile manufacturers. Japanese automakers in particular, have instituted innovative - 9 - production methods by modifying the U.S. manufacturing model, as well as adapting and utilizing technology to enhance production and increase product competition. The world's largest automobile manufacturers continue to invest in production facilities in emerging markets in order to reduce production costs. These emerging markets include Latin America, China, India, Malaysia and other markets in Southeast Asia. 3.2.2 Overcapacity There is currently an estimated 30% overcapacity worldwide with a 20% overcapacity of vehicle production in Western Europe. Overall, there is a worldwide capacity glut of 22,000,000 units. Currently the industry has the potential to build more cars and trucks than there are people with the ability to buy them which will eventually lead to the closure of some manufacturing facilities across Europe. Whilst the US has reduced it’s market share over the last 5 years the EU has marginally increased it’s market share. Leaner production methods have meant that more can be produced from the same facilities. Industry overcapacity has cut profits, driven consolidation and increased the tension between automakers and suppliers. Increased flexibility, greater volumes for platforms and components will relieve some of the pressure, but not in the short term. 3.2.3 Consolidation The automotive industry is undergoing major consolidation with mergers and acquisitions. The three US car makers (GM, Ford and Chrysler) have merged with, and in some cases established commercial strategic partnerships with European and Japanese automobile manufacturers. All three companies are currently experiencing severe financial problems with help being requested from the US government. Some mergers, such as the Chrysler Daimler- Benz merger, was initiated by the European automaker in a strategy to strengthen its position in the U.S. market. Overall, there has been a trend by the world automakers to expand in overseas markets. Increasing global competition amongst the global manufacturers and positioning within foreign markets has divided the world's automakers into three tiers, the first tier being GM, Ford, Toyota, Honda and Volkswagen, and the two remaining tier manufacturers attempting to consolidate or merge with other lower tier automakers to compete with the first tier companies. 3.2.4 Outsourcing As vehicle makers seek to cut costs they are outsourcing more to the supply chain which are increasingly moving to low cost manufacturing countries. With the current (2009) exchange rate of the pound compared with the euro and the dollar, the UK is becoming more competitive as a source of supply. Whether this continues is dependent upon future exchange rates and the growth of the economies in the so called “low cost countries.” The increased outsourcing has led to the growth of major global suppliers which in turn has lead to a bigger squeeze on 2 nd and 3 rd tier suppliers who need to innovate and add value to their product, consolidate or co-operate to reduce fixed costs and achieve larger scale or diversify so as not to be totally dependent upon the automotive industry. A key aspect of outsourcing is the development of enhanced capabilities by automotive suppliers. An obvious cost benefit is that supplier wage rates are often less than those at the vehicle makers. At the same time quality benefits are also expected together with increasingly sophisticated engineering and operational capabilities. This can be seen as a staged development but at each stage the vehicle manufacturer passes more risk to the supplier. - 10 - 3.2.5 Environmental Legislation In recent years the automotive industry has been affected by a wide range of environmental policy measures almost all of which have been developed at the EU level. Environmental policy has influenced product design, forced technological development and added costs. Concern about climate change is leading to particular attention being given to low carbon vehicles which has been highlighted in the Government's Powering Future Vehicles consultation document. Environmentalists have been sharply critical of what they see as special pleading by business. Industry, in turn, has argued that costs imposed by environmental regulations damage competitiveness. More recently it has been argued that regulatory interventions can actually enhance competitiveness by stimulating innovative activity in companies and creating "first mover advantage". This has had a positive impact in encouraging industry and environmental groups to explore a common agenda. It is clear from past experience that environmental policies and regulations do affect the competitiveness of both companies and countries. Unrealistic timetables for the implementation of new regulations or implementation in a way that imposes greater burdens here than in other countries can cause significant damage to competitiveness, sometimes with little in the way of compensating environmental benefits. Emission standards are compulsory in all EU countries. Euro IV standard had to be reached by 2006 and vehicle manufacturers are currently working towards Euro V standard which will come into force in September 2009. Recycling and the end-of-life vehicle directive are having an impact. Currently approximately 25% of each end-of-life vehicle goes into landfills. The target is to reduce this to below 5% by 2015. 3.2.6 Consumer demand There is a growing demand for more choice which is leading to volume car production moving more towards a “made to order” strategy with a multi option choice. The market for niche cars is growing. All of this has lead to a variety of body shapes being produced on common platforms. The rising costs of fuel and increased taxation is leading to more demand for fuel efficient/greener smaller cars. Every step toward greater fuel efficiency, reduced emissions and auto/fuel alternatives, coming simultaneously from changes in consumer demand, legislative developments and technology breakthroughs, will have a major impact on future vehicle designs. 3.2.7 Technology Key drivers of technology are the demand for more electronics and telematics, the development of hybrid and fuel cell power systems, reduced emissions and fuel consumption leading to the development of reduced weight vehicles. Many of the next-generation fuel-saving technologies, which will debut in the cars of the future, are currently being developed by auto suppliers. Relevant components include advanced gasoline and diesel engines, battery and related electric systems, electric motors and generators, power-split devices, and new light weight materials. 3.2.8 Skills and employment The number of manufacturing jobs in the UK is declining. The industry is mainly male dominated with 90% of employees being “shop floor” based. The skills needed are changing as vehicles and production methods become more sophisticated. There are pressures on the workforce to become more flexible in their working practices. Automotive employers - 11 - experience skills gaps among operators, crafts persons and technicians. Employers with technical engineering skills gaps identify the most important gaps to be for CNC machine operations, assembly line/production robotics and CAD. Leading first tier Vehicle Manufacturers (VMs) and Original Equipment Manufacturers (OEM’s) are reducing the proportion of operators because of changes in technology and working practices and this will be repeated throughout the supply chain. This is compounded by the move towards high performance and lean working. There is an increasing focus on high value activities in the UK automotive industry and consequently a lower requirement for low skilled people. 3.3 The Northwest Automotive Cluster 3.3.1 Economic Profile The core of the Northwest automotive cluster (SIC code 34) directly generates some £6bn of the total UK automotive manufacture economy which relates to approximately 13% of the UK total, placing it as the second most significant region for automotive manufacture. If the related industries e.g. transport and logistics, general engineering and service industries which form part of the cluster are included then this figure increases to circa £9bn. During the period 2002 to 2007 there has been an estimated overall increase in turnover of circa 38% following an investment of some £2bn in the region’s major vehicle manufacturing facilities by their owners. Turnover was forecast to increase over the next 5 years by a further 24% particularly in the regions volume car manufacturers, with the already committed further investment in the General Motors manufacturing facility at Ellesmere Port and the potential for further investment at the Jaguar/Land Rover facility, subject to future business decisions by Tata Motors. This growth is now subject to review because of the current recession and the longer term impact this might have which is uncertain at the moment. Employment in the core of the Northwest automotive cluster is currently estimated to be approximately 23,000 and was expected to remain around this level for the next 5 years as companies seek to increase sales whilst maintaining headcount. If the related industries in the cluster e.g. transport and logistics, general engineering, sub-contract engineering and service industries are included then this figure increases to circa 40,000. This has been recently affected by the downturn in the market which is leading to significant redundancies in the short term. Annual output from the region in 2007 was approximately 220,000 cars and 20,000 trucks which are supplemented by truck bodies and trailers, specialist vehicles and automotive components. This was expected to rise during the next 5 years by approximately 30% mainly with the increased volumes at the General Motors Manufacturing EP facility and potential increased volumes at the Jaguar Land Rover facility. Currently output in the region is expected to drop dramatically in 2009 due to the current economic climate. More recently the reverse takeover of East Lancs by Optare and the decision to re-locate its manufacturing base to a new larger facility in Blackburn will lead to increased output and the need for new locally based suppliers. This is one area where growth is expected to continue despite the current economic climate. 3.3.2 Size and Scope The strength of the sector in the Northwest lies in it’s diversity, ranging from volume car manufacturers, including prestige and niche car manufacturers to truck and specialist vehicle manufacturers. Figure (1) illustrates the structure and scope of the automotive cluster in the Northwest based on the industry classification system. The main strength in the region is the presence of the five vehicle manufacturers who account for approximately 70% of the total turnover and approximately 50% of the total employment in the core of the cluster. - 12 - Figure (1) Structure of the Northwest Automotive Cluster High Presence/Activity Medium Presence/Activity Low Presence/Activity 3.3.3 Supply Chain Analysis The supplier base in the Northwest is largely independent of the regions vehicle manufacturers with 60% of component manufacture exported outside of the region compared with a UK average of 33%. An analysis of the supply chains of the five vehicle manufacturers shows that, with the exception of the Jaguar Land Rover Halewood Operations, which has 3 locally based integrator suppliers, and Optare who are sourcing more from within the region, the remaining VMs are tied into their parent company global sourcing strategies. Whilst this is particularly true for the General Motors Manufacturing facility at Ellesmere Port, where the majority of component supply is from mainland Europe, Leyland Trucks are looking to source more from the UK due to the current value of the pound compared with the dollar and the euro. Figure (2) provides an indication of the location of the supply chain into the region’s five vehicle manufacturers. As can be seen, with the exception of Optare, the suppliers to the regionally based vehicle manufacturers are located outside of the region and outside of the UK. Volume Cars Body Equip & Systems Chassis Equip. & Systems Power Unit & Drive Coach and Body Body Shell & Trim Prestige Car Specialist / Sports Commerc ial Private Training Providers Business Support Colleges Universities Trade Associa tions Design & Test Consultants Professio nal Services Business Services Core of Cluster Markets NWe RoEU RoUK Asia USA RoW Trans & Logist. Gen. Eng. Sub- contract Engineering Materials Related & Supporting Industries - 13 - Figure (2) Location of Regional VM’s Suppliers Conversely the regions major global tier one suppliers supply customers who are outside of the region and in many cases outside of the UK as can be seen in Figure (3). This excludes the regional based sequencers/integrators adjacent to the Jaguar Land Rover and General Motors Manufacturing plants who are only based in the region because of the presence of the VMs. Figure (3) Location of Regional Tier 1’s Customers Pirelli Getrag F-T Delphi Piolax Hitachi AP Mitras Nichirin Sanko Gosei Mainly Some Few Customers Ro World Ro Europe Ro UK Northwest Major 1st Tier Suppliers KEY: JLR GMM EP Bentley LT Optare Mainly Some Few KEY: Vehicle Manufacturers Location of First Tier Suppliers Northwest Ro UK Ro Europe Ro World - 14 - 3.3.4 Value Chain Analysis The manufacturing value chain covers the whole product life cycle from research and development, design, supply management, production, route to market and to after sales service. In a global corporate manufacturing organisation it is unusual to have all elements of the value chain based in one geographical location. Figure (4) shows the location of the elements of the value chain for each of the five vehicle manufacturers located in the region. Figure (4) Location of the Regional VM’s Value Chain KEY: NW – located in the Northwest UK – located elsewhere in the UK O - located outside of the UK This shows that Bentley Motors (with the exception of Engine Design) have responsibility for the whole value chain and, whilst they have local responsibility for supply management, this is linked to and under the direction of the VW Group parent company. Likewise with Leyland Trucks, whilst their operations are aligned with DAF in Holland, they do have local responsibility for R&D, design and supply management. Most of their output is for DAF who are responsible for the routes to market and after sales services. Both Leyland Trucks and DAF are part of the PACCAR group. Jaguar Land Rover has recently been acquired by Tata Motors and currently all of their value chain is in the UK although regionally they only have responsibility for production. The headquarters, which deals with R&D, design, supply management, route to market and after sales, is in the West Midlands where there are two further production facilities. Optare are smaller in economic terms than the other 4 vehicle manufacturers but have a significant part of their value chain in the Northwest. They have facilities in Yorkshire but are moving more responsibility to the Northwest. They form part of the Tanfield Group which is UK based. General Motors Manufacturing EP is part of the GM Europe Group and the only part of their value chain in the Northwest is production. They are competing with their sister plants throughout Europe for the build of new models and are constantly benchmarked with the other GM European plants. 3.3.5 Business Sectors An analysis of the Automotive Cluster in the Northwest (5) identified that, in order to develop an appropriate strategy for the cluster, it wasn’t appropriate to categorise the cluster in the standard automotive industry terminology as outlined in Figure (1). An analysis of the core of the cluster indicated that there were seven “business sectors”: Business sectors (1) and (1a) cover the overseas owned global volume vehicle manufacturers with production in excess of 100k units per annum and their local based Jaguar Land Rover UK UK UK NW UK UK General Motors EP O O UK NW UK UK Bentley Motors NW NW NW NW NW NW Leyland Trucks NW NW NW NW O/NW O Optare NW NW NW NW NW NW - 15 - sequencers/integrators. Companies in this sector have no responsibility locally for design, marketing, sales or component procurement. They are major employers in the region and account for approximately £3.5bn Turnover. Their local based sequencers and suppliers are only located in the region because of the presence of the vehicle manufacturers they serve. Each of the companies is at different stages of development. The General Motors Manufacturing plant at Ellesmere Port has recently been awarded build plant status for the replacement Astra model. This, given the long term impact of the current economic climate, will increase volume at the plant to 180k units p.a. from 2009/10 which should secure the future of the plant in the medium term. The increased production at the plant will have a knock on effect to it’s locally based sequencer, Syncreon, and logistics supplier and could lead to the creation of more business opportunities. In the longer term it is important that the plant is supported in terms of its people and infrastructure to help in the bidding round for the next model beyond the replacement for the Astra model. The Jaguar/Land Rover plant on Merseyside has recently been purchased by Tata Motors. Whilst they have stated that they will support the current business plan of the company, in the longer term there is the possibility of consolidation of the 3 UK plants and potentially sourcing more components from India either directly and/or locating transplants located near to the assembly plants. The local plant is currently operating on 2 shifts and has a production schedule of around 100k units p.a. The plant has the capacity to build up to 200k units p.a. which would need the approval to take on the build of one or two new models in the Jaguar/Land Rover range. The potential increased production will have a knock on effect to it’s locally based sequencers and integrators, Johnson Controls, Decoma and IASC (formerly Visteon) and logistic supplier. As with the GM plant, it is important that the Jaguar/Land Rover plant is also supported in terms of its people and infrastructure if it is to win new business within the group. In the longer term, as Jaguar Land Rover move away from their links with Ford in terms of sharing common platforms and suppliers, there will be opportunities for new suppliers. All of the above scenarios are subject to the longer term impact of the current economic climate. Business sector (2) covers the low/medium vehicle manufacturers with production in excess of 10k units per annum. Although global companies having overseas ownership, they have more autonomy in terms of design, sales and marketing and procurement. They are also major employers in the region and account for approximately £2.5bn Turnover. The VW Group owned Bentley Motors plant at Crewe, after significant investment over recent years, has lead to an increase in production from 1,000 units p.a. to 10,000 units p.a. and is near full capacity. Likewise at the Paccar owned Leyland Trucks plant near Preston production has steadily increased over recent years to 22,000 units p.a. Both of these companies have invested heavily in new product and process development. In the case of Leyland Trucks they have embarked on the development of a hybrid truck for the European market. As the expansion plans of these companies develop they will be looking towards better infrastructure to manage the inflow/outflow of materials. They will also be looking to adopt some of the practices of the larger vehicle manufacturers by attracting local integrators and sequencers close to their plants. This would potentially allow transport of smaller components from tier 1 and 2 suppliers with local labour used to complete the full assemblies for line fit and sequencing. More recently the acquisition of Optare by the Darwen Group has led to the re-location of their manufacturing facility to a new larger site in Blackburn leading to a significant increase in output. They are currently reviewing their supplier base with a view to sourcing more from local suppliers. - 16 - The vehicle manufacturers (business sectors 1 & 2) are the prime sectors for employment and economic activity in the Northwest automotive industry. Together they represent some 70% of the automotive turnover in the region and are therefore key to the future economic prosperity of the sector. To sustain their healthy presence in the region priority must be given to support and influence the business plans of their parent companies. It is therefore important that the region engages with their parent companies to demonstrate support and commitment and ensure we understand the parent company needs and plans. When bidding for new business these companies are competing with their sister plants throughout Europe and not necessarily with other vehicle manufacturers. Any regional cluster strategy needs to include a better understanding of the infrastructure needs of these vehicle manufacturers for the future to take account of the changing Supply Chain parameters of their parent companies. Any strategy will need to recognise the growing need for inter-modal transport and logistic facilities which could include: • Potential development of regional docks to handle the increasing quantities of material likely to be sourced outside Europe plus export of vehicles. • Development of railheads at the vehicle manufacturers and the docks for inbound and outbound material to reduce road traffic/congestion and the carbon footprint. • Common sequencing/sub assembly park with integrated logistics facilities to service the needs of the regional VMs Business sector (3) covers the multi-national first tier suppliers who mainly manufacture original equipment destined for vehicle manufacturers outside of the region and within mainland Europe. They are significant employers in the region and account for approximately £1bn Turnover. They are also very vulnerable in terms of the fact that they are owned in the main by overseas global companies and are supplying customers outside of the region. The first tier component suppliers in the region are in the main subsidiaries of multi-national component supplier companies and are typified by having customers who are global vehicle manufacturers. In the main they supply customers outside of the Northwest region and in some instances outside of the UK. They are in direct competition not only from other tier one suppliers but also from their sister companies throughout mainland Europe. They have to continually compete on price, quality and delivery performance and have the potential to win more business. The majority of these companies are based in the Northwest for historical reasons, either attracted by grant aid available at the time, from the availability of specialist skills in the region or from previous linkages with regionally based customers. If their future presence and growth is to be maintained in the region these companies need to demonstrate their competitiveness within their corporate group. This means that they have to embrace a continuous improvement and organisational change philosophy and maintain their accreditation as tier one suppliers. The strategy for supporting these companies should be mainly targeted at developing their people and processes. Business sector (4) covers the UK owned lower volume tier 1/2 component suppliers. They have complete autonomy in terms of design, sales, marketing and procurement. Whilst they are important to the economy of the region and potentially have the best opportunity to grow, they are potentially the most vulnerable sector, with a combined Turnover of approximately £500m. Companies in this sector are in the main responsible for the whole of their value chain and can diversify into other markets where the emphasis is on lower volume, more complexity and where price is not necessarily the main driver. The research undertaken identified a disconnect between these locally owned tier 1/2s and the regionally based globally owned vehicle manufacturers and component suppliers. There is an identified need to improve the business processes of these companies if they are to win new business from the vehicle manufacturers and global tier 1 suppliers. - 17 - Business sector (5) covers the bodybuilders and specialist vehicle manufacturers. This area is a strength in the region and accounts for approximately £200m Turnover. Their businesses are categorised by low volume and the requirement for high technical/craft skills. They are facing increasing competition from standard models being sourced from outside of the UK. Their main need is for support in the area of development of technical competencies and product development. Business sector (6) covers the motor-sport and accessories sector. These in the main are small companies who collectively have the opportunity to expand and develop. Their combined Turnover is approximately £40m. The sector is dominated by M-Sport who have the franchise for the Ford rally team, designing, building, racing and maintaining the Ford rally fleet. Their technologies are leading edge and there is the opportunity to share their expertise with other regionally based companies who are not in direct competition through a potential motor-sport sub-cluster. Business sector (7) covers the automotive design and test companies with a combined Turnover of approximately £15m. The main player in this sector is mi Technology who are an independent, privately owned group delivering testing, development and consultancy services to automotive manufacturers and suppliers around the world. There is a high level of engineering expertise within this sector having the potential to assist companies with their research, development and testing needs. 3.3.6 PESTEL Analysis Trends and Drivers Opportunities Political UK government initiatives e.g. 10 year transport plan UK, European and global standards and legislation. CO2 emissions, energy, recycling and carbon legislation Social expectations for public services, transport system and environment. Opportunities for public sector transport e.g. buses and more environmentally friendly vehicles Economic Downturn in the economy and consumption More trade and transport of goods Energy cost rises Lag in UK productivity compared with competitors Opportunities for more sourcing from the UK Opportunities for integrated sequencing/logistics facilities Opportunities for high value added products and services - 18 - Opportunities for more commercial vehicles Societal Growing demand for mobility Congestion and pressure on infrastructure Increasing concern for health, safety and security Consumer demand for variety, quality and performance Opportunities for public sector transport Opportunities for multi model build facilities Technological Alternative more efficient and environmentally friendly power transmission systems Increasing performance of IC technologies Better materials (lighter, stronger) Opportunities for innovation in fuel, engine and power systems Opportunities for innovation in vehicle infrastructure (ICT) Opportunities for innovation in materials Environmental Increased global population and associated economic development Increased energy consumption and greenhouse gases Reduction in emissions More efficient use of resources and minimisation of waste Opportunities for innovation in fuel, engine and power systems Opportunities for innovation in vehicle infrastructure (ICT) Opportunities for innovation in materials More efficient manufacturing processes Legislation Environmental legislation Passenger and pedestrian safety 3.3.7 Strengths, Weaknesses, Opportunities and Threats The strengths, weaknesses, opportunities and threats of the Northwest automotive sector are shown in Table (2) and are based on the findings of the Automotive Cluster Mapping Study (5). - 19 - Table (2) Strengths, Weaknesses, Opportunities and Threats Strengths Weaknesses  Cluster contributes £9bn to the Northwest economy.  5 successful global vehicle manufacturers (VMs) located in the region.  Availability of trained semiskilled assembly production workers.  Significant advances in employee culture change in recent years.  Design capabilities of most companies except in business Sector 1.  Presence of major global tier 1/2 suppliers  Exporting strength of the regions’ vehicle manufacturers and regionally based tier 1/2 suppliers.  Strong presence of Bodybuilders and Vehicle Converters  Operational performance of the regions’ vehicle and component manufacturers including accreditation to TS16949.  Ability of the multi-nationally owned major companies to control their own destiny (business sectors1-3).  Lack of adequate regional infrastructure to support the business plans of the vehicle manufacturers.  Design authority of the volume vehicle makers lies outside the region.  Absence of a Northwest supply chain to the region’s vehicle manufacturers and tier 1/2 suppliers.  Availability of qualified technical and skilled craft engineers.  Public sector organisations not seen to be industry friendly.  Inadequate business mentoring support to companies in business sectors 4-7.  Little ongoing collaboration between the Northwest automotive companies and the Northwest Universities. Opportunities Threats  Potential for additional activity to support vehicle manufacturers on supplier park developments.  Cascade the best practice found in the regions’ major companies in the area of culture change and lean manufacturing across all business sectors to enhance productivity gains.  Diversification for n

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