Green Alliance Lean and Clean
Improving resource efficiency is a future proof route to higher productivity for manufacturing.
Improving the performance of manufacturing is crucial to rebalancing the UK economy north to south. Manufacturing is 15-20 per cent of the economy of lagging regions. Although this includes some top performing companies, there is also a long tail of low productivity manufacturers that struggle to provide good jobs and wages.
Rising input costs, investors’ concern over resource risks and businesses using environmental innovation for competitive edge, are all factors elevating resource efficiency from an operational to a strategic issue for UK firms.
The best manufacturers are improving their energy efficiency by 50 per cent over ten years, whilst the rest only achieve 10-15 per cent. This gap will not be closed by businesses on their own. Faulty signals on current and future costs, and a lack of strategic insight on resource issues, means opportunities are not being realised.
A government supported manufacturing upgrade programme, which helps businesses to identify and capitalise on resource efficiency opportunities, is needed to spread best practice and stimulate investment and innovation.
Manufacturing employment is concentrated in low productivity sectors
There is a huge difference between the productivity of different regions, firms and sectors. Some sectors, like pharma and electronics, are amongst the highest performers in the UK, but the majority of manufacturing jobs are in relatively low productivity sectors which are less able to support good jobs and higher wages.
Raising manufacturing productivity will rebalance the economy
Raising manufacturing productivity will have most benefit in lagging regions
Parts of the country with a larger manufacturing economy also have lower overall productivity. But manufacturing is not the cause of low productivity, in fact, it could be part of the solution. Raising the performance of manufacturing will have bigger benefits in lagging regions and help to close the UK’s productivity gap.
Manufacturing is a significant source of carbon emissions
Industry accounts for 33 per cent of all UK emissions, 25 per cent from the direct use of oil and gas and eight per cent from electricity demand. Manufacturing is responsible for around 60 per cent of this, or a fifth of total carbon emissions. Reducing these emissions by reducing energy use and increasing resource efficiency supports manufacturing competitiveness by lowering costs and extracting more value per resource input used.
Supporting the transition to low carbon manufacturing also avoids offshoring manufacturing employment and emissions to countries with more carbon intensive production methods.
Resource efficiency improves productivity and cuts carbon
Labour productivity measures much more than the efficiency of labour, it shows how effective a country is at creating value in the economy as a whole. Growing profitable businesses through investment in resource efficiency increases labour productivity by generating more value and less waste for every hour worked.
The average UK manufacturer spends five times as much on resource costs as they do on labour, so there is more scope to raise productivity via resource efficiency than through labour efficiency alone.
There are more ways for industry to contribute to decarbonisation than just reducing energy use. Lowering the carbon intensity of production can be achieved by improving material and water use.
Globally, the production of raw materials is responsible for 19 per cent of carbon emissions and the waste sector contributes another three per cent.
Investors have woken up to rising resource risks
Non-labour input costs are rising rapidly for UK producers
Material prices are volatile and rising over the long term. In the past 15 years manufacturers have experienced a 75 per cent increase in input prices, in contrast to manufacturing wage costs, which have only risen by eight per cent.
A rising oil price affects manufacturers everywhere, but the recent fall in sterling means the UK is particularly exposed. In 2016, when input prices rose by 18 per cent, the biggest cost increases were for crude oil and imported metals.
Competitive pressures are increasing
Across the whole economy, the fastest growing companies are those that actively manage their environmental impact. Companies which have decoupled their growth from their greenhouse gas emissions have seen revenue growth of 29 per cent over a five-year period while other companies saw declining revenues.
Stoxx, a low carbon index, shows that companies tackling their emissions have outperformed global benchmark stocks by six per cent over the past four years In 2016, 48 per cent of the Fortune 500 and 63 per cent of the Fortune 100 set targets to improve their energy efficiency and environmental footprint. As a result, 190 of these companies achieved $3.7 billion in savings in 2016.
The UK’s leading sectors are not adapting fast enough
As the pressure to decarbonise increases, it will be necessary to redesign products, processes and business models to improve resource and energy productivity and stay competitive. The UK’s leading manufacturing sectors have seen limited low carbon innovation. The UK aerospace, engine, turbine and motor vehicle sectors could lose their comparative advantage to Germany, Japan and other countries which are investing more in R&D to commercialise low carbon technologies.
Download the Green Alliance Lean & Clean Building Manufacturing Excellence in the UK report to understand how Businesses will not address these issues on their own, how other nations support businesses to innovate and grow and an insight into a new programme to improve UK manufacturing productivity.
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