Time for answers

The increasing burden of high input - especially energy - costs and the perennially top-of-the-agenda question of manufacturing skills dominated a Works Management readers' Manufacturing Summit last month. Prompted by escalating factory gate inflation and a growing list of challenges facing the sector, the meeting at the London HQ of The Royal Society for the Encouragement of Arts Manufactures and Commerce recruited a mixture of industrial and political big-hitters and practitioners to deal with the issues uppermost in manufacturers' minds. A panel in the style of television's Question Time programme comprised EDF Energy's Shayne Rees, the Manufacturing Advisory Service South East's David Caddle, Conservative Industry and Energy Shadow Minister Charles Hendry MP, Toyota chairman emeritus Sir Alan Jones, Siemens chairman Alan Wood and the LibDem spokesman on industry in the House of Lords, Lord Razzall. In the David Dimbleby role of chairman and agent provocateur was Barclays' manufacturing team chairman Nick Brayshaw OBE. Just hours after EDF Energy's announcement of its bid for nuclear generator and operator British Energy, EDF's Rees dealt deftly with the background to the burden of soaring power prices and the question of whether taxpayers' money would be required to prop up the nuclear proposition. The fact that electricity and gas prices were at an all time record high was driven by a number of factors like the price of oil, explained Rees, who was moved to give some credence to experts who believe that the price could reach $200 a barrel within the next two years. It was a situation that was hardly helped as investors moved out of volatile equities and into oil, resulting in tankers full of the stuff sitting speculatively in harbours waiting on its value to rise yet further. There was little solace to be had in coal - accounting for 35% of energy generation - the price of which increased by 80% in the last year as the amount of operating time at coal-fired power stations was curtailed because of the noxious side effects of their emissions. This caused generators to restrict output to when the highest prices were available. Add to that the fact that the UK's 'nuclear fleet' of power stations was not in great shape, with too many maintenance outages holding back supply, and a less than pretty picture emerged. Then there was the further challenge of carbon reduction requirements that manufacturers will need to begin addressing over the next few years. So how did the big industrials handle the challenge, Brayshaw asked. A company like Siemens, Alan Wood explained, had to worry about its own energy usage and about the things it manufactured. "We are one of the world's biggest manufacturers of power usage and power generation equipment and, in recent years, we've moved very heavily in the direction of reducing carbon footprint," he said. "We help our customers upgrade their existing power stations by retro fitting much higher efficiency blades to turbines so you can get a lot more power out of an existing power plant and we are one of the largest suppliers in the UK of wind generators." With diverse manufacturing plants and offices, Siemens basemarks each location, using opportunities like a move from a 30-year-old site to a new one, to adopt all the technologies at its disposal to drive down the amount of energy used - like automated sensors for window blinds that in summer minimise the amount of heat coming in via the sun and therefore reduce the amount of aircon required. While Conservative Industry Shadow Charles Hendry applauded such moves, he reminded his audience that big companies could afford to make big investments in energy efficiency; it was very different for a small manufacturer unlikely to see the payback for some years. That was a sentiment echoed by MAS's David Caddle who offered some comfort with the idea that SMEs that can't afford major investments in energy-saving programmes can attack costs by applying the lean techniques that are MAS's stock in trade. From the floor: "The opportunity to make your own energy is the only thing that's open to us. There's nothing happening via the politicians and we can't be exposed to this volatility and lack of security." Hendry confirmed that the UK is "very vulnerable" with 12 days' gas storage versus France's 120 and Germany's 99. With 2014/15 starting to see the coal-fired energy generators coming off line and nuclear stations coming out of commission, "we should have been investing now and we've not," he added. Lord Razzall even doubted the government's real enthusiasm for a nuclear future, questioning how much public money might be needed for the nuclear programme to be maintained. And, even as "a committed internationalist", he wondered if it was wise to have so much of our energy production companies in foreign ownership. "We must have strong competition," came the view from the floor. "Yes, we need more," agreed Hendry. "I believe there is enough competition," countered Rees, along with a reminder that everybody had to source from the same wholesale market. "But do you believe we can have a nuclear power industry without government assistance," Lord Razzall challenged. "Yes, I think we can do it on our own," answered Rees. Hendry agreed that Britain could get nuclear on stream without subsidy by 2018, "but that's not going to help with the short-term energy crisis". With tougher rules on carbon emissions signalling a move away from coal, the likely scenario in a few years was a 60-65% dependency on gas for electricity, he added. On a more positive note, renewables would make some contribution and Britain would probably lead the world in wave and tidal power - but not yet. In the meantime, the only realistic means of getting renewable energy was from wind - "terribly controversial on land, and very expensive offshore". Nevertheless, from the audience came the view that for small and medium-sized companies, there were significant opportunities to save energy simply by using technology that is available today - from better insulation of buildings, deploying low-energy light bulbs or replacing older (inefficient) electric motors. They were initiatives that had very good paybacks for those without the cash to plough into bigger schemes. Sir Alan Jones had another plea that grew out of Toyota's philosophy. "Don't make capital decisions until you've totally exhausted the human area. Ask 'what can you do with a human?' When you've exhausted all that, then you can move to investment." From the auditorium, the Carbon Trust's Keith Horgan wanted to know where emissions issues ranked on the panel's agenda. For David Caddle, the issue was "absolutely on the SME radar screen". The majority of respondents to several surveys in the South East last year said they had energy efficiency plans in place. Lord Razzall believed this issue had, until now, been subject to a good deal of political lip service but was climbing the agenda. "I predict that when it comes to the next election it will be significant in driving certain voters where to vote. That will be when the politicians take notice." Brayshaw put to Hendry: "You may find yourself in government in 2010, where will you be on the question of profitability versus sustainability?" "It's always easier to be green when you're very profitable and when prices are low; with gas prices where they are, there's much more emphasis on affordability," he answered. "But as politicians, we have to tell people we need to have both." He also had a warning. With the search for cheap labour probably having gone as far as it could, industry might now go in search of cheap energy. "Iceland is the highest energy user in the world but also 100% green and it's making a pitch for high energy users: 'We can give you all the energy you need and it'll be completely green'." Alongside discussion of such heavyweight summit-worthy issues came the hardly lesser considerations of the morality of retailers selling textiles made by eight-year-old girls in Far Eastern sweat shops; carbon tariffs; and the determination of fleet-footed China rather than leaden-footed Britain to take a world lead on carbon capture and storage. Siemens Power Generation's Graham Hartley broadened the debate into the skills arena. "We have a fall off of more experienced people from manufacturing and difficulty in attracting people into the industry. How can that gap be closed?" he asked. For Sir Alan Jones, it was all a question of equipping people for a changing world. "It's our responsibility to train that person for our business needs, but they've got to have basic characteristics: understand how to communicate; to work in a team, have self discipline. Government has the responsibility to ensure that core education exists. Business can't do that and shouldn't." Lord Razzall called for "a bit of perspective about this, there isn't a magic switch that the government can throw. One thing I could suggest is that anyone doing maths, physics and chemistry at A-level is actually taught by somebody who has A-level maths, physics and chemistry because in a lot of our schools people are coming up with pieces of paper having been taught by people who haven't [achieved those qualifications]." Alan Wood was with Alan Jones: "It's the government's job to give people that basic grounding and from there on business has a role to play and has to take a very active part." With "the quality of careers teaching pretty questionable," the solution for Siemens has been to get its own bright young people to go back into the schools and talk to the teenagers about what wonderful opportunities there are in manufacturing industry, he explained. As a result, his company has seen some quite dramatic increases in the number and quality of applications. Charles Hendry believed there was a need to somehow regenerate in teenagers the enthusiasm they had as 11-year-olds for "things that whirr and click and hum". He decried local authorities where not a single child has a GCSE in physics, chemistry or biology; described the failure of one third of children to get GCSE at levels A to E as "an appalling indictment of how part of our education system works"; and called for A-level standards to be lifted. A debate ensued on whether science degrees - being more in the national interest than others - should be targeted for reimbursement of tuition and top-up fees; the need for a manufacturing role model that wasn't Richard Branson; the virtues of getting school kids into manufacturing sites; the challenge of harnessing and developing an entrepreneurial spirit; and the need for a more strategic national approach than is provided by regional development agencies that were "like the London Underground map before it was tidied up". Finally, Brayshaw asked each of his panel for silver bullets. "Embrace carbon management because, ultimately, that tackles waste," urged Rees. "Aim for some of the $300 trillion worth of low carbon-related business," suggested Caddle. "Get in place a manufacturing strategy," provoked Hendry, suggesting he may not hold the current administration's effort in very high regard. Sir Alan Jones advised: "Develop your people and out of that will grow many things." For Alan Wood it was a question of "sorting out the basic educational system". Lord Razzall would "rather have a silver howitzer to deal with the risk culture and over regulation". n The Works Management Manufacturing Summit was sponsored by EDF Energy and MAS South East