Aerospace, Defence, Marine and Security Industrial...Aerospace, Defence, Marine and Security ... of the ADMS Industry Leadership Group, ... Defence 2,200 Security 194 R&D 67

Aerospace, Defence, Marine and Security Industrial Strategy for Scotland 2016

CONTENTS

MINISTERIAL FOREWORD 1

INDUSTRY FOREWORD 3

INTRODUCTION 4

THE ADMS SECTOR IN SCOTLAND 5

STRATEGIC CONTEXT 7

OUR STRATEGIC APPROACH 11

STRATEGIC THEME: Research & Technology 12 Business Environment 13 Internationalisation 14 Skills 15 Supply Chain Capability 16 Operational Excellence 17

AMBITION, STRATEGIC GOALS AND PRIORITY ACTIONS FOR GROWTH 19

CASE STUDIES 23

CONCLUSIONS 32

APPENDIX ONE: Development of this Strategy 33

APPENDIX TWO: The ADMS Industry Leadership Group 35

ACKNOWLEDGEMENTS 36

MINISTERIAL FOREWORDMany of our most prominent companies in Scotland’s Aerospace, Defence, Marine & Security (ADMS) sector operate at the very forefront of their industry. They design and manufacture world-class products that can truly claim leadership amidst fierce global competition. These businesses are often attracted by the skills available from our well-educated people, who are proud to continue the legacy of engineering excellence that has long been associated with Scotland.

These companies are dynamic places where continuous innovation is ever present as they develop and exploit cutting edge technologies and products that must perform perfectly in the most demanding of operating environments at sea, on land, in the air and even in outer space. For many of our young people, valuable industrial experience gained in these environments provides an excellent start to rewarding careers in advanced engineering and manufacturing.

Success requires strong leadership, substantial long-term investment and a skilled and willing workforce. Such businesses contribute significantly to the Scottish economy through above average R&D expenditure, strong export performance and the creation of highly-skilled and well-paid jobs.

Developed by industry leaders, this strategy sets out a clear growth plan that is pragmatic in its approach. It recognises the long-term value of attracting and retaining large companies to the sector in Scotland and the beneficial effect on smaller businesses throughout the country who are ambitious to supply them.

This practical approach is commendable for its clear alignment with Scotland’s economic strategy for increased internationalisation, innovation, investment and inclusive growth.

Fergus Ewing MSP Minister for Business, Energy and Tourism

Aerospace, Defence, Marine and Security | Industrial Strategy for Scotland 2016 | 01

INDUSTRY FOREWORDThis strategy is the outcome of an intensive team effort by all members of the ADMS Industry Leadership Group, each bringing deep experience and insight from their senior roles across the industry sub-sectors that collectively we represent.

From the outset, we agreed to operate as if we were the board of directors in a business. We shared responsibilities to investigate the challenges to growth and developed practical, hands-on solutions that we believe can make a difference to our industry both in Scotland and internationally.

The team responded to the challenge by exploring the key issues in depth, gathering data to support this analysis and making clear and pragmatic recommendations to capture opportunities for growth. We held and maintained the view that whilst preparing a clear strategy was the primary objective of our work, the goal is to deliver on the actions that we believe can make a positive contribution to growth of the industry.

For example, as operators of large businesses, we took the initiative to open our doors wide to help SME businesses throughout Scotland who have ambition and ability to become suppliers. We want to share our knowledge and expectations so that local companies willing to invest can become truly globally competitive.

We are confident that the sector is healthy and has strong opportunities for growth. This strategy invites companies large and small throughout Scotland to now roll up their sleeves and get involved.

Mick O’Connor Former Chair, ADMS Industry Leadership Group*

* We would particularly like to express gratitude to Mick O’Connor for his outstanding leadership and unstinting effort as Chair over the last twelve months. Mick stepped down from membership of the ILG at the end of 2015, taking up a new role in the Energy sector with SSE in January 2016.

Aerospace, Defence, Marine and Security | Industrial Strategy for Scotland 2016 | 0302 | Aerospace, Defence, Marine and Security | Industrial Strategy for Scotland 2016

THE ADMS SECTOR IN SCOTLANDMost recent figures show that Scottish ADMS companies together employed well over 38,000 people in Scotland3. The 825 companies operating in the sector had combined sales of over £5.5 billion, together producing a Gross Value Add (GVA) to the economy of £1.76 billion.

Scottish-based companies are involved in a broad range of activities, including but not limited to:

• Development and manufacture of aero-structures and aero-engine components

• Aerospace maintenance, repair and overall (MRO)

• Shipbuilding, boat building and repair

• Aerospace, defence and marine equipment and electronics

• Commercial ship management and maritime activity

• Space manufacturing and services

• Cyber and data security services and products

• ADMS-related engineering business services, design and R&D

The list is extensive and continues to expand as companies invest in start-ups and growth in Scotland.

INTRODUCTIONScotland’s Aerospace, Defence, Marine and Security (ADMS) companies operate in a globalised industry open to intense competition. A world-renowned centre of engineering expertise and technical capability has attracted leading companies to locate operations in Scotland in order to tap into the skills and expertise that are in abundance here. As these businesses and their suppliers continue to grow and develop, the ADMS sector makes a strong contribution to the Scottish economy, generating revenues of more than £5.5bn per annum, employing over 38,000 highly-skilled people, and adding £1.76bn in Gross Value Added (GVA).

Global trade patterns are changing and international markets continue to develop. In order to remain in contention, Scottish companies must stay ahead. In order to maintain their competitive advantage companies must develop and manufacture high quality products, create innovative technologies and offer services that are second to none. In addition, each of these elements must be delivered in a cost-efficient manner.

Future projections for the wider industry are generally healthy. The demand for new aircraft and maintenance of the existing world fleet is strong. Continued trade growth is fuelling increasing demand for marine equipment, ships and maritime services. The defence industry is responding to changes in levels and patterns of demand to develop new products and services that address the changing face of global threats. This represents potentially huge business opportunities for Scottish companies.

The Space sector and the increasingly complex and challenging market for Cyber and Data Security technologies and services are opening up new opportunities both for established players and for new companies. Scotland has a strong and potentially growing role to play in all of these sectors.

The first comprehensive Scottish Aerospace, Defence & Marine Industry Strategy was published in 2009. It recognised the need to address a range of issues by tackling a series of agreed actions shared by a cross-section of stakeholders directly involved in the sector. However, despite the advent of a prolonged global economic downturn a number of notable opportunities produced highlights over the last six years. These include: the Royal Navy’s Aircraft Carrier programme at Rosyth, a major build programme for Type 45 destroyers at Govan and Scotstoun as well as the resurgence of commercial shipbuilding on the Clyde at Ferguson Marine. The period also saw major investment in the UK Catapult Network and the inception of the Advanced Forming Research Centre at Inchinnan. Overall, performance of the sector remained relatively stable during this turbulent period, which itself was a remarkable achievement.

Now, to refocus attention on achieving real-term growth of the sector over the next five years, the 2016 strategy has been developed1 by the Scottish Aerospace, Defence, Marine and Security Industry Leadership Group (ADMS-ILG)2.

Scotland’s ADMS activity is underpinned by a strong and developing base of academic expertise, both in teaching and training and in world-renowned research expertise that continues to attract both overseas R&D investment and international students.

Companies 825Marine 421Defence 63Security 74R&D 30Space 88Aerospace 149

Employees 38,408Marine 15,044Defence 12,152Security 2,069R&D 638Space 242Aerospace 8,262

Billion Sales £5.563Marine 1,432Defence 2,200Security 194R&D 67Space 20Aerospace 1,649

Billion GVA £1.756Marine 481Defence 665Security 61R&D 21Space 6Aerospace 520

3 Report commissioned for Scottish Enterprise and the ADMS-ILG [2013]

1 The process by which this strategy was developed is described in appendix one.2 The members of this group are shown in appendix two.


STRATEGIC CONTEXTThis strategy builds on work to develop the original 2009 Scottish strategy, but also on a range of UK-wide industry strategies created in subsequent years with full engagement from companies in the sector with operations in Scotland. This reflects the global nature of the Scottish industry, the global challenges that the sector faces and the global opportunities to be addressed.

The establishment of the Aerospace Growth Partnership (AGP), the Defence Growth Partnership (DGP), the UK Marine Industries Alliance (UKMIA), and development of their respective industry strategies means that the Scottish industry has already contributed to and has the ability to benefit from the efforts of the wider UK industries’ initiatives and government support. Scottish companies are poised to take full advantage of wider initiatives in each sub-sector, such as the Aerospace Technology Institute, which will invest £3.9 billion until 2026 as a result of the top-up announced last Nov/Dec effectively increasing the lifetime of the Institute. This will place the UK at the leading edge of technology development in Aerodynamics, Propulsion, Aero-structures and Advanced Systems.

Scottish industry needs to ensure that it has maximum awareness of the strengths it can bring to bear, challenges which must be addressed, opportunities available and threats that exist to its continued success and growth. The Industry must ensure that it has influence over, and access to, all possible support mechanisms available at European, UK and Scottish levels.

Innovation, engineering and service excellence are at the heart of the ADMS industry. Companies in the sector must be able to draw on a wide range of technologies, specialism’s and disciplines in order to remain competitive, sustainable and globally successful. This places further and higher education institutions at the foundations of the industry, as their role in providing a breadth and depth of teaching and research expertise is instrumental. In order to achieve the best possible collaborations between academia and industry, strong relationships must be built and maintained. Only through these relationships can challenges be better articulated, opportunities more fully understood, and their combined strengths harnessed.

The Scottish ADMS sector is a microcosm of the wider UK industry. However, the profile and activities of companies involved in the sector in Scotland, its attributes and advantages, specific challenges faced and opportunities available, makes it appropriate for this strategy to adopt specialised approaches to help secure future success for the ADMS sector in Scotland.

The ADMS sector has a vital role to play in the Scottish Government’s ambition to achieve a strengthened role for manufacturing in terms of contribution to the Scottish economy. This is clearly articulated in the latest Economic Strategy and the Programme for Government.


In developing this strategy, a broad range of issues facing the sector were fully considered by the ADMS Industry Leadership Group (ADMS-ILG). It has determined through industry knowledge and consultation the key themes that need to be addressed in the Scottish ADMS sector.

Aerospace

Global demand for air travel is at record levels with $3trillion in orders for new aircraft and production rates have doubled in order to meet this demand. The UK market is expected to grow at 6.8 percent and the Aerospace Technology Institute is investing £3.9 billion until 2026 as a result of the top-up announced last Nov/Dec effectively increasing the lifetime of the Institute. This will support the development of industrial capability and capacity in Wings; Engines; Aerostructures; and Advanced Systems to meet this demand.

Scotland fully aligns with these capabilities and the need to increase production, therefore the ADMS strategy will deliver support to Scottish companies from the UK and Scottish partners and resources.

Space

In 2013 the global Space industry was £155 billion and with demand for communications, navigation and earth observation services enabled by data from space growing exponentially it is expected to grow to £400 billion by 2030. Through the UK Space Agency, the UK Government is supporting industry and academia to develop both the new satellite

technologies and data/software services businesses to lead the way in small and cube satellite research and manufacturing for a worldwide market. The goal is to grow the UK Space industry to £40 billion by 2030 and to build the UK’s first spaceport facility to boost the availability of satellite launch capacity and to cater for space tourism.

Scotland has 88 companies in the space sector and is a world leader in the cubesat part of the market with companies employing over 800 people. Scottish engineering expertise and technology innovation will be supported by the ADMS strategy to enable our companies to rapidly expand to be a £4 billion industry by 2030 and play host to the UK Spaceport.

Defence

Despite shrinking Defence budgets in the UK and USA, the UK industry supports £22 billion worth of annual sales, contributes £9.8 billion in exports and sustains more than 160,000 jobs. The UK Defence sector is a key driver of innovation and boasts a highly skilled workforce utilising the best technology and engineering know-how on programmes such as the Eurofighter Typhoon and Queen Elizabeth Class Aircraft Carrier. The UK Government has identified Air Capabilities and Intelligent Systems as key technology capabilities for the UK which it will support into increasingly competitive international defence markets, investing £82 billion per annum for the next eight years.

Scotland’s Defence industry has a fundamental role to play in Air Capabilities & Intelligent Systems as well as delivery of Defence Shipbuilding with the Type 26 Global Combat Ship from the Clyde. The ADMS Strategy will connect Scottish industry to the Defence Growth Partnership and Centre for Defence Enterprise to ensure that they receive the best support and play a key role in National Security.

Marine

The world fleet, encompassing all marine vessels excluding military fleets, reached a total of 1.69 billion deadweight tonnage (dwt) in Jan 2014, made up of around 57,000 ships and carrying 9.6 billion tons of cargo in 2013. This represents 80percent of global cargo trade and is expected to double by 2030 (with the remaining 20 percent made up by air and land freight). The Marine/Maritime industry contributed £11billion in Gross Value Add (GVA) to the UK in 2012. A recent UK Government report highlighted the need for strategic action to grow the industry addressing: Leadership, Skills, Marketing, Innovation, Clustering and Stability.

Scotland has a proud history and a strong future in the Marine engineering and Maritime business industry. Civil and Defence shipbuilding in Scotland are supported by excellent ship management and maritime training activities sold around the world. The ADMS strategy will seek to build on the shipbuilding and marine engineering capabilities as they deliver for core markets and diversify into offshore energy markets whilst continuing to see Scotland playing a leading role in the training of staff and the management of global shipping.

Security

Cyber Security represents a significant growth opportunity for Scotland’s Information Communications Technology (ICT), Financial Services and Defence companies. In 2014 the global market was worth $75 billion (source: Gartner) and it is expected to grow to $144.67 billion by 2024. The UK Government sees Cyber Security as one of four Critical National Risks and has invested £650 million into innovation and education in cyber through the Communications-Electronic Security Group (CESG), which is the information security arm of the British intelligence and security organisation, Government Communications Headquarters (GCHQ).

Cybercrime costs Scottish business £3.5billion per annum, rising to £21billion for the UK with £9.2 billion of the UK cost relating to IP (Intellectual Property) theft. The ADMS Strategy will seek to deliver on the Scottish Government’s ambition to grow a domestic cyber security industry, utilising the talent we have in Scotland, to provide leading edge products and services ensuring cyber resilience across not only Scottish industry but export markets globally.


OUR STRATEGIC APPROACHThis strategy for the ADMS sector in Scotland has considered a wide range of companies, sector capabilities, markets and challenges. In order to provide a framework for consultation, analysis and recommendations for action, the following approach has been used.

Drawing on cumulative evidence from industry, outputs from UK level strategies in the ADMS sector, and other stakeholders and contributors, an extensive range of strategic issues have been identified under six strategic themes. Although the sector pillars of: Aerospace, Defence, Marine and Security each has differing needs, the Industry Leadership Group focused on determining the characteristics of themes that are common to all.

As might be anticipated, these themes are closely aligned with those facing the ADMS sector both in the UK and internationally, and apply to other manufacturing-intensive industry sectors in Scotland (and elsewhere) that are focused on technology or engineering.

This renders the need for development of a coordinated approach all the more essential. Developing a successful approach to addressing these themes could place the Scottish ADMS sector in a world-leading role and create tangible opportunities for companies throughout Scotland.

The strategic themes identified are shown here. It is fully recognised that there is a degree of crossover in these six thematic areas and common issues have been identified. These issues are set out in more detail, in the following section, along with recommendations on how they could be addressed.

Strategy Framework

Sector Pillars

Markets and Customers

Defence Marine SecurityAerospace

Supply Chain Capability

Internationalisation

Business Environment

Skills

Operational Excellence

Innovation, Research & Technology

Leve

rs

Ext

erna

l

Ena

bler

s

Inte

rnal

Oppo

rtun

ities

and

Cha

lleng

es

Stra

tegi

c Th

emes

10 | Aerospace, Defence, Marine and Security | Industrial Strategy for Scotland 2016 Aerospace, Defence, Marine and Security | Industrial Strategy for Scotland 2016 | 11

STRATEGIC THEME: Research & TechnologyDriven by the harsh environments in which it operates, the critical safety and capability issues it must address and ever-tightening environmental standards, the Scottish ADMS industry remains at the leading edge of technology and engineering whilst remaining competitive in an increasingly commercial market.

Research & Technology is at the core of the industry. Continual innovation is essential – both within the industry itself and working in partnership with academia – if the competitive, commercial future of the sector is to be maintained and expanded to meet emerging opportunities.

STRATEGIC THEME: Business EnvironmentThe ADMS sector in Scotland is affected by the general business environment in which it operates (taxation, finance, regulation, etc), in addition to sector-specific concerns detailed below. This strategy focuses primarily on ADMS sector-specific issues, and more generally on opportunities for the sector to lead the way in resolving wider issues for industry.

In addressing these issues the industry will engage with a range of stakeholders who clearly have a role to play in collaborative delivery of support in this area. Key players in this will be trade bodies such as ADS Scotland, Scottish Engineering and the Society of Maritime Industries, whose role in unifying and supporting their members will influence the direction and delivery of this strategy. It is important to note that since global opportunities for growth are crucial to Scottish industry, public sector support organisations approach all aspects of business environment support with international business interaction in mind. An ‘International in Everything’ approach means that there is deliberate crossover between this section and the Internationalisation section of the strategy.

CHALLENGES RECOMMENDATIONS

INNOVATION: As a rapidly-developing and dynamic sector there is a need for measures to deliver accelerated innovation

CONNECTIVITY: University to Industry connectivity is improving, but must be built upon and accelerated.

LANDSCAPE: The research funding landscape as it applies to industry must be streamlined in order that support for innovation is understood – thus improving uptake of these opportunities.

FUNDING: Levels of public sector support are considered healthy. However, clearer understanding of the support available and how to access it is required.

ALIGNMENT: There must be better alignment of Scottish industry with UK strategies and support mechanisms to ensure that the benefits which are derived are felt within Scotland as in the rest of the UK.

1. It is recommended that there should not be a separate Scottish ADMS Research & Technology (R&T) Strategy and that Scotland should work within the existing Growth Partnership strategies for Aerospace, Defence, Marine and Security.

The existing work already completed for the Aerospace Growth Partnership (AGP) and underway for the Marine and Defence Sectors should provide the R&T context and approach for any Scottish strategic R&T activities; Scottish ADMS sector companies should work with Scottish Government and its agencies to ensure strong representation within the AGP, UK Marine Industries Alliance (UKMIA) and Defence Growth Partnership (DGP); and the Scottish Government and its agencies should ensure broad communication about the opportunities associated with the UK Growth Partnerships for ADMS.

2. It is recommended that there should be an initiative established to identify and evaluate disruptive technologies, techniques and trends to gauge their potential for positive impact on the ADMS sector. This should increase interaction between industry representatives and academia – aimed at aggregating, assessing and broadly reporting its findings across the ADMS sector. A pipeline of disruptive technologies should be fed into the Innovation Centres to support the future needs of the ADMS industry to maintain their competitive edge.

3. It is recommended that a new Technology, Research and Development showcase event be considered and initiated to support engagement between the ADMS sector and academia. This should:-

Increase the focus on technology, research and development; Provide a forum for interaction between companies, large and small, and academia; Provide a forum for interaction with other Scottish technology and enterprise initiatives; and Focus on core industry/academic interaction rather than the support aspects such as consultancy, services, administration etc. which have encroached on other similar events leading to a reduction in their relevance.


AEROSPACE: the sub-sector must increase engagement with the UK Aerospace Growth Partnership and the Aerospace Technology Institute

MARINE: The sub-sector must emphasise success and change perceptions to reflect its positive future and opportunities

DEFENCE: The sub-sector must be supported to:

• Address the regulatory environment (at home and overseas) around the defence sub-sector.

• Increase market diversification and new market entry

• Engage with issues around the impact of the International Traffic in Arms Regulations (ITAR) as a business inhibitor

• Address localisation and offsetting imposed by overseas governments on contracts.

4. Engage with Government at the Scottish, UK and EU level to reinforce the need for the adoption of a level playing field in defence procurement that seeks to maintain UK sovereign capability through the application of Article 346 of the Treaty on the functioning of the European Union (TFEU) on a basis that does not place UK companies at a competitive disadvantage with EU competitors, whilst opening up all EU defence markets on a fair and equitable basis to competition where products and capabilities are legitimately deemed outwith Article 346.

5. Develop a coordinated approach to support for ADMS companies that brings together, in a consistent and easy to access way, the full range of existing and future support and advice mechanisms that are in place to support company diversification, product development, international market access and specialist advice on regulatory and compliance issues from Scottish and UK sources.

6. Develop a range of shared private/public sector measures to support and promote the development of supply chain opportunities for Scottish companies in the ADMS sector, but which also fully exploits ADMS supply chain company capability to supply into adjacent markets where appropriate.


STRATEGIC THEME: InternationalisationAgainst the backdrop of a small indigenous market, ambitious government export targets and the global nature of the ADMS industry and its supply chains, this strategy seeks to address a range of identified issues and develop actions to help address these. This will involve a coordinated approach by industry, Government, and Scottish Enterprise / Scottish Development International.

SDI should be encouraged to work with the ILG and sector to take a proactive approach to the development of export and investment opportunities outlined in the refreshed strategy. As globalisation continues to impact international trade patterns, the relationship between trade and investment for the ADMS sector becomes more important and more closely related.


VISIBILITY: Visibility of the Scottish supply chain amongst (Original Equipment Manufacturers) OEMs and Tier 1/2s must be increased

CONTRACTS: Pressure to localise supply chain activity within international contracts

AMBITION: The industry must increase ambition in, and understanding of, internationalisation, and take up support where necessary

PROPOSITION: There is a need to further enhance the Scottish proposition for inward investment

Identify niche areas of capability and opportunity across the extent of the global market where Scottish companies acting independently or in collaboration can gain business advantage and add value to our customers around the world, by:

7. Develop a Scottish ‘capability matching’ service with the support and engagement of OEM and Tier 1 ADMS companies in Scotland to:

a) Identify supply chain business opportunities for Scottish-based companies as a potential substitute for existing suppliers;

b) Encourage OEM and Tier 1s to explore collaboration with Scottish suppliers in competing internationally; and

c) Provide for the systematic identification of technology or capability gaps in local Scottish supply chains of large companies that would provide a basis for the targeting of additional inward investment to strengthen the Scottish supply chain.

d) Improve awareness of capabilities that exist or are being introduced by competitor nations.

8. Undertake additional promotion of SDI Internationalisation support mechanisms through SE & HIE account managers by means of the development of sales ‘collateral’ such as case studies and success stories.

9. Industry to consider the potential for and advantages of a coordinated OEM/Tier 1-led ‘Scottish-branding’ approach to international events, with potential public sector support.


STRATEGIC THEME: SkillsA highly skilled and experienced Scottish workforce is the foundation of the ADMS industry and, owing to the industry’s high-tech/advanced engineering profile, this workforce plays a leading role in the wider engineering sector in Scotland. Given this intrinsic link, issues affecting engineering skills development more broadly can impact significantly on the industry.

The ADMS sector has the ability to lead the implementation and demonstration of best practice in addressing engineering skills issues.


GRADUATES: More Scottish engineering graduates must be attracted and incentivised to enter the ADMS sector

SME: Small and medium sized companies must recruit and retain engineering graduates and apprentices

REGIONAL: Regional imbalances in engineering employment and education must be addressed

GENDER: Gender imbalance in engineering,education and employment must be addressed

TRACKING: The industry must better track labour market intelligence and increase involvement in shaping future policy, strategy & skills funding

DEMOGRAPHICS: The age profile of the workforce suggests that significant numbers of highly experienced staff will be retiring in the next 10 years.

10. Actively promote the ADMS sector as an exciting future employment opportunity with the aim of attracting the best talent. Key messages should include: safety and security focus, innovative product output, growth opportunities, long-term career certainty and job variety and challenge.

11. Establish a coordinated ADMS approach to the provision of internship and summer placement programmes as a central resource for engineering students to investigate and apply for opportunities, with the aim of promoting the sector as an excellent place to work, as well as providing companies with forward visibility for the purposes of talent attraction.

12. Encourage ADMS companies to provide industry-leading talent attraction, talent retention and retraining programmes to encourage women into the sector workforce, with a view not only to attracting the best talent and tapping into an under-utilised resource but act as an exemplar in the engineering sector to enhance wider promotional messages.

13. Encourage ADMS companies to engage in a greater sharing of apprentice skills and training across companies to increase the breadth of skills and experience in the industry’s workforce.

Establish a clearing-house system to provide a coordinated approach to the collection and communication to relevant skills, training and education providers and government agencies of labour market intelligence on the needs and opportunities arising in the ADMS sector, with a view to ensuring effective long term forward planning for provision of trained personnel to meet industry needs.

14. Coordinate ADMS industry activity and share information with the Scottish Engineering Skills Leadership Group.

15. Contribute to the implementation of the Action Plan in the Skills Investment Plan for Engineering & Advanced Manufacturing.

STRATEGIC THEME: Supply Chain CapabilityGrowing the Scottish supply chain capability is critical to the success of the strategy described in this document. More than any other single theme, this pillar is intimately connected with all other themes:

• Internationalisation – The entire Scottish supply chain needs to become more visible to OEMs and Tier 1 & 2 suppliers.

• Research and Technology (R&T) – Must be aligned with industry needs to the benefit of the Scottish supply chain

• Business Environment – Improved engagement with industry bodies is required at all levels of the supply chain to provide greater coherence.

• Skills – Increased efforts are required across the supply chain to promote ADMS and protect, in the long-term, the capabilities and skills required to promote growth.

• Operational Excellence – Use the operational excellence recommendations described to differentiate the Scottish supply chain against overseas competitors.

Analysis suggests that there is huge potential within our Original Equipment Manufacturers (OEMs) and Tier 1s to retain revenues within Scotland through focussed activity and investment.


CO-ORDINATION: Establish and maintain a forward looking view of Tier 1/2 company requirements mapped against supply chain capabilities.

CONTENT: There must be improvements in whole life cost awareness and recognition of Operational Excellence criteria. Centralised procurement policies must be addressed to reduce erosion of local content in supply chains.

EARLY ENGAGEMENT: Industry must recognise that supply chains are formed very early in product lifecycles, and act accordingly.

16. Work closely with OEM and Tier1 suppliers to identify capabilities required in the supply chain to meet future demand. Use this to foster targeted growth and to identify areas for active development where investment in local capabilities could address unsatisfied need.

17. Promote the advantage of localisation through the understanding of through life costs. Promote the benefits across the supply chain of operational excellence and its impact on Schedule, Cost and Quality. Support the promotion of local suppliers into Tier 1 and OEM’s procurement decision making groups through targeted engagement.

Recognise that supply chains are created and fixed very early in product development lifecycles.

18. Actively work across the supply chains to ensure links between OEMs and R&Ts are fostered, long term relationships are being formed and local R&T is aligned and harnessed as a route to creating competitive advantage.


STRATEGIC THEME: Operational ExcellenceMaking the Scottish supply base competitive is vital to develop a strong and vibrant sector within Scotland. The starting point for this is to understand how Scottish suppliers currently perform against both global competition and the requirements of the sector. From this understanding we can identify gaps and establish focused support to develop the Scottish supply base in terms of capability, capacity and competitiveness.

We must also understand the link between Operational Excellence and procurement decisions made by primes and first tiers, so that suppliers can make informed decisions about where to focus their resources. There are numerous approaches to achieving Operational Excellence. These approaches will be reviewed to give guidance to suppliers regarding the most appropriate route and support which they can access on these programmes.


There are perceived competitiveness and performance gaps between the Scottish ADMS supply chain against global competition.

We must establish a level of operational excellence maturity within the Scottish supply base and understand the effectiveness of current operational excellence programmes.

We need to assess the awareness levels of different and operational excellence initiatives and understand how they are performing.

We must understand what is really driving procurement decisions and the role of operational excellence in this process.

19. Create and communicate a burning platform/ambition that will drive Scottish ADMS supply chain and support agencies to close gaps to competitiveness.

20. Allow ADMS supply chain to understand voice of the customer and the main issues in performance against each commodity.

21. Prioritise the correct type of support offered to existing and potential suppliers in the sector.

22. Provide feedback to operational excellence programme providers regarding perceptions around their performance in terms of delivery and awareness.

23. Allow operational excellence programme providers to adjust their programmes and approach accordingly.

24. Focus resource and funding into the operational excellence programme providers making the biggest impact.


Through the implementation of this strategy, the ambition of the Industry Leadership Group is to achieve overall real-terms growth of the sector in the range of six – ten percent by 2020.

This level of ambition recognises the maturity level across each of the sub-sectors and the growing intensity of global competition as well as emerging high-growth opportunities from new markets such as Cyber Security and Space.

Achieving sector growth on this scale by 2020 could deliver:

• £350 to £500m additional revenue per annum

• £120 – 170m additional GVA per annum

• Exports at 70 percent of turnover

• Up to 3,000 new or replacement jobs

• Substantial CO2 reductions from disruptive new technologies

To achieve this level of ambition, the ILG recommends an action programme to pursue six strategic goals over the next three years. As shown in the table overleaf, a list of initial actions against each of the strategic goals has been prepared.

Further detailed planning now needs to take place to inform activity to be undertaken in the short to medium term and set milestones that measure achievement.

With strategy work now complete, the ILG will turn its attention to implementation and will closely monitor the progress being achieved. The ADMS ILG believes that these results are both attainable and necessary for the continued success of the sector as a whole.

AMBITION, STRATEGIC GOALS AND PRIORITY ACTIONS FOR GROWTH

20 | Aerospace, Defence, Marine and Security | Industrial Strategy for Scotland 2016 Aerospace, Defence, Marine and Security | Industrial Strategy for Scotland 2016 | 21

Strategic Goals, call to industry for action

Goal #1Increase content on Tier 1 products

• Determine value of Tier 1 spend

• Define type of goods and services procured

• Map procurement to currently available supply base

• Encourage Tier 1 decision makers to buy from Scottish suppliers

Goal #2Competitive supply base

• Define performance expectations

• Engage with selected SMEs

• Set performance excellence benchmark

• Tier 1 secondments

• Lean out processes

• ADMS annual Tier 1/SME event

Goal #3Young people choose STEM careers

• Industry support the Engineering SIP

• Sustain Primary Engineer

• Industry adopts a local school

• Arrange visits to industry

• Schools grant STEM challenge

• Annual ADMS careers avent

Goal #4Sustain growth in target export markets

• Identify target export markets

• Identify the big Tier 1 plays

• Embed ADMS matter expert in SDI field teams

• Match companies to target opportunities

• Collaborate with SMEs

• Leverage GlobalScot network

• Conduct targeted trade missions

Goal #5Reduce time to market

• Identify technology market failure

• Engage with Academia on past/future research

• Academia and Industrial collaboration on TRL 3-9 acceleration

• Commercial exploitation

• Establishment of an Advanced Manufacturing research centre

Goal #6Increase awareness of funding and support

• Increase awareness of funding and support within SMEs

• Adopt an SME

• ADMS annual ‘meet the sources of funding’ event

• Link businesses to RABs

• Link ILG to RABs


Scottish Engineers in the Vanguard of UK Defence Production

With the UK’s carrier strike capability at the heart of our future power projection the requirement for two Queen Elizabeth Class (QEC) aircraft carriers, HMS Queen Elizabeth and HMS Prince of Wales, was conceived. The need for this capability has led to one of the largest engineering projects currently being undertaken in the UK.

Since no single shipyard alone could deliver a build of this magnitude the Aircraft Carrier Alliance (ACA), an innovative alliance between industry and the Ministry of Defence (MOD), was formed. The design and build process for these Aircraft Carriers has spanned several years due to size, complexity and the fact that six ship building facilities across the UK have been utilised.

To the end of January 2016, the MOD had paid around £3.462 billion to BAE Systems on the Clyde (c. £2.073 billion) and to Babcock at Rosyth (c £1.389 billion) on the QEC programme. In addition, the ACA has placed a number of sub-contracts with Scottish-based companies, totalling some £300 million across 21 suppliers.

At its peak the QEC work in Scottish shipyards is estimated to have directly supported some 4,000 jobs and hundreds of apprentices at the Rosyth and Clyde-based shipyards, a figure which more than doubles when taking account of the supply chain across the UK, which has to date delivered in excess of 25 million individual parts.

The UK has an excellent track record of delivering state of the art warships to the Royal Navy and other foreign navies. This programme employs the skills of some of the very best engineers, naval architects and designers in the country. Using modular build, rather than the traditional method of keel up construction, these carriers have been designed in a similar way to the Type 45 Destroyers. The need for each section to align perfectly meant that designs needed to be 100 per cent precise.

On entering service these aircraft carriers will become the United Kingdom’s national flagships, utilised by all three services of the UK armed forces, and supporting a wide range of operations from combat operations to humanitarian aid and disaster relief.

The use of modern automated systems onboard the carriers, such as the Highly Mechanised Weapon Handling System, enables a similar sized crew to operate a vessel three times larger than the carrier it replaces. This means that each ship will have a permanent crew of 733, increasing to a full complement of 1,600 when a full sized air group is deployed.

Maintaining affordability throughout the life of the vessel has been driven by adopting a commercial design that ensures critical operational spaces can be readily reconfigured and additional equipment inserted in a cost effective and timely manner to suit the future requirements of the Armed Forces and the nation.

The ships will use an electric propulsion system that enables the prime movers to operate more efficiently and therefore burn less fuel, saving running costs.

DEFENCE CASE STUDY: Aircraft Carrier Alliance


BAE Systems Naval Ships is a leader in the design, manufacture, integration and support of naval ships, delivering complex engineering, integration and through-life support across the lifecycle of a vessel. With operations in Glasgow, Portsmouth and Bristol, it employs over 7,000 people.

The Naval Ships business is responsible for delivering three of the super blocks for both ships as well as both of the island structures that house the bridge and air traffic control facilities. BAE Systems is also responsible for delivering the missions systems for the QEC with hardware and software sub-systems working together to provide the key knowledge to command the carriers in battle and to interface with the joint carrier aircraft in order to deliver carrier strike capability.

Babcock is a strategic provider of engineering and support services to the UK MOD and Royal Navy managing and operating some of the country’s most critical assets, as well as providing through-life support to complex programmes of national significance. This includes carrying out around 75 per cent of the annual maintenance and re-fit load required to support the Royal Navy’s surface ships.

Babcock is responsible for around 50% of the detailed design of the QEC, a task that requires strongly developed partnering skills and considerable engineering innovation. Key activities include CAD-based modelling, design and development work, the manufacture of the bow section and a number of upper blocks and whole ship assembly at Rosyth.

Thales UK is a global technology leader for the Aerospace and Space, Defence, Security and Transportation markets. Thales UK has a unique capability to design, develop and deploy equipment, systems and services that meet the most complex security requirements. Thales UK employs 8,500 staff based at 40 locations.

Thales UK had led the design of the QEC programme and is currently involved in the Power and Propulsion Sub-Alliance which the company leads on behalf of the ACA.

The MOD is the Government department responsible for implementation of government defence policy and is the headquarters of the British Armed Forces.

Its principle objectives are to defend the United Kingdom and its interests and to strengthen international peace and stability. The MOD also manages day-to-day running of the armed forces, contingency planning and defence procurement.

Within the MOD, the Ship Acquisition Project Team based at Defence, Equipment and Support in Bristol is responsible for procuring and supporting the Queen Elizabeth Class aircraft carriers. Upon their completion, responsibility for the QEC will be handed over to the Royal Navy.

The Aircraft Carrier Alliance

26 | Aerospace, Defence, Marine and Security | Industrial Strategy for Scotland 2016

BABCOCK CASE STUDY: WB Alloy Welding Products Ltd A global leader in the provision of welding and cutting solutions

WB Alloy Welding Products Ltd is a global leader in the provision of welding and cutting solutions and the design and manufacture of welding and cutting consumables. In addition the group provides gas equipment testing and certification, calibration, induction heating and welding engineering support.

WB Alloy Welding Products Ltd has operations across the United Kingdom: Glasgow, Renfrew, Aberdeen, Tavistock and across the globe: Australia, Italy, United Arab Emirates and the USA.

WB Alloys is a strategic welding and cutting solutions provider to the ACA through Babcock and BAE Systems.

The solutions: equipment, processes, systems, ways of working and high productivity consumables, provided by WB Alloys facilitates the best practice approach to welding and cutting associated with the Royal Navy’s Aircraft Carrier build programmes.

WB Alloys’ key activities include the provision, maintenance and review of supply streams which ensure continuous availability of welding and cutting equipment and consumables across all manufacturing activity on the whole ship assembly for both vessels at Rosyth. The assembly and integration stages involve the control of 450 day to day line items, 408 kilometres of gas hose across eight combinations and the supply, maintenance and calibration of 1200 welding and cutting machines.

WB Alloys embraces continuous improvement as a strategic strength and were early adopters of the ADS SC21 programme. The organisation has achieved SC21 Silver Level Award status and is driving for the Gold Level Award.


Innovation and Internationalisation in liquid gas systems sees Babcock compete on the worldwide stage

Babcock International Group is helping to meet the growing global demand for natural gas as a clean, efficient fuel by leading the way in the design, development, project management and supply of systems to process and carry Liquefied Petroleum Gas (LPG) on board ships.

Babcock have become global market leaders in the design of cargo handling systems for liquefied gas carriers, by developing innovative technology and skills. Patent protected innovations include:

• Vent Gas Cooler (VGC™), which enables enhanced refrigeration and handling of LPG products while minimising hydrocarbon emissions.

• SuperCooler™, which provides enhanced reliquefaction for commercial ethane cargoes.

• FGSV0™ , which provides a true zero-emission solution for LNG gas supply vessels.

Babcock is growing its liquid gas business through strong relationships with the world’s largest shipyards, including Hyundai and Daewoo in South Korea, Jiangnan in China and Namura in Japan, and leading gas shipping companies, exporting its expertise and patented technology to ship owners around the world. Its success in pioneering new and cost effective technology has led it to be shortlisted for the 2016 Queen’s Award for international trade and innovation.

The benefits are also felt here in Scotland with Babcock supporting an active local supply chain including small Scottish-based manufacturers as well as Scottish branches of international companies.

Future growth is focussed on developing Intellectual Property for innovative technology to meet the expanding need for natural gas as a clean, efficient engine fuel for various types of ships including ferries, container ships and cruise ships. Beyond this LPG can be used as a fuel source for power generation and for distribution to onshore industrial consumers.

MARINE CASE STUDY: Babcock


Advanced automation capabilities sees Scottish aerospace company’s success soar

Spirit AeroSystems is one of the world’s largest designers and manufacturers of commercial and military aircraft and is at the forefront of automation in the international aerospace industry. Part of a global business with bases in the United States, France and Malaysia, the company delivers contracts for major blue chip companies including Boeing and Airbus, and employs around 1000 people in its Scottish manufacturing plant at Prestwick.

Faced with record orders from commercial airlines and increasing competition from growing markets in Asia and elsewhere, Spirit AeroSystems recognised that it needed to adapt to compete.

Spirit introduced an innovative automation process for the highly-complex assembly of the fixed leading edge for the Airbus A350 XWB commercial airliner at its facility in Prestwick.

The system uses rotating tooling fixtures, a vision system which can precisely locate features such as holes and fasteners and plot a tool path, and robotic automated drilling to assemble the carbon fibre and aluminium-ribbed panels that make up the inner, mid and outer sections of the wing’s leading edge.

This pioneering use of automation and advanced drilling equipment optimises consistency in product quality and drives efficiency in manufacturing costs, leaving the company able to meet the increase in demand and ultimately compete on the global stage.

In 2015, Spirit was awarded Scottish Engineering’s main award in recognition of their contribution to shaping the future of commercial aircraft through research, development and design.

AEROSPACE CASE STUDY: Spirit AeroSystems


CONCLUSIONSIn summary, our work to develop this refreshed strategy for 2016 – 2020 concluded that:

1. The full implementation of this strategy programme will require the active support of a variety of partners and stakeholders. For each strategic theme and recommendation the players identified will have to commit their support and take responsibility for their contribution in order to achieve the shared vision and objectives we anticipate.

2. The Industry Leadership Group will lead the coordination of combined efforts and for driving the delivery forward. In order to achieve this, a detailed action plan will be prepared and progress monitored at the ADMS-ILG’s quarterly meetings. Scottish Enterprise will support the strategy by assigning an experienced Strategy Programme Manager to drive implementation.

3. The ADMS-ILG should also work with industry and the trade associations to ensure that relationships between the Scottish and UK stakeholders are further developed to the benefit of the industry. This will involve communicating the views of the industry in Scotland at a UK level to influence policy and future support, and to disseminate information about the various support mechanisms available to the whole industry. A key part of this will be to interface with the Aerospace Growth Partnership, Defence Growth Partnership, UK Marine Industries Alliance and the UK Government to represent Scotland alongside the trade associations in clearly articulating the industry’s perspective and requirements for support.

4. As new challenges and opportunities are identified the ADMS-ILG will have the remit to create new sub-groups and shall explore the opportunity for additional support from Scottish Enterprise and other agencies to commission exploratory studies into potential threats or benefits to Scotland of these developments.

5. The Industry Leadership Group is also committed to review and refresh this strategy before 2020 to ensure that it continues to develop opportunities aimed at securing the long-term growth and development of the Aerospace, Defence, Marine and Security industry in Scotland.

APPENDIX ONE: Development of this StrategyThe ADMS-ILG has worked to develop this revised strategy, which builds on the actions set out in the first strategy for the Scottish sector 2009. Based on extensive input and analysis, both at the UK and Scottish level, it makes a series of recommendations aimed at further strengthening the ADMS sector in Scotland and securing its continued and growing contribution to the Scottish economy.

The strategy focuses on a number of key themes, seen as those being the most important facing the future development and growth of the industry. It develops clear recommendations for addressing these key themes, principally in the short to medium term, but obviously providing a foundation for the continued long-term success of the ADMS sector.

The ADMS-ILG has taken full cognisance of the considerable body of work that has gone into the development of strategies for the aerospace, defence, marine, space and cyber & data security sectors at the UK level, reflecting the fact that the Scottish industry operates in a wider UK and global context. Many of the same issues facing Scottish-based companies are those seen at the wider industry level.

Similarly, where strategic issues have been identified in the broader industry landscape beyond the ADMS market, in order to avoid duplication and to add value, this revised strategy has sought to ensure that its recommendations are compatible. This is most notable in the area of skills. Here the role of this strategy has been to build on a detailed understanding of underpinning skills issues affecting both Engineering and Information and Communications Technology (ICT) careers by Skills Development Scotland (SDS) and to develop ADMS-specific recommendations that seek to support and strengthen the planned actions identified in that work.

In essence, this updated strategy seeks to identify the key issues and future opportunities facing companies operating in the ADMS sector and to make recommendations on a range of measures that stakeholders in the sector – including companies, trade associations, the public sector and academia – could take to address these. It calls for a shared approach to delivery and close collaboration between the stakeholders in a way that both benefits the sector and provides, and indeed accelerates, the positive economic impact it delivers to the Scottish economy.


The strategy was developed with strong support from the various trade associations including ADS Scotland, Scottish Engineering and the Society of Maritime Industries. The trade associations are key stakeholders in development and delivery of this strategy whose knowledge of and support to their members is invaluable to the current position and future growth of the Scottish industry.

This updated strategy has been developed using both a range of wider industry source material and specially commissioned research. The ADMS-ILG has itself committed considerable time and resources to providing input and analysis that has helped to shape and pinpoint the key issues that the sector is facing in its efforts to grow and develop.

Source material has included:

• A comprehensive SWOT analysis developed as part of the independent research undertaken to provide the 2013 industry baseline update.

• A series of Scottish-specific industry studies provided by public sector and industry/public sector groupings covering a number of Scottish sub-sectors including Space and Cyber & Data Security.

• The output from research undertaken by the University of Strathclyde Business School to map the capabilities of the Scottish Marine and Defence sectors.

• The body of research underpinning the development of the Skills Development SDS Investment Plans for Engineering and ICT.

• Published UK Strategies for the sub-sectors including aerospace, space, marine, and defence sectors, all of which have been developed with cooperation and involvement from companies that have Scottish operations.

APPENDIX TWO: The ADMS Industry Leadership GroupThe overarching vision of the ILG is to see the industry grow and further strengthen its global reputation for technology and engineering excellence, with ambitious companies and a highly skilled workforce that design, manufacture and test world-class products, and provide services that consistently meet or exceed the needs of customers at home and overseas.

The current members of the ADMS-ILG are:

• Stephen Boyd, STUC

• Bryan Buchan, Scottish Engineering

• Patrick Carnie, Babcock International

• Professor Graeme Burt, University of Strathclyde

• Fred Gorrie, Inter-Tec Services

• Jim Houston, Beal Group

• John Innes, Finmeccanica

• Professor Konstantinos Kontis, University of Glasgow

• Warrick Malcolm, ADS Scotland

• Bill Marsh, MacTaggart Scott

• John McDonald, Thales

• Colin McMurray, Clyde Marine Group

• John C. Murray, Society of Maritime Industries

• Billy Scott, Skills Development Scotland

• Nicola Spence, Spirit Aerosystems

• David Stubley, 7Elements

• Yan Tiefenbrun, Castle Precision

• Elizabeth Stark, Scottish Government

• Gordon Venters, Scottish Enterprise

• Michael Ward, Advanced Forming Research Centre


ACKNOWLEDGEMENTSScottish Enterprise gratefully acknowledges the work of ILG members and their many hours of voluntary effort that has contributed to the development of this strategy.

We would particularly like to express gratitude to Mick O’Connor for his outstanding leadership and unstinting effort as Chair over the last twelve months. Mick stepped down from membership of the ILG at the end of 2015, taking up a new role in the Energy sector with SSE in January 2016.

Equally, we wish to express our thanks for the excellent work by John Howie, Babcock International Group, who as the previous Chair was instrumental in the early formulation of this refreshed strategy.


SE/XXXX/XxxXX

This document has been prepared by Scottish Enterprise

If you require this publication in an alternative format and/or language please contact the Scottish Enterprise Helpline on 0845 607 8787 to discuss your needs.

Scottish EnterpriseAtrium Court50 Waterloo StreetGlasgowG2 6HQ Helpline: 0845 607 8787Email: [email protected]

Documents

Aerospace, Defence, Marine and Security Industrial...Aerospace, Defence, Marine and Security ... of the ADMS Industry Leadership Group, ... Defence 2,200 Security 194 R&D 67