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Stronger supply chains could boost UK economy by £30bn says CBI

20 October 2014

Targeted action to revitalise domestic supply chains could inject £30 billion into the economy by 2025, creating more than half a million jobs across the United Kingdom, according to a new CBI report.

The report - Pulling together-strengthening the UK's supply chains - recommends ways to kick start the UK’s supply chains, and offers solutions to reinvigorate Britain’s industrial strategy.

Based on new research carried out by global management consultancy firm, A T Kearney, the report reveals underinvestment in research and development (R&D), a growing skills crisis and weakened foundation industries that are key to advanced manufacturing - such as plastics, metals and chemicals.

To tackle these issues, the CBI is urging the government and business to act together to strengthen supply chains, focusing on innovation, better quality products, and excellent customer service. Among the measures the UK’s leading business group is calling for are:

-Setting a long-term target for public and private sector spending on R&D to rise to 3% of GDP
-Widening the R&D tax credit to support the later stages of the commercialisation and manufacture of innovative British products
-Doubling spending on the UK’s innovation agency, Innovate UK, over the course of the next parliament
-Financially incentivising science, technology, engineering and mathematics (STEM) degrees, and ensuring more graduates take up jobs in these sectors
-Creating a national materials strategy, as part of our industrial strategy, to protect and enhance critical supply chain sub-sectors.

“The molten metals of manufacturing have long coursed through the veins of our economy," says Katja Hall, CBI deputy director-general. "Optimism within industry is now rising at a strong rate, and investment intentions are on the up. But it’s time for some fresh thinking. We need to see a bold strategy that breathes new life into our supply chains, and makes the UK the destination of choice for manufacturing high value products. This could provide a £30bn boost to the economy, and create half a million extra jobs.

“The scale of the challenge is sizeable - our competitors are powering ahead, with France outstripping our R&D investment by 40 percent. At the same time, only 3 percent of our graduates end up in engineering or technology jobs.

“We need policies which focus on creating long-term value - from increasing R&D spending to establishing a UK-wide materials strategy - to enable industry to play to its strengths and compete effectively on the world stage. This renaissance in British manufacturing will make it a byword for innovation and quality.”

“After years of decline the UK industrial base has stabilised and, with the correct industrial strategy, we can and should look for growth," says Charles Davis, strategic operations partner at A T Kearney.

"This will be vital to the long term health of the UK. As the challenges of global supply chains become better understood, companies are beginning to look beyond the headline cost to the true value. Winning will be through supply chains that drive revenue, not just striving to be the lowest cost. This report shows that the most important factor in supply chain location decisions was service/innovation scoring 36 percent, with total cost next at 30 percent. While innovation should be the catalyst, at the same time we also need to ensure the skilled resources and correct environment are in place.

“This is a challenge that A T Kearney is increasingly seeing beyond the UK – other countries and regions in Western Europe are looking at similar trends as they seek to reinvigorate their industrial bases. As the UK is starting from behind the OECD average for R&D spending, we need to move fast if we are to win.”

Other solutions to strengthen the UK’s supply chains set out in the report include:
-Grasping the urgency of the growing skills crisis
As supply chains bear the brunt of skills shortages, the CBI is calling for action to:
-Double the number of STEM graduates, and triple STEM apprentices
-Ramp up female participation in manufacturing, with Davies-style targets
-Reform the immigration system by raising the Tier 2 skilled visa cap
-Better align skills funding with the UK's industrial strategy.
-Moving from being “open for business” to “hungry for business”
-To create a more dynamic business environment, and better respond to rapidly emerging opportunities, we must:
-Ensure the tax system encourages long-term investment, particularly in small and medium-sized businesses
-Establish an annual ‘benchmarking’ review to ensure the UK’s energy and logistics costs are globally competitive
-Monitor and tackle ‘red areas’ which hold back businesses’ operations, such as getting electricity set up and registering property.
-Understanding the importance of value, not just cost

Public sector procurement decisions cannot be based purely on narrow definitions of value for money, but must take into account their wider impact, on society, communities and the economy.
The government should carry out a review in 2017 to gauge how effectively public bodies are considering social value in procurement activities.

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