Cluster activities bring real bottom line benefits

In many locations the benefits of business clusters have not brought the anticipated improvements expected from the guidance received from business gurus. However, in the North East of England huge bottom line benefits have been achieved by companies participating in the North East of England Process Industry Cluster (NEPIC), including the Pharmaceutical Manufacturing Units based in that region. Dr Stan Higgins, Chief Executive of NEPIC explains the theory and practicalities of building a successful business cluster.

The lack of success of many cluster initiatives arises from the lack of understanding of some basic principles. Firstly many are too narrow and too shallow. This is explained by the fact that a handful of companies manufacturing or researching for the same or similar markets do not constitute an economic cluster; this is more like a trade association as their interests are too closely related too narrowly focused for an economic cluster. In addition the lack of involvement of up stream and down stream organisations makes them too shallow to steer and create economic impact. Supply chains are and have always been at the heart of a successful economic cluster. An early European Union definition reflects this:

“Clusters are groups of inter-related industries that drive wealth creation in a region. Often they represent the entire value chain of a broadly defined industry from suppliers to end products, and are interconnected by the flow of goods and services throughout this chain.”

Interestingly the most important phrase may be “inter-related industries” this has too often been interpreted too narrowly by local development agencies and governments.

Pharmaceutical companies with bases in North East England have found that interacting with the Chemical, Polymer, Biotechnology and other process industry companies in the region, along with the many supply chain companies in engineering, logistics, process and product analytics, legal, health, safety and environmental businesses, has resulted in many business benefits.

Companies from all these sectors for example have very similar needs in the scientific and engineering training of their staff. Through working together university and vocational training provision has improved. Indeed the North East region of England became so organised and strategically aligned that it became the driving force for the establishment of a UK National Skills Academy for the Process Industry, which has been created by the UK government at the University of Teesside. This was only achieved by the collective “voice of the Industry” created through a truly engaged Cluster organisation. Clustering is ultimately about organising for the development of competitiveness and economic development with clear benefits in productivity and innovation, and the provision of skilled and focussed resources is undoubtedly a key economic success factor.

So how in fact was such an example of success achieved? It is clear from the NEPIC model that without engagement and commitment at the highest level in companies, Clusters and Trade Associations for that matter, become talking shops for industry enthusiasts. In these circumstances there is little direction and no recognition that there is any value in their work. Perhaps even more importantly engagement through a trusted intermediary body such as NEPIC has subsequently been shown to be a key success factor. The recently published work of Cluster Guru Porter of Harvard, noted that when a strong business environment is created to attract individual companies it is best achieved by a sustained agglomeration process and engagement with the top local executives. This has been at the core of the NEPIC strategy. In fact more than 120 senior executives have regularly given their input to the Cluster’s activities through specially created thrust teams, which focus on the issues that the industry leaders themselves have identified as critical to the future sustainability of their businesses.

Marketing, Communication & Networking; Growing the activity to achieve regional spread, UK and Global recognition and the involvement of all sectors.

Skills and Education; Expanding targeted activities in the adult skills and science education to deliver a better trained workforce across all sectors.

GDP Growth and Investment; Focusing regional resources to increase investment opportunities and indigenous growth.

Trade Growth; Establishing a greater understanding of region, industry and company capability enabling companies to find and fulfill new business opportunities.

Innovation, Research and Development; Creating Collaborative mechanisms to build projects between industrial and academic partners.

Manufacturing & Productivity; Leveraging regional providers to drive performance and take up improvement programs.

The value of the trusted intermediary is particularly clear in the area of productivity and efficiency improvement. How can companies understand what world-class manufacturing or other business processes look like without interacting externally? Harvard’s Porter is clear on this and urges that they must overcome the tendency to view productivity improvements coming from internal innovation. This is where NEPIC and its members have made outstanding strides by interacting across a wider cluster base, looking for best practice even beyond the obviously related industries.

One of the main advantages of manufacturing pharmaceuticals in the North East of England is region that this is one of the world’s leading locations for lean manufacturing, as applied within and beyond the conventional automotive and engineering fields. NISSAN has their only European Car Manufacturing facility based at Sunderland and this has repeatedly won the accolade of Europe’s most productive car manufacturing plant. The plant has also attracted over 100 Japanese and supply chain companies of other nationalities to the region. This injection of “know-how” on productive working techniques has lead to the formation of the North East Productivity Alliance (NEPA) through which lean manufacturing techniques have been injected and developed in both traditional and new industry sectors.

This focus on productivity has resulted in the region’s Pharmaceutical facilities becoming some of the most productive units in the world. Companies such as GlaxoSmithKline, sanofi-aventis, Merck Sharp & Dohme, SSL International, Nicholas Piramal, Aesica Pharmaceuticals and Avecia are among those to have benefited from applying continuous improvement techniques introduced by NEPIC and its partners.

Very significant productivity & performance improvements have been reported by the companies that have tapped into this regional expertise. This includes 30% reduction in product changeover times, additional capacity created with over 50 more batches produced in a year, overall operational efficiency increasing from 45% to 70%, a 50% reduction in cycle times on key products, 20% increase in batch size, 14% reduction in total tablet cost, tablets per employee increasing by 14%. All of these improvements were achieved within a few months of the initial intervention. One company has reported that they were able to capture two new “blockbuster” products in their existing processing equipment with little or no additional capital investment.

An independent review of NEPIC’s work on behalf of the Regions Economic Development Agency said “Overall, our conclusion is that NEPIC has made a strong and invaluable contribution to the continuing success of the process industries in North East England, to an extent well beyond what could have been achieved in the absence of such an organisation or by private sector initiative alone. It represents excellent value for the core public funds invested in it to date.” The Cluster has been credited with generating almost £200m of Gross Added Value for the local economy including attracting more than 10 businesses to the region, influencing 1500 job decisions and some very significant bottom line savings from more than 30 companies.

As the Harvard Cluster Group point out that to be successful there must be a context for a strategic Cluster intervention and that they can be successfully achieved even when rivalry is present. Clusters are most effective when there are external demands and business conditions that impact across sectors. They can be particularly successful when related and supporting industries are present which will widen the economic and social impact. This is very much the case within NEPIC where companies from a spectrum of life science based businesses – chemicals, pharmaceuticals and biotechnology – are working so closely together

If companies are to create a successful cluster, Dr Higgins agrees, then companies must be brave, broaden their perspective and agenda to the upgrading of all relevant parts of their business, companies certainly must become more outward facing to remove internal bottlenecks. Engagement through a Cluster organisation built on the growing of trust and shared information can be the platform through which private and public organisations can address the industrial needs of companies in a sector like Pharmaceuticals.

For further information relating to NEPIC, the North East of England Process Industry or clustering activities, please visit www.nepic.co.uk, e-mail enquiries@nepic.co.uk or alternatively call +44(0)1642 442560.