THE SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 1

Prof. Jon King

Manager – Research and Development

Tata Steel

Strengthening the Upstream

Supply Chain

Supply Chain Group Update

Jon King, Tata Steel

SMMT Open Forum

4 November 2014

Agenda for today

“Building consensus, addressing the challenges”

1. UK automotive – a positive story, but hidden challenges

2. Supply Chain Group overview

3. New report launch – “Growing the Automotive Supply Chain – Assessing the Upstream Sourcing Potential”

1. Main findings

2. Recommendations

4. Action plans and next steps – what can you do?

SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 4

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lum

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mill

ion

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UK car manufacture (1970-present)

Car manufacture Forecast

UK automotive manufacturing strengthening

2017 target

2.0m

2013 results

1.5m

1972 peak

1.9m

Source: SMMT PIE data

THE SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 5

Lear Corp.

Washington

300 new jobs Nifco UK Ltd

Teesside

170 jobs

TRW Sunderland

£15m investment

Rosti McKechnie

Yorkshire 200 new jobs

Brose

Coventry

£15 million

GKN Birmingham and

Telford

£12m investment

Cab Automotive

Tipton

£1.7m investment

Stadco Telford

£45m investment

Borg Warner

Bradford

£15m investment 80

jobs

UK supply chain investing in long term future

Automotive Insulations Warwickshire 200 new jobs

UK automotive sector trade

UK automotive parts – trade balance

-8000

-7000

-6000

-5000

-4000

-3000

-2000

-1000

0

£ millions

£bn

£2bn

£4bn

£6bn

£8bn

£10bn

£12bn

£14bn

Total parts imports

EU parts imports

UK automotive parts – imports

How do we compare?

2013 Production Domestic sourcing to SMEs

Average SME size (people)

UK 1,5m 30% 30

Germany 5,4m 60% 180

Factor x3.5 x2 x6

Conclusions

• German SMEs are more stable and capable, with stronger export opportunity

What should we do?

• Increase UK production

• Source more in the UK

• Nurture and grow UK SMEs

This is the focus of the Supply Chain Group

Chaired by Dave Allen, JLR

39 members from across the UK automotive spectrum

5 workstreams:

About the Supply Chain Group

“Building consensus, addressing the challenges”

1. Quantifying and capitalising on business opportunities for the UK supply chain

2. Improving supply chain long-term competitiveness

3. Satisfying supply chain demand

4. Improving access to finance for the supply chain

5. Improving innovation and premium product manufacturing in the supply chain

Phil Davies, BIS

Chris Owen, SMMT IF

Chris Owen, SMMT IF

Lawrence Davies, AIO

Mike Mychajluk, JLR and Richard Hill, RBS

Survey of UK Tier 1 and SME suppliers for the Supply Chain Group by

• Philip Davies

• Matthias Holweg

• Nikki Huggett

• Stephan Schramm

• Yung Tran

Key findings – overview

• The pattern of sourcing in the supply chain largely mirrors that of the OEMs – upstream UK suppliers are capturing about one third of demand at Tier-1 level

• The UK automotive parts trade deficit is driven mainly by OEM and Tier-1 purchasing

• The majority of imported goods are sourced from countries that are not regarded as ‘low cost’, such as Germany, France and Japan

• At every level there is a willingness to purchase more from UK, subject to the availability of a competitive source of supply

• Many in the UK supply chain feel confident about the near term future with over 80% of survey respondents expecting growth in their business.

• The main reasons for not purchasing more from the UK are a lack of suitable suppliers in the UK, or a lack of suppliers with the necessary capacity, and/or technical capability

Key findings – the opportunity

• More than half (58%) of the value of components and materials imported by UK Tier-1 companies is accounted for by electronics, machined metal components, forgings, steel and plastic granulate/resin

• The UK automotive industry is achieving high productivity levels in comparison to its European peers, and we see no fundamental economic reason why the UK could not achieve similar levels of local content

• A realistic long term re-shoring potential (raising the proportion of goods sourced by UK Tier-1 companies to match the 60% local content typical at countries of similar standing) is estimated at £2 billion annually

• This is in addition to the £3 billion opportunity to increase UK Tier-1 content in UK-made vehicles addressed in previous Automotive Council reports

Key findings – market failures

• One key market failure is the information gap, with buyers insufficiently aware of suitable suppliers, whilst suppliers are insufficiently aware of potential demand for their products

• Access to finance remains a challenge below Tier-1

• Finance providers understanding of the investment potential

• Suppliers understanding of the requirements of the finance providers

• The UK supply chain, particularly the upstream sector, comprises a large number of small companies. More support should be given to help those with the right potential to grow so as to be more credible in the market – by comparison with their larger, better financed, overseas competitors

• Few companies export outside of the UK at SME level, indicating that there may be a significant opportunity for capable suppliers

Recommendations

1. The high value import commodities should be investigated to determine the feasibility for increasing UK sourcing

2. Specific support should be given to SME supply chain companies to grow their long term competitiveness in line with the Automotive Industrial Strategy

3. Identify successful suppliers with the potential capability to be competitive and help them to grow through export support mechanisms

4. Further develop the process of matching buyer and seller through targeted Meet the Buyer events focused at a cross sector commodity level

5. Encourage more entrants to automotive from other sectors through cross-sector engagement, particularly for premium and high-technology product manufacturers within the aerospace, marine and motorsport sectors

6. Develop a network of SME supplier best practice clubs using an industry standard framework for benchmarking and non-competitive collaboration

7. Continue to work with the Finance community to develop a common understanding of the needs of SMEs and look to develop targeted solutions

Status and actions

1. The high value import commodities should be investigated to determine the feasibility for increasing UK sourcing

New action!

• BIS/AIO sponsored planning workshop scheduled for December to understand the opportunities and actions required in the metals sector for machined castings, forgings and steel/pressings

• Invitations being developed

• Volunteers welcome!

Status and actions

2. Specific support should be given to SME supply chain companies to grow their long term competitiveness in line with the Automotive Industrial Strategy

Ongoing in Workstream 2:

• AMSCI LTASC 1 & 2 programmes ongoing – £90m total programme and 100 companies, 956 jobs safeguarded/created so far

• New ‘bottom up’ AMSCI bid coordinated by SMMT IF for upstream supply chain companies to ‘volunteer’ and be sponsored by their customers

• Reduces application workload for SME by being part of a cluster bid

• Volunteers welcome!

Status and actions

3. Identify successful suppliers with the potential capability to be competitive and help them to grow through export support mechanisms

Ongoing in Workstream 3:

• Automotive Investment organisation working with UKTI

• Volunteers welcome!

Status and actions

4. Further develop the process of matching buyer and seller through targeted Meet the Buyer events focused at a cross sector commodity level

Ongoing through SMMT Supply Chain and Automotive Components Section

Status and actions

5. Encourage more entrants to automotive from other sectors through cross-sector engagement, particularly for premium and high-technology product manufacturers within the aerospace, marine and motorsport sectors

Ongoing in Workstream 5:

• Cross OEM assessment mechanism in development (“TS16949-lite”) for low volume speciality suppliers

• Multi-sector agreements in place with the British Marine Federation, Motorsport Industry Association and ADS

• Launch meeting being planned

• Volunteers welcome!

Status and actions

Ongoing in Workstream 2:

• Best practice club concept based on Toyota Team (with thanks to Mark Adams and Terry Somerfield!)

• SMMT are funding the pilot programme

• Invitations imminent

• (More) volunteers welcome!

6. Develop a network of SME supplier best practice clubs using an industry standard framework for benchmarking and non-competitive collaboration

Status and actions

7. Continue to work with the Finance community to develop a common understanding of the needs of SMEs and look to develop targeted solutions

Ongoing in Workstream 4:

• Funding for tooling programme launched through Finance Birmingham

• BBA awareness sessions hosted by JLR

• Expanding to encompass funding routes beyond high street banks

• SME support group being established

• (More) volunteers welcome!

Conclusions

The Automotive sector is providing unprecedented opportunity for SMEs:

• Organic growth of 33% as production increases from 1.5 to 2 million units over the next four years

• A share of the $3bn Tier 1 opportunity – possibly £1bn

• Today’s report clearly identifies an additional £2bn opportunity!

• Stronger, competitive SMEs can generate export business

We should be aiming to increase the number of commodity groups with UK market share above 50%

A strong supply chain will encourage OEM and Tier 1 investment in production and R&D in the UK, creating a more sustainable sector

…..and finally

The Supply Chain Group is coordinating actions to simplify entry points for SMEs wishing to grow/participate:

• Clustered AMSCI bids

• Best Practice Clubs

• Premium/bespoke suppliers network

all using a common evaluation tool – ISAS

• Meet the Buyer concept expanded

• Domestic business

• Export opportunity

• Inward investment

With strong support from SMMT/SMMT IF

“Building consensus, addressing the challenges”

Strengthening the Upstream

Supply Chain

Thank You!

Jon King, Tata Steel

SMMT Open Forum

4 November 2014

UK plc needs you!

Thank You!

Jon King, Tata Steel

SMMT Open Forum

4 November 2014