Tag: supplychain

Professor Jun Du, Reader Luciano Battista and Dr. Oleksandr Shepotylo (Aston University)

Faced with the challenge of climate change, and the growing need for sustainable business practices, it can often be hard to know where to start. In this guide, InterAct researchers examine the critical role of global value chains for the future of UK manufacturing, through the case study of the electric vehicle sector.

The UK automotive industry stands at a crossroads, facing a rapidly evolving landscape driven by the global electric vehicle (EV) revolution. While EVs offer a pathway to a greener and more sustainable future, the challenges of global value chain (GVC) dependencies, rising material costs, and competitive industrial policies present formidable hurdles. InterAct research has delved into these dynamics and outlines strategies for positioning the UK as a leader in sustainability-oriented manufacturing.

Industry in transition

Recent developments underscore the urgency of action. In November 2024, Stellantis announced the closure of its Vauxhall plant in Luton, resulting in 1,100 job losses. This follows Ford’s decision to cut 800 UK-based positions and Nissan’s global reduction of 9,000 jobs, with major potential implications for its UK operations.

These challenges reveal a broader issue: Europe’s historical dominance in the automotive sector is under strain, and the UK must adapt to remain competitive amidst shifting supply chains and mounting global competition. Nor is this unique to the automotive sector, with many organisations and governments in developing economies seeking technology transfer and more equal partnerships as a requirement for access to markets or local production. Explored in our global research missions, the rapid pace of advancement in manufacturing across countries like Singapore, India and Malaysia, highlights the need for the UK to evolve to compete.

The changing EV landscape

The transition from internal combustion engine (ICE) vehicles to EVs, driven by technological advancements, environmental awareness, and significant policy support, is reshaping not only the automotive industry but also the intricate web of GVCs that underpin EV production.

Since 2010, the cost of lithium-ion battery packs has plummeted by 89%, making EVs increasingly competitive with ICE vehicles. EVs now account for a substantial share of global passenger car exports, growing from 4.3% in 2017 to 27.6% in September 2024. This growth has been bolstered by government incentives, such as tax credits and investments in charging infrastructure, and by tightening emission standards.

Germany and China lead the EV sales in export value and quantity respectively. UK-made EVs, while primarily destined for EU markets (accounting for 68% of exports), face pressure, despite being delayed, to comply with rules of origin (RoO) requirements under the EU-UK Trade and Cooperation Agreement (TCA). These rules necessitate higher regional content in EVs and batteries, complicating the supply chain landscape.

With the challenge of where to locate manufacturing, new opportunities are arising through the reshoring or ‘right-shoring’ of production, with localised manufacturing offering improved resilience against global supply chain shocks such as pandemics, conflicts or logistical disruption. Locating manufacturing closer to the consumer base also offers the potential to significantly reduce the carbon footprint of supply chains due to significantly shorter transport links.

Three key trends shaping the future

1. EV adoption is growing, but steady policy is crucial

In September, electric vehicles (EVs) accounted for 27.6% of car sales across 15 major markets, marking a 7.6 percentage point increase year-on-year. The UK ranks fifth globally in EV adoption, underscoring its potential as a leader in this transition. Electrification is the future, but progress hinges on a stable, predictable policy environment that encourages investment and innovation. It is therefore essential that manufacturers make their voice heard, with collective messaging to government and policymakers that can cut through the noise, encouraging a clearly articulated vision and strategy.

2. Europe is catching up in battery production

While China continues to dominate the lithium-ion battery market, European nations such as Poland, Hungary, and the Czech Republic are emerging as key exporters of EV batteries. Meanwhile, the Inflation Reduction Act in the US has spurred the growth of US electric vehicle innovation and production. In the face of such major competition, the UK should seriously consider aligning closely with EU supply chains to potentially enhance resilience and competitiveness, ensuring the automotive sector remains integrated into global markets. This consideration is especially relevant in light of recent EU legislation surrounding traceability and digital product passports, explored in an InterAct funded research project.

3. Supply chains will determine future winners

Success in the automotive industry increasingly relies on building efficient and adaptable supply chains, not just manufacturing the best vehicles. This requires collaboration, investment, and strategic vision—elements that are difficult to achieve without systemic support. InterAct’s ‘Scenarios 2040’ work from researchers at Loughborough University has highlighted the essential importance of taking a full ‘ecosystem’ approach to the future of the sector, with manufacturers working with suppliers across their supply chain to determine the most viable and beneficial future for everyone.

A moment for strategic decision-making

The UK manufacturing sector is at a pivotal moment. Sustaining its position in this high-stakes global competition will require visionary leadership, robust policy support, and alignment with broader industrial strategies. The alternative—neglect or fragmented efforts— is likely to result in a gradual decline of one of the UK’s historically significant sectors.

If the UK Industrial Strategy is to back industries such as automotive manufacturing with bold action instead of pivoting decisively towards other emerging opportunities, then policymakers and manufacturers need to explore and adopt strategic recommendations. In the case of the automotive industry shift to electric vehicles, these are:

1. Enhance domestic capabilities

• Invest in local battery production facilities and recycling initiatives to reduce dependency on imports and align with RoO requirements.
• Promote innovation in battery technology to improve efficiency and lower costs.

2. Optimize trade policy

• Negotiate flexible trade agreements that account for the complexities of GVCs.
• Strengthen partnerships within the EU to ensure seamless access to key markets.

3. Strengthen supply chain resilience

• Diversify sources for critical materials to mitigate geopolitical and market risks.
• Establish regional partnerships to secure stable supply chains for EV production.

Charting a Path Forward

The success or failure of the UK manufacturing sector over the next few decades hinges on its ability to adapt to the changing global landscape. By addressing critical dependencies and fostering innovation, the sector can leverage the opportunities presented by the green technology revolution. With strategic investments and policy alignment, the UK can solidify its position and push towards a bright manufacturing future.

Nikolai Kazantsev (IfM, University of Cambridge), Russell Goh (IfM), Bethan Moncur (IfM), and Chander Velu (IfM)

In today’s globalised business world, there is a growing need for ethical supply chain practices. Manufacturing companies are facing complex challenges in modern production, and the importance of transparency and accountability has never been greater.

In this article, leading InterAct funded researchers from the Institute for Manufacturing (IfM) at the University of Cambridge explore the potential of the industrial metaverse to help elevate ethical standards across supply chains. Examining the intersection of technology and ethics, the IfM team offers valuable insights into how manufacturers can navigate regulatory environments, build consumer trust, and promote positive social change.

In a world of globalised supply chains, manufacturing firms often lack awareness and control of their external operations, which can result in unintentional non-compliance with regulations. While forced labour generates $236 billion in illegal profits annually (International Labour Organization), European companies will soon have to show compliance with environmental and human rights standards within their supply chains.

In response to mounting concerns, Europe is poised to implement stringent measures to hold corporations accountable for their supply chain practices. The forthcoming ‘Corporate Sustainability Due Diligence Directive’ heralds a new era of corporate responsibility. Large companies must conduct comprehensive audits of their supply chains, identifying and rectifying instances of forced labour and environmental degradation. Compliance will hinge on demonstrating adherence of the supply chain ecosystem to human rights and environmental standards.

The regulatory landscape is not confined to Europe alone. The UK, through initiatives like the Modern Slavery Act of 2005, has committed to fostering transparency within supply chains to eradicate all forms of worker exploitation. Moreover, further legislative reforms are on the horizon, promising a paradigm shift in corporate accountability.

How high is the risk of being penalised for suppliers’ actions?

Currently, the lack of production transparency allows non-ethical manufacturers to cut corners, giving them a competitive cost advantage that appeals to consumers. Unfortunately, many of these consumers are unaware of the wider context and end up supporting production that causes serious harm to societies and the planet.

Manufacturers can’t wait for new regulations about environmental and human rights standards in the UK. They must lead the development of digital tools for their production environments that delve into the existing supply chain data. This will demonstrate that their products are made with minimal adverse impact.

To enable this, it is crucial to make the production processes more transparent. One possible way to achieve this transparency is by leveraging augmented reality technologies, which can interpret and explain the existing complex data along supply chain echelons and incentivise the creation of new data sources.

So, in light of these developments, how can manufacturers ensure compliance with the new regulations and help uphold human rights and environmental protection?

The industrial metaverse: the foundation for a more transparent supply chain?

Recent research conducted by IfM (supported by the UKRI Made Smarter Innovation Challenge and funded via the Economic and Social Science Research Council (ESRC)-led InterAct Network) offers an extensive overview of 1,680 international studies which reveal how extended reality technologies can support UK manufacturing by demonstrating production provenance in the Industrial Metaverse.

The Metaverse is a term used to describe the merging of the physical and digital worlds. It was first introduced by Neal Stephenson in his novel Snow Crash and later popularised by Mark Zuckerberg with Meta, a social network in extended reality.

The Industrial Metaverse comprises a series of ‘snapshots of realities’ around the data on sourcing, production, and delivery of components of a manufactured product, which can be explored in augmented reality. By exploring the upstream supply chain of components leading to the product, manufacturers can identify risks and take corrective action to comply with upcoming regulations.

Deploying industrial metaverse technology in practice requires:

• access to data sources;
• software (e.g. Unity Engine);
• augmented reality headsets (e.g. Microsoft Hololens, Meta).

Although 3D virtual productions might look complex and expensive, new AI techniques such as Gaussian splatting can significantly reduce the cost of reality reproduction: a ‘reality snapshot’ can now be created by anyone using a smartphone. This means, UK manufacturers can demand the video screening of the production environment from potential suppliers at the procurement stage. This is where lower-tier suppliers are incentivised to agree to increase transparency in exchange for eligibility to sell products and services.  Decentralised databases can be used to store this information at the supply chain level. It is important to note that creating fake snapshots could lead to legal repercussions and regulatory requirements.

Case study: contrasting opaque and transparent chocolate supply chains

Agriculture is almost uniquely resistant to technological change because of the remoteness/lack of oversight/scale of sites, and it is an area desperately in need of innovation. Leading chocolate brands have long been criticised for neglecting ethical standards in cocoa procurement, and many of the brands can’t effectively enact change since the market behind wholesalers is not transparent. This situation creates a high risk potential for social injustice and modern slavery, i.e. when the wholesaler purchasing prices make cocoa sales below the point of profitability, and farmers are forced to take children out of school to work on the farm.

Industrial metaverse, established along such supply chains, can spur transparency and influence to change the status quo. As European consumers are the primary market for cocoa harvesting, they have the market power to improve conditions for farmers in West Africa. To end forced labour and enable children to access education, requires new tools that support the transparency of cocoa supply chains for consumers.

While labour and environmental abuses exist in many supply chains, shocking 60% of cocoa-growing households in Ghana’s upstream cocoa supply chain are estimated to use child labour. Ensuring manfuacturers and consumers have access to accurate information about these unethical practices is therefore an urgent issue. A famous example of good practice is the ‘Bean to bar’ Tracker, along with QR codes,  barcodes,  biological markers of specific farms and fermentation processing locations, all of which can link chocolate bars to their potential origin. By comparing the known land size of a farm and the claimed cocoa harvest from that land, we can identify if cocoa of unknown origin is blended into the batch. While such tools are currently being used internally for supply chain traceability, adding an Industrial Metaverse component can open up and showcase the evidence to consumers. Consumers will be able to witness vivid experiences demonstrating the potential impact of supporting the chosen brand. This can showcase the positive changes to society (e.g. freeing children labouring to get an education) or highlight negative practices (e.g. the realities of environmental damage or modern slavery). Such evidence can build a strong identification that by purchasing ethical brands, consumers will be supporting the continuity of ethical production practices and local communities’ upstream supply chains.

Transforming production practices in the industrial metaverse

The Industrial Metaverse will increasingly move from merely representing reality, to shaping it. By shifting demand to ethical products, manufacturers will be able to increase their production scale, reducing the cost per unit and creating a greater impetus towards sustainability.

Instead of waiting for new regulations about environmental and human rights standards to be implemented in the UK, manufacturers must lead the development of similar immersive experience prototypes to confirm the ethics of their production environments. Going beyond the food production case, electronics and automotive manufacturers can validate their production processes by establishing an industrial metaverse around their products and demanding ‘reality snapshot’ data from their supply chains. It will propagate the impact across supply chains towards reaching multiple firms worldwide and make production more transparent for consumers. Not only will that reduce risks of non-compliance with upcoming regulations, but it will also anchor consumer demand with positive societal changes along supply chains.  By doing so, manufacturers can champion Sustainable Development Goal 12: “Responsible Consumption and Production”.

What practical steps should manufacturers take from this?

1. Audit internal cost structures and visibility of operations along supply chains. Instead of aggregating costs at the wholesale level, manufacturers must enquire about the work conditions, energy sources, and potential carbon dioxide emissions through supply chain tiers.
2. Collaborate with extended reality solution providers to prototype Industrial Metaverse around their products and reveal production ethics along supply chains.
3. Analyse the integrated data and leverage alternative ways to reduce ethical risks. Communication throughout the industrial sector will help address industrial concerns about data privacy and confidentiality, leading to the industrial standard.

The IfM is currently working on developing a metaverse pilot for highly regulated sectors like aerospace, automotive, and food. These industries have very strict regulations that limit transparency. The goal is to enable a more transparent supply chain, which would contribute to the adherence of human rights and environmental protection. If you would like to collaborate with the team, contact Dr. Nikolai Kazantsev – nk622@cam.ac.uk or IfM Engage.

Acknowledgement: This work was supported by the UKRI Made Smarter Innovation Challenge and the Economic and Social Research Council via InterAct [Grant Reference ES/W007231/1]. We thank Prof Letizia Mortara, Dr Michael Rogerson and Alice Mumford for their feedback on this article.

This article draws from the InterAct report ‘Manufacturing in the Metaverse’

This article was originally published on The Manufacturer