What the government can learn from Jaguar Land Rover about staying competitive
This post first appeared on BusinessGreen.
The government’s hasty commitment to shield the automotive industry from the worst effects of Brexit demonstrates two things: the political importance of the car industry and the challenge that the industry faces in a post-Brexit UK. Tariff-free access to the single market is important for complex manufacturing, but it won’t make British industry any more competitive on its own. So what else can the government do? One thing would be to scale up a proven strategy and work with businesses to increase resource productivity.
The car industry is constantly searching for lighter weight materials. Jaguar Land Rover (JLR), currently the UK’s largest car manufacturer, has done this by using aluminium rather than steel. But aluminium is both more expensive to buy and more carbon intensive to make. Recycled aluminium requires less energy to make and can be cheaper if it is sourced via a smart business model. So, in 2008, JLR scoped a project looking at how it could use more recycled aluminium.
Jaguar Land Rover is using recycled inputs and saving money
But the company quickly ran into a problem: the recycled aluminium alloys available at the time couldn’t meet its quality requirements. So it applied for help from Innovate UK which provided £1.3 million to work with Brunel University and others on developing an alloy that could be recycled to the same quality as virgin material. Having got the alloy it needed, JLR then invested over £7 million in systems at its own plants and those of its suppliers to sort the wastes from the press shops (where sheet metal is turned into parts) into individual alloy grades. These separated grades are then transported to the Warrington plant of aluminium recycling specialists Novelis, where they are processed batch by batch and reformed into aluminium sheets ready to be used by JLR and its suppliers. This extra business supported a £6 million investment by Novelis in its recycling plant, reopening mothballed facilities and creating new jobs.
Everyone wins in this arrangement. JLR reduced its material costs by increasing its income from scrap recycling by 25-30 per cent. Exact numbers are hard to come by due to commercial sensitivities and the fluctuating price of aluminium but this is potentially in the region of £15 million a year. It also reduced its dependence on imported aluminium from 90 per cent to 50 per cent, a significant hedge against the impacts of a devalued currency. The company’s suppliers can look forward to a long term relationship with JLR thanks to the investments they have made in sorting scrap to meet JLR’s requirements.
On the back of this, Novelis’ Warrington plant has become Europe’s largest closed loop recycler of automotive aluminium. It has also been able to develop similar commercial relationships with other automotive manufacturers by advising them on how to organise their scrap metal management systems. All of this means a greater share of the economic value of making a car is kept in the UK, and the expertise and increased efficiency helps to keep the UK automotive sector competitive.
The crucial role of government in increasing resource efficiency
Given all these benefits, why was the public sector needed at all? Innovate UK played two crucial roles. The first was derisking the exploratory research into new metal alloys. It was possible that a lot of money could have been spent on not finding an answer, so JLR was unlikely to have funded this research itself. The second was bringing the right partners to the project. JLR obviously had excellent relationships with its supply chain partners, but the expertise on material science and systems innovation was brought in with Innovate UK’s help.
This demonstrates two important roles the Department for Business, Energy and Industrial Strategy can play in helping UK industry to increase its competitiveness through increased resource efficiency. The first is helping companies to innovate in the materials and processing technologies they use. Realising the resource efficient production systems of tomorrow might not be possible with the materials of today, and risk averse companies are unlikely to invest in the kind of material science research that underpinned this whole supply chain.
The second is convening project partners around the shared goal of increasing resource productivity. Setting this as an objective will help make connections between companies, research institutions and the private sector to deliver the necessary reconfiguration of supply chains and business models. By helping companies to develop greater resource efficiency, the government can help to keep UK plc competitive whatever the outcome of the Brexit trade negotiations.
[Image Jaguar XE 3.0 V6 340 OPS courtesy of Paul Gravestock from Flickr Creative Commons]