Rethinking Manufacturing in Scotland: adopting a different perspective

In today's blog post, Steve Paton and Harry Sminia look at how to re-energise manufacturing in Scotland, and explain why manufacturing is less about supply chains and more about ecosystems.

The standard model of Scottish economic history remembers the early 20th century as the pinnacle of Scotland’s economic prosperity: a prosperity built upon a range of manufacturing activity such as textiles, shipbuilding, and steel. In the interwar period and beyond, the inability to implement structural changes within Scottish industry left it unable to compete internationally.

To a great extent Scotland’s story has replicated that of the rest of the UK. From 1970 to 1995 employment in UK manufacturing decreased from 7.7million to 4.2million. By 2015 it had decreased further to 2.6million. Similarly in Scotland from 1995 to 2015 employment in manufacturing decreased from 350,000 to 190,000 where it has essentially remained. A longer timescale makes this point more emphatically: employment in manufacturing in Scotland today is less than one third of what it was in 1950.

There are many reasons that manufacturing in Scotland declined and local issues represent only one of these. Widespread policies of protectionism, global inequities in resource costs and prejudicial corporate decision-making all contributed.

While some manufacturing jobs have been replaced by service jobs, many have been replaced by public-sector employment. This has left the Scottish economy dangerously unbalanced. If we accept this standard narrative and are inclined to reverse this trend, it is clear that to re-energise manufacturing in Scotland a different approach is required.

The question is - what does ‘different’ look like?

To answer this question we must consider the perspective through which manufacturing is often viewed. Much current thinking recognises that manufactured products are the result of a supply chain of firms; each contributing a part into a larger offering. Many Scottish manufacturing firms are part of supply chains that span the globe.

A revival of Scottish manufacturing then is seen as dependent on making Scottish firms more prominent in these global supply chains. At first glance this approach seems sensible enough and policymakers and industrialists alike have scrambled to adopt this thinking.

However, focusing on the supply chain approach has left many strategists blind to recent developments in the nature of inter-organisational relationships. Rebuilding Scottish manufacturing requires us to embrace these developments rather than ignore them.

This strategic myopia is the result of three problems that arise when viewing manufacturing through the current supply chain perspective.

First, supply chain thinking tends to focus on a currently manufactured product. The composition of an existing product is itself a representation of the supply chain that is involved in producing it. Each subsequent generation of product will tend to follow the supply chain template that is set out. In this way the latest version of, for example, an IPhone is much easier to bring to market than the first version. While useful for producing new versions of existing products, the associated problem is that supply chain thinking essentially looks to the past rather than the future.

Second, the smart phone example also demonstrates that these days manufactured products are more frequently part of what are referred to as product/service bundles. For example, making money from smart phones requires much more than just the assembly of the component parts into an appealing device. The phone provided by the manufacturer must be accompanied by apps provided by many different tech companies, the infrastructure provided by telecoms companies, and the finance packages provided by finance companies. These offerings are then bundled together by retailers resulting in a product/service bundle that offers much more value than each product or service on its own. The key point is that those contributors who are essential to the provision of overall value often do not directly contribute to the manufactured product. This phenomenon is referred to as complementarity. Current supply chain thinking ignores this.

Third, the ecosystem - as this is the word that offers itself as an alternative to the phrase 'supply chain' - that produces this often quite complex functionality is inherently dynamic. Innovations quickly make elements in the product/service bundle obsolete as the various contributors develop new offerings and use these to ‘jockey for position’ within the ecosystem. Apps that can be monetised earlier and more easily become part of the standard package that comes with the phone. Brick and mortar retailers that specialize in selling phones are outmanoeuvred by contributors who open their own stores or the retailing of the product/service bundle might move entirely on-line. Supply chain thinking cannot accommodate this dynamism.

So it is clear that perspectives matter. Supply chain thinking is stuck in the past, ignores complementors, and is essentially static. The alternative of ecosystem thinking looks to the future, it widens the scope to include all forms of offering, and is dynamic as it assumes innovation and change as the norm.

To re-energise manufacturing in Scotland policymakers must understand the changing nature of inter-organisational relationships and move beyond the limitations inherent in previous conceptualisations such as the supply chain.

Instead of engaging in supply chain analysis in a quest to capture more of what is currently going on, a solutions-based approach must be adopted where manufacturers are encouraged to move beyond the boundaries of their traditional sector and the supply chains within and explore how their capabilities can be developed and exploited to provide solutions in previously unforeseen applications within ecosystems that are continuously developing.

About Steve Paton

Dr Steve Paton is a senior lecturer in Operations Management at the University of Strathclyde Business School in Glasgow. Prior to entering academia he spend 20 years in industry within the Aircraft and Defence sectors. His research interests include the management of operations and projects in high-value complex, engineering environments. His aim is to generate useful knowledge which is academically rigorous but easily transferrable to practice.