manufacturing Insight Autumn 2016
Future of Manufacturing:
The emerging legal challenges
Winter 2016
02
Future of Manufacturing: the emerging legal challenges
Contents
04 Introduction
05 Smart manufacturing: the opportunities and challenges
07 Industry Perspectives
Professor Janet Godsell, WMG, University of Warwick
The growing potential of technology to transform supply chains
10 The rise of the Internet of Things: an opportunity
to revolutionise manufacturing
­
12
Managing IP issues: a challenge for manufacturers
in the age of 3D printing
15 Industry Perspectives
Rick Smith, CloudDDM
3D printing in action
16 Robotics in manufacturing: l­ egal, contractual and ethical issues
19 Industry Perspectives
­
Henry Harris-Burland, Starship Technologies
Using connected technologies to solve the last mile problem
21
Future business models: products as a service
23 Collaboration in manufacturing: new contract models
26 Industry Perspectives
Martin Starkey, Ricardo
Niche manufacturing will remain a key strength for the UK
28 S
­ mart environment opportunities for a demand-led
supply chain
­ 30
The potential for generating energy from heat and waste
­ 33
The Brexit silver lining for manufacturing
03
Introduction
The manufacturing sector is undergoing profound
technological transformation which is creating many
new opportunities and legal challenges.
Manufacturers that
adopt a ‘productas-a-service’
approach to their
operations can
develop stronger,
more direct
relationships.
04
The way we use our cities is changing.
Communities are demanding more real time
information, and innovative products and
services in the areas where we live, work
and play. The way we use our homes is also
changing. The Internet of Things (IoT) is
empowering people to connect to, and control,
everyday items in their homes. The on-going
challenge for manufacturers is to understand
how communities and citizens use, or could in
future use, their cities, homes and products.
However, manufacturers need to consider
how these changes affect issues such as
their ownership, management and licensing
of intellectual property, as well as their
exposure to product liability risk. Those
companies with a clear focus on the detail
of contracts, risk management and the legal
frameworks for this new connected world
could enhance their manufacturing processes
and create new products better aligned to the
needs of customers.
Ever increasing technological advancements
are resulting in significant change and
revolutionary innovations to the way that the
industry designs and manufactures products,
as well as their end use. The emergence and
convergence of complex new materials,
processes and technologies – such as the IoT,
automation and robotics, big data analytics,
3D printing and energy management – are
shaping the economics of production and
distribution within the sector.
In this edition our lawyers across Europe
consider some of the key issues, together
with the regulatory and legal implications,
that the major innovations and revolutionary
approaches will bring, to help those in the
manufacturing sector navigate through a fast
changing technological revolution.
Smart environments increase the data
available to manufacturers enabling them
to collaborate with their supply chain and
the latest digital technologies provide
opportunities for new business models and for
manufacturers to provide a complete end-toend service to consumers. Manufacturers that
adopt a ‘product-as-a-service’ approach to
their operations can develop stronger, more
direct relationships with customers.
We are fortunate to have further insight
from Ricardo, CloudDDM, Starship
Technologies and Warwick Manufacturing
Group. We are very grateful for all of their
contributions and insights.
We hope you enjoy this edition.
Nicole Livesey
Head of Advanced Manufacturing
Nicole Livesey
Partner
Increased productivity
Sell direct to customers
Personalisation
New products &
revenue streams
Future of Manufacturing: the emerging legal challenges
The opportunities of
smart manufacturing
Smart manufacturing: the
opportunities and challenges
The new era of ‘smart’ manufacturing offers manufacturers the
chance to improve productivity, personalise products and explore
new business models. These could include service-led revenue
streams or the opportunity to sell products directly to consumers.
However, manufacturers that do not act
quickly to embrace new technologies run
the risk of missing out on those benefits to
nimble new entrants to the market.
Opportunities
Smart manufacturing gives businesses the
opportunity to create new uses for products
or develop new revenue streams.
For example, earlier this year car
manufacturer Nissan entered the energy
market after identifying a potential use for
its LEAF batteries in a new energy storage
system. This enables consumers to sell
energy generated by their electric vehicle
back to the grid.
Manufacturers are also using technology to
enhance service revenue streams. Worcester
Bosch has developed an internet connected
boiler that is able to predict faults and
service requirements. This ensures
Worcester Bosch gets the servicing and
maintenance work but also enhances the
customer experience.
In an increasingly technology driven world
consumers are also demanding greater
personalisation. The smart environment
means direct feedback on usage helps
manufacturers develop more personalised
products. Improvements in information and
communications technology, consumer
responsiveness, automation and additive
manufacturing are all increasing the
opportunity for manufacturers to develop
low cost mass personalisation and
customisation of products.
Direct feedback
on usage helps
manufacturers
develop more
personalised
products.
Where manufacturers have a responsive
manufacturing process it will allow the
chance to sell directly to consumers. For
example, 3D printing technology might
allow manufacturers to licence their
products for printing and use by consumers
directly, opening up new sales channels
that avoid costs in making and distributing
physical products for sale via retailers.
Creating a network of factory systems,
equipment and machines, supporting
machine-to-machine communications,
can also help manufacturers optimise
their production processes. Those smart
factories would capture and utilise data to
inform changes to processes and logistics
to make them more efficient, as well as
new orders from suppliers. It is believed
that smart factories could boost UK
productivity by up to 30%.
Continued on next page >
05
> Continued from previous page
Data &
Security
Business
models
Challenges raised by smart manufacturing
Operations
Challenges
Business models
Manufacturers face threats from digital disruptors
that are often quicker to adapt traditional
products and exploit new opportunities through
the latest technology. This will drive the need to
look at new business models quickly.
Smart
manufacturing
systems and the
data they generate
might also be
targets for cyber
attacks.
In financial services, for example,
consumers’ increasing use of mobile devices,
together with advances in technology, have
helped new digital disruptors compete with
major financial institutions for a share of the
market in areas such as payments and lending.
Manufacturers need to invest and act fast to
avoid this.
Manufacturers also face a challenge in identifying
where they can make money. There might be
‘smart services’, such as maintenance or repair
work, product enhancement or customisation
that manufacturers can offer customers as a
result of the insights they can glean from data
from smart products. They must work out
what customers are willing to pay extra for and
determine what they expect to be provided as
part of the manufacturers’ core offering.
Data and security
Smart manufacturing is heavily reliant on
technology and data which brings with it
the challenges of protecting that data and
ensuring it is secure.
Operations
Manufacturers will also need to be agile
in their operations. Delivering truly smart
manufacturing will be dependent on
manufacturers responding more quickly to
update their technology. In the smartphone
market, for example, iPhone customers
receive updates at least monthly. In contrast,
traditional manufactured products may only go
through yearly or longer update cycles.
Connecting different systems together to get
an end-to-end picture of the manufacturing
process, supply chain and way products are
used is a further challenge. The systems and
networks used must be interoperable. Technical
standards are required to be driven at national
and international level to help achieve this.
Increased connectivity could also expose
manufacturers to different laws and
regulations than they would traditionally
expect to be subject to.
It is important that manufacturers communicate
clearly the value to customers in agreeing to
share their data so that they can obtain the
necessary consents in advance to use the data
and improve their products and services.
For example, in the context of connected and
driverless vehicles, where cars themselves
are becoming devices capable of transmitting
and receiving data over communications
networks, original equipment manufacturers
might find themselves coming within
the scope of telecoms laws. There is a
role for telecoms companies to partner
with manufacturers to help them deliver
connectivity whilst taking on the regulatory
burdens specific to their industry.
Smart manufacturing systems and the data they
generate might also be targets for cyber attacks.
It is a challenge for manufacturers to ensure
that each component part of their connected
All this underlines that while the market is
moving fast, manufacturers need to plan and
manage the challenges in order to seize the
opportunities that smart manufacturing presents.
Manufacturers must operate within the tight
constraints of data protection legislation or risk
financial penalties and reputational damage
commonly associated with failings
in data privacy.
06
network of machines, products and systems
is secure. Putting in place and testing a cyber
incident response plan is becoming increasingly
important for all businesses.
Future of Manufacturing: the emerging legal challenges
Industry Perspectives
Professor Janet Godsell, WMG, University of Warwick
The growing potential of technology
to transform supply chains
Technology is nothing new in supply chains.
Large multinationals have been investing
significant amounts in Enterprise Resource
Planning (ERP) systems for the past twenty
years, with the last ten seeing a major
focus on big single global installations.
This reflected their clear business objective
of securing and using data to improve
the management of their processes and
supply chains. However, these systems
have not always produced the detailed and
accurate data that is needed to drive real
transformation.
That is now changing as Industry 4.0
begins to become a reality. We are seeing
real integration between the physical and
cyber worlds with effective, accessible and
affordable connectivity between them. In
particular, the development of cloud systems
and new analytic tools that can be overlaid
onto ERP have made it much easier to extract
useful data. These developments have also
enabled smaller companies to get access to
advanced data management without the
expense of ERP. This means the promise of big
data is now being realised and is allowing the
Continued on next page>
07
> Continued from previous page
whole supply chain to make decisions in a
more data driven way.
New analytic
solutions are
making it possible
to get truly precise
information.
We can see this clearly in the progress
towards truly demand driven supply
chains. This has been an objective for many
companies for some time but it has proved
difficult to deliver in practice because it
needs really precise data at an item by
item level. Yet traditional systems have
not been able to provide that level of detail
in a reliable way. However, new analytic
solutions are making it possible to get
truly precise information which allows all
those involved to adopt a demand driven
approach. These solutions are available
now, are beginning to be implemented and
are bringing benefits.
It is clear that new technology will affect
different supply chains in different ways
and to different extents. Some businesses
will benefit from faster time to market
or improved accuracy enabled by greater
visibility across the whole chain but for
others these will not be critical factors.
For all of them, the key advantage of
connected technology lies in the way it
can enable greater flexibility. So a car
manufacturer like Audi or a fast food outlet
like McDonalds will have a fairly standard
supply chain with predictable demand but,
at certain times, will need that supply chain
to be able to respond when they have a
particular promotion. This is where more
connected technology will enable supply
chains to link more closely to the business
strategy and its competitive priorities and
respond quickly to any changes.
This level of sophistication used to require
big investment in complex systems
but, what is driving change now is that
08
it is available much more widely and
much more cheaply. This is enabling the
emergence of entirely new business models
such as market mediators like Uber and
Airbnb. They provide a platform which
exposes previously hidden demand and
hidden supply and brings them together,
dramatically changing the dynamics and
relationships within these markets.
This market mediator approach could also
be applied to more traditional industries
such as aerospace. In this sector, it is not
always clear where the expertise lies and
the potential of SMEs as suppliers is often
hidden, so a platform that brought demand
and supply together could diversify and
improve the supply chain.
There is clearly an opportunity to create
these kinds of platforms in the UK and they
could play a key role in strengthening fragile
supply chains in critical areas. However, this
does raise legal and contractual questions
about who would be responsible for
developing the platforms and managing the
relationships created by it.
Another key change being brought by
connected technology lies in the greater
visibility it enables across the whole
supply chain. Clearly in an environment
where multi-nationals are under ever
increasing scrutiny that visibility is critical,
especially if activity is being outsourced.
Knowing what is happening in every part
of the supply chain should help to drive up
standards and reduce reputational risk.
It can also help by picking up problems at
an early stage. Issues in supply chains or
customer service can often take some time
to be noticed whereas a totally data driven
Future of Manufacturing: the emerging legal challenges
This market mediator
approach could also
be applied to more
traditional industries
such as aerospace.
supply chain or process should be able to
highlight immediately if there are issues in
areas such as delivery or billing.
All this should be leading those involved to
think more carefully about the relationships
they have with suppliers and how they
are managed and how they might be
changing. Of course, for many companies,
traditional contractual arrangements
will remain appropriate. However, even
they should still be exploring how these
can use the greater availability of data to
make these contracts more efficient. That
might be through greater flexibility, more
collaboration or longer term contracts.
In some areas, there will be a need to
develop completely different types
of contracts and relationships. From
autonomous cars to servitisation models,
we are seeing manufacturers having to
deal with great uncertainty about where
they will secure the value from their future
products. We are likely to see entirely new
ways of contracting in some future supply
chains and that will present real challenges.
In particular, it will be vital to involve
legal counsel from the very start when
the company is developing new business
models. That will allow them to advise
on risks and vulnerabilities as well as the
options available to protect the value of
the asset in this new world. The traditional
approach of bringing in legal advisers when
the key business decisions have already
been taken will no longer work in this very
different world.
It is clear that connected technology is driving
change in supply chains and we are beginning to
realise the promise of truly data driven decision
making. It is equally clear is that this is only the
start and that there is great potential for further
developments that will increase the strength
and efficiency of those supply chains further.
09
The rise of the Internet of Things:
an opportunity to revolutionise
manufacturing
Manufacturers that successfully manage legal risks arising from the ‘Internet
of Things’ (IoT) can enhance their manufacturing processes and create new
products better aligned to the needs of customers.
However, research reveals that many manufacturers
are unprepared to harness the potential of the IoT and
address the legal and commercial challenges raised by
the increased connectivity it will bring.
We could see dramatic change from smart
manufacturing in the next three to four years and
manufacturers, especially those with a number of large
sites, need to be prepared. Companies without the clear
focus on the detail of contracts, risk management and
legal frameworks for this new connected world will find
their ability to develop hampered, and face a very real
risk of being overtaken by their competitors.
Smart manufacturing made possible
through connectivity of devices
The IoT promises a revolution in manufacturing.
Machines and equipment in production plants will
become devices capable of transmitting and receiving
data over communications networks and will be able
to link with existing systems and even those
belonging to suppliers.
In practice it will mean manufacturers will be able
to better monitor how machines and employees are
performing and make adjustments to processes to
improve logistics and other operational efficiencies.
It will also let manufacturers better anticipate machine
faults and plan maintenance programmes.
10
their demand chain”, utilising machine-to-machine
(M2M) technologies.
“If an enterprise is connecting the assets it creates,
it can gain powerful insights into its customers,
business processes, distributors, maintenance
requirements, product warranties and much more,”
Bosch said.
The economic potential of the IoT to the manufacturing
sector is enormous. McKinsey has estimated2 that
the IoT could deliver economic benefits of between
$1.2 and $3.7 trillion a year for factories by 2025, for
example, through improvements to workflows and the
ability to engage in “predictive maintenance”.
However, not all manufacturers appear to be planning
to adapt to the IoT age.
According to a 2015 survey of 350 manufacturers
in the US by The MPI Group, 64% of manufacturers
believe the IoT will have some, or a significant, impact
on their business. However, more than two thirds
of those businesses admitted to having either no or
limited understanding of the IoT and few said they
have a dedicated IoT strategy in place.
Products themselves will become connected
devices too, capable of informing manufacturers
about the way their goods are used and shaping future
enhancements, customised offerings and more
service-led opportunities.
The survey3, which was sponsored by Rockwell
Automation, QAD and BDO, found that 34% of
manufacturers have no plans to develop a strategy
for applying IoT technologies in their processes. Just
11% of manufacturers have such a strategy in place
and have implemented that strategy. Most of the
respondents said they plan to develop a strategy or
have done so already but just not implemented it.
According to Bosch1, “the next paradigm shift
in manufacturing” will stem from “connecting
manufacturing operations across the value chain”.
It said manufacturers “will not only need to connect
their plant equipment and supply chain, but also
Similarly, just 12% of manufacturers surveyed said
they have implemented a strategy for embedding
IoT technologies in their products, while 37% of
respondents signalled they have no plans to develop
such a strategy.
Future of Manufacturing: the emerging legal challenges
Risks will be harder to control and manage.
They may also be harder to insure.
Legal implications of the IoT for manufacturers
An increasingly interconnected manufacturing process
might alter the way risk and liability is accounted for.
For example, if data is not transmitted on time or is
incorrect it might cause consequent failures in products.
The question arises as to who would be responsible for
that failure, as it might be a fault with supplier software,
hardware, the telecommunications network or potentially
the way the product is used. Accordingly, traditional
contracting models will need to be reviewed and
manufacturers will need to ensure that their contractual
arrangements with all elements in their supply chain are
clear and robust enough to allow for liability to be passed
back in the event of these failures.
Risks will be harder to control and manage. They may
also be harder to insure, not least because the insurance
industry has not yet fully developed its own response to
the IoT. It might be that small technology suppliers are
required to take on the risk of the manufacturing process
and the damages in case of interruptions and outages
under contracts with manufacturers.
The proliferation of data in the new interconnected world
will also subject manufacturers to potential new data
privacy risks.
As there is so much data being generated and ever-more
powerful analytics tools available for organising and
reviewing the information, there is a risk that data that
might not be immediately obvious as personal data may
nevertheless fall subject to data protection rules.
In 2014 data protection authorities (DPAs) from across
the world signed a declaration in which they said that data
generated by devices in the IoT age should be “regarded
and treated as personal data”. The watchdogs said it is
“more likely than not” that such data can be attributed
to individuals.
Where businesses process personal data they are subject
to data protection laws. Manufacturers could therefore
find themselves having to implement new privacy policies
and ensure they process IoT data fairly, potentially with
customer consent, and that they put in place security
measures to ensure the data cannot be read and used by
those not authorised to access it.
Among the other issues that smart manufacturing will
raise include potential health and safety law issues
stemming from the anticipated rise in use of robotics in
interaction with human employees. Robot workers might
take on some functionality performed by people currently.
It will therefore be important for manufacturers to comply
with employment law if looking to automate processes
and cut labour costs.
It is perhaps easy for manufacturers to see the potential
in a more connected manufacturing world and be focused
on acquiring the technology and skills to adapt to the
opportunities. However, it is vital that manufacturers
understand their legal and regulatory obligations to be
able to take advantage of the changes in the sector.
Addressing changes to positions of risk and liability,
new data privacy and security issues, protection of
intellectual property, health and safety compliance and
the demands of employment law is an urgent issue for
any manufacturer that wants to succeed in the new
interconnected world of the IoT.
1 https://www.bosch-si.com/media/bosch_software_innovations/documents/
white_paper/manufacturing_3/20140901_bosch_software_innovations_
connectedmanufacturing_white_paper_final.pdf
2 http://www.mckinsey.com/business-functions/business-technology/ourinsights/the-internet-of-things-the-value-of-digitizing-the-physical-world
3 http://mpi-group.com/wp-content/uploads/2016/01/IoT-Summary2016.pdf
11
Managing IP issues: a challenge
for manufacturers in the age
of 3D printing
3D printing technology gives manufacturers the opportunity
to revolutionise their existing business model provided that
intellectual property (IP) rights challenges are met.
3D printing has
the potential to
reduce waste
and energy
consumption.
Rather than design and then make the
products themselves before selling them on
to retailers, 3D printing technology enables
manufacturers to license the use of their
designs to others, placing the task of ‘making’
the products with those that have access to
the necessary materials and 3D printers.
However, regardless of the business model
manufacturers adopt, it is important they
know how to manage, and if necessary
enforce, their IP rights.
What is 3D printing?
3D printers offer a form of additive
manufacturing using designated materials
which are printed out layer upon layer to
display a finished 3D object. The printers can
be programmed to accommodate different
designs. The 3D printing process can be
distinguished from traditional subtractive
manufacturing processes where raw
material is cut and shaped until the desired
object remains. In this context, 3D printing
has the potential to reduce waste and
energy consumption in manufacturing, as
well as cut labour and raw materials costs.
12
The use of 3D printing
3D printing technology is advancing at
such a rate that it can now be used to
create, or reproduce, virtually any 3D
object. For example, BBC News reported
that a smuggled toucan which was found
with a part of its beak broken off had been
given a new 3D-printed beak.
3D-printed prosthetics for use by people
have also been commonly reported, as
healthcare professionals have pushed the
technology’s boundaries to create customfit medical devices for patients. 3D printing
is revolutionising healthcare as engineers
and physicians are together able to develop
prosthetics fully customised to the wearer.
An example of 3D-printed prosthetics
was highlighted with the news that Open
Robotics had won the James Dyson Award,
a prestigious engineering prize. Open
Robotics creates personalised 3D-printed
robotic limbs for amputees and claims
to be able to do so faster and cheaper
than can be produced using conventional
manufacturing methods.
s in
marks
ff
Cop
y
a
Tr
de
IP
IPPORTFOLIO
PORTFOLIO
TFOLIO
R
O
P
IP
Similarly Lego has obtained a patent that
may prevent others from 3D printing
Lego bricks without its consent. The
patent gives the company the opportunity
to offer consumers the chance to print
their own Lego bricks in future under a
new licensing model.
There has already been a push towards
greater “servitisation” in manufacturing
– where manufacturers offer services to
complement the goods they produce
– and this has allowed manufacturers
to personalise the products they make
for customers. With 3D printing,
manufacturers can provide customers with
personalised designs to print themselves.
Nokia announced in 2013 that it was
making 3D printable files available to
allow consumers to create their own
phone cover designs and print them off
on 3D printers. Following a similar model
requires manufacturers to think about
licensing and how they control and, if
necessary, enforce their IP rights.
s
Major brands have also been exploring the
opportunities of 3D printing. Amazon, for
example, has applied for patent protection
for the use of mobile 3D printers which
would allow it to print products at
the point of, or en-route to, delivery,
potentially transforming how it manages
stock and other logistics.
IP issues in 3D printing
It is clear that many manufacturers are
embracing the many benefits the 3D
printing revolution is bringing and are
developing new business models which
allow others the freedom to 3D print their
products, whilst returning revenue through
appropriate licensing models. Those who
are able to adapt and change their business
models in this way are likely to benefit
from the increasing revenues available
from the licensing of their IP rights but
legal pitfalls need to be considered.
ht
In August 2015, the US Food and
Drug Administration in the US gave a
pharmaceutical company regulatory
clearance to produce a new drug using
3D printing technology for the first
time, further highlighting the potential
of the technology, to radically alter
manufacturing.
ri g
Design rig
go
ht
Pa
s
Future of Manufacturing: the emerging legal challenges
Pa t e n t s
Copyright
Copyright can exist, for example, in images
and designs that are printed on the surface of
products, or in the software used to operate
3D printers or to create CAD designs.
Copyright might also exist in the blueprints
used for creating 3D objects and in some
3D products themselves, which are
regarded as sculptures or works of artistic
craftsmanship. Copyright will not protect
the design of functional objects.
Copyright law broadly provides protection
against unauthorised copying, distribution
or adaptation of copyright works. In
the 3D printing context, third party
printing services will need a licence to use
copyright-protected blueprints to print and
distribute 3D objects, or to copy and make
available to the public 3D objects that have
copyrighted images or designs on them.
Design Rights
3D printing also raises potential design
rights issues. Many everyday items are
protected by registered or unregistered
designs, but the increasing affordability of
3D scanners and 3D printers has increased
Third party printing
services will need
a licence to use
copyright-protected
blueprints.
Continued on next page>
13
Facilitating IP infringement
can itself be an act of
infringement.
> Continued from previous page
the potential for off-the-shelf products
to be copied and reproduced. This has the
potential to infringe either registered or
unregistered design rights of designers, as
well as their copyright in those designs.
The commercial reproduction of products or
objects by 3D printing could well amount to
design right infringement. Private copying
of designs for non-commercial purposes
is permitted, but if those people then sell
those printed items to others this is an act
of infringement. Design rights might also be
infringed where spare parts for products are
created using 3D printing.
3D trade marks may be
registered to protect
the shape of products.
14
Patents
Patent protection can apply to both 3D
printers and 3D-printed products. A major
reason why 3D printing is on the rise is
because the cost of 3D printing is falling,
and this can be traced to the expiration
of the first batch of patents covering 3D
printers. There is a new generation of patent
applications now being filed aimed both at
broader usage of 3D printing, for example
Amazon’s mobile 3D printer delivery
vehicles, and at the protection of the 3D
printing of products, such as Lego’s patent
for the 3D printing of plastic on Lego block
bases, which have already been moulded.
Replacement parts are particularly
susceptible to production by 3D printing
and can, on their own or when combined
with other parts to make up a product,
be patent protected. In some cases,
however, replacement of a part of a
patented product will qualify as a ‘repair’
of that product and so 3D printing that
replacement part would not constitute an
act of patent infringement.
Many activities do qualify as patent
infringement. Patents can be infringed
by selling, importing, using, offering for
disposal or disposal of and even storing
a patented product, any of which might
apply in the context of 3D printing.
Trade marks
Scanning products with a trade mark
on it could also amount to trade mark
infringement, as will going on to 3D print
a product with that trade mark on it.
Additionally, shape or 3D trade marks
may be registered to protect the shape of
products where such shape has acquired
distinctive character so long as the shape
does not relate to a technical solution or
functional characteristic. The 3D printing
of such products may amount to trade
mark infringement.
Passing off
Equally, businesses that 3D print products
that are associated with other businesses
and which have acquired goodwill, could be
liable for passing off.
Manufacturers, designers, other owners
of IP rights and those involved with 3D
printing need to be aware of the way IP
rights are created, protected and infringed,
and what remedies are available when they
are enforced. Facilitating IP infringement
can itself be an act of infringement.
3D printer manufacturers that issue
disclaimers discouraging the use of their
machines for infringing purposes might
have a defence to infringement. Due to the
global nature of manufacturing, different
legal frameworks and therefore rules and
remedies could apply.
Future of Manufacturing: the emerging legal challenges
Industry Perspectives
Rick Smith, CloudDDM
3D printing in action
How CloudDDM is changing the business of manufacturing
Established in May 2015, CloudDDM operates a 3D
printing factory inside UPS’ international hub in Kentucky,
USA. The company’s fully-automated facility operates
100 high specification 3D printers around the clock
to provide high quality parts for corporate customers,
meeting the most demanding timescales.
One of its founders, Rick Smith, explains the background
to its creation and unique business model, saying that:
“We felt consumer 3D printing was overhyped but really
interesting things were happening on the industrial
side, presenting an opportunity for a new operation to
enter the market and realise the full potential of 3D in
manufacturing.”
Up until that point, most industrial 3D printing had
been focused on supplying prototypes but CloudDDM
wanted to create a true manufacturing operation which
would give customers the real benefits of 3D and allow
them to transform their supply chain. As Rick explains,
the ultimate goal is to “enable zero inventory”, where
manufacturers can request a part when and where
they need it, giving them all the benefits of a physical
inventory without the costs.
Another central advantage CloudDDM offers industrial
customers is the ability to innovate without risk. For
manufacturers developing new products in traditional
ways requires a significant investment and considerable
risk. 3D printing transforms those dynamics by enabling
small numbers of parts or products to be manufactured
on demand without having to invest in expensive new
production lines. A further benefit lies in the possibility
of reusing parts and products for new purposes, realising
the promise of circular manufacturing and all the
sustainability and cost benefits that can bring.
Customisation too has long been talked about and is now
being made a reality by 3D printing operations. The service
offered by CloudDDM, where a manufacturer can send a
3D image online and have the product within as little as
24 hours, opens up sophisticated high margin markets
where businesses can provide their customers with truly
individualised products.
Rick acknowledges that there are still challenges around
“getting the right machines, and sorting out cost and
speed so the business case really stacks up.” However, he
sees this as an opportunity too as “first movers get to see
the problems first, but then get to fix them first.”
While 3D printing in the industrial context is still in an
experimentation phase, things are moving fast and Rick
believes that “2017 will be an inflection point. New
printers are coming on line, and they will bring a big
change by being able to link into ERP systems instead of
requiring one off orders. In that way 3D can become part
of normal business processes. All these developments
mean that, by 2018-19, there is likely to be widespread
adoption across manufacturing.”
CloudDDM’s experience shows that 3D is on the agenda
of most manufacturers. They are recognising its potential
to drive fundamental changes to business models and
company leaders are now asking the detailed questions
about how they can get started, and how they can use
3D to transform what they do: from supply chain, to
innovation to customisation.
15
Robotics in manufacturing:
legal, contractual and ethical issues
The anticipated rise in the use of robots will force manufacturers to
rethink contracts with technology suppliers to ensure risks stemming
from their use can be passed on.
A rise in the
number of robots
in operation might
prompt social and
ethical dilemmas.
The number of robots in industrial
operations across the world is forecast to
increase in the coming years and, between
2015 and 2018, it is estimated that about
1.3 million new industrial robots will be
installed in factories around the world4.
The integration of robots into production
processes will impact on traditional liability
arrangements and raise a range of other
legal issues for manufacturers to consider,
including in relation to health and safety
and data protection.
A rise in the number of robots in
operation might also prompt social and
ethical dilemmas which might impact on
manufacturers. Policy makers have an
important role to play in helping businesses
navigate those issues.
The rise of robots
The cost of employing people is
increasing. In the UK, minimum wage
legislation continues to push up labour
costs for businesses. Those rising costs
are prompting companies, including
16
manufacturers, to look at how technology
can provide a more cost effective way of
producing goods or delivering services.
Although robots are not cheap, advances in
technology mean they are becoming more
affordable, as well as more accurate and
reliable than ever before.
Researchers at Sheffield University earlier
this year described how they had “applied
an automated programming method” to
simultaneously control up to 600 robots
and get them to carry out different tasks in
a coordinated fashion5.
The researchers claimed that their testing
showed potential to reduce human error in
conducting “relatively complex tasks” and
said they intend to look further into how
a group of robots can work collaboratively
with people.
Robots and the legal environment
Rapid changes in technology, including
in robotics, is forcing existing legal
frameworks to be interpreted in ways
Future of Manufacturing: the emerging legal challenges
Manufacturers are looking
into using the latest digital
technologies to help vehicles
run with only minimal or no
human input.
which may not reflect their original
intention and purpose. The interaction
between robots and people brings about
new legal considerations in respect
of health and safety regulations, data
protection law compliance and the
apportioning of risk and liability.
Liability
Traditionally, when something has gone
wrong with manufacturing machinery
it could generally be traced to either a
defect in the machine itself or to it being
incorrectly operated. However, faults
with modern machines, such as robots,
might stem from a number of different
contributing factors.
For example, it could be an issue with
the machine, the hardware or software
which forms a part of the machine, or the
telecommunications which allow machines
within the factory to communicate with
one another.
One of the best examples of how
technology might change issues of liability
can be found in the context of driverless
cars. Manufacturers are looking into
using the latest digital technologies to
help vehicles run with only minimal or no
human input. In those circumstances a
number of different stakeholders could be
liable for an accident.
The need for robust contracts
It is important for those using robotic
production lines, heavily reliant on a number
of different technologies, to ensure that they
have contractual arrangements in place with
each machine or technology supplier. This
will assist the manufacturer in being able to
apportion liability and pass back any losses or
costs which they incur as a result of any failures
or outages. This could range from anything
from personal injury of an employee to line
stoppages resulting in damages being levied on
the manufacturer by its own customers.
With this in mind, as manufacturing facilities
become more reliant on technology and
connectivity, manufacturers should ensure
that they have robust business continuity
and disaster recovery plans in place to
reduce the adverse impact of outages and
failures. Again, such a requirement should be
built into the manufacturer’s contracts with
its machinery and technology suppliers, and
such plans should be tested and updated on
a regular basis.
Other legal considerations
Manufacturers will also have to consider
how factory floor operations might raise
compliance issues under data protection laws.
4 http://www.ifr.org/industrial-robots/statistics/
5h
ttps://www.sheffield.ac.uk/faculty/engineering/news/
prog-robots-1.553813
Continued on next page >
17
> Continued from previous page
There will be increasing calls to put in place regulatory frameworks
expressly drafted with robot technology in mind.
As robotic technology develops, any
information a robot captures about
employees, for example through a camera,
microphone, or sensor, might be considered
personal data and subject to data
protection laws. Employees will need to be
informed of this potential data collection
and processing and manufacturers will
need to ensure that any personal data
captured by a robot is processed in a way
which accords with relevant privacy rules.
Deploying robots in amongst a human
workforce will also engage issues of health
and safety. Recent changes to sentencing
guidelines in the UK mean that large
companies can anticipate heavy financial
penalties if they are convicted of serious
breaches of health and safety laws.
Manufacturers must therefore ensure that
necessary policies and procedures are in place
to manage how humans and robots interact.
Manufacturers will also have to be mindful
of their duties under employment laws if
they seek to replace human workers with
robots. Those obligations include giving
appropriate notice and consultation on
redundancies. They will also want to ensure
they manage the transition in a way that
does not bring about any negative publicity.
Electronic business Foxxconn, a supplier
to companies such as Apple and Samsung,
has reportedly replaced 60,000 of its own
staff with robots6.
Ethical and sociological issues
The displacement of the human workforce
by robots raises broader ethical and
sociological issues too. There is a risk, for
example, that increased automation will
lead to mass unemployment and raise a
multitude of social and economic issues
that policy makers will have to grapple
with. These might range from accounting
for potentially lower tax revenues and
higher levels of dependency on statefunded welfare, to incentivising training
and development in highly skilled roles
only people can fulfil.
As adoption and use of the technology
becomes more common, there will be
increasing calls to put in place regulatory
frameworks expressly drafted with robot
technology in mind. Those frameworks
will need to strike a balance between
allowing technology to develop and thrive
and ensuring that humans and personal
property are adequately protected.
The speed of innovation will remain an
issue for law makers. However, we have
seen how the development and use of
drones and the forthcoming testing of
driverless cars have outpaced existing
regulations, leaving ‘grey areas’ where it is
difficult to interpret when and how such
regulations should be applied.
6 http://www.bbc.co.uk/news/technology-36376966
18
Future of Manufacturing: the emerging legal challenges
Industry Perspectives
Henry Harris-Burland, Starship Technologies
Using connected technologies
to solve the last mile problem
One of the most significant benefits of connected technology is the way
it is enabling new products and services to be developed that solve some
of the most long standing and intractable business problems.
One of these is the last mile problem, the
final element in the delivery of goods to the
customer. This is a notoriously inefficient
and costly requirement for suppliers and the
problem is only getting worse as we order
more and more goods online. As well as a
business challenge, the growth of home
deliveries has created problems of congestion
and environmental impact in cities as more
and more delivery vehicles are on the road.
The founders of Starship Technologies
recognised that new technology presented
a real opportunity to tackle this last mile
problem. The company has created an
autonomous robot that can deliver to an
individual door, reducing costs, increasing
efficiency and making truly on demand
ordering an affordable reality. It will be used
in urban areas covering a two to three mile
radius, and with clear potential to be used
across parcel, grocery and food delivery.
The robot, equipped with GPS and computer
vision, can travel along pavements at 6km/h
to autonomously deliver parcels weighing up
to 10kg. As Henry Harris-Burland, Starship’s
marketing manager, says: “The advantage of
the robot is that it uses currently available
technology, proprietary mapping software and
its sensors have the ability to integrate with
pedestrians to make it a safe and efficient
option. And because we have built in the
ability for a human operator to intervene at
any point in the journey, we can deal with any
problems quickly.”
The way the service will work is that the
customer will place an order online and
choose a Starship delivery as an option, along
with a time slot for the delivery. The order can
then be tracked through a mobile phone and
when it arrives 15-30 minutes later the parcel
can be removed from the robot using an
access code sent to the mobile phone.
Continued on next page>
19
As with all new technology that
interacts with the public, there needs
to be social acceptance.
> Continued from previous page
Starship has now completed internal testing and
the robots have covered 9500km in 12 countries
without encountering any problems. It is now
working with a range of partners to test the robots
in real world conditions in five cities in the UK,
Germany and Switzerland before full commercial
implementation with partners including JustEat,
Hermes, Metro Group and Pronto.co.uk.
As with all new technology that interacts with the
public, there needs to be both social acceptance
and the challenge in developing this kind of
product and service that is intended to operate
in many different localities is the need to comply
with a wide variety of regulatory requirements in
different jurisdictions be it traffic law regulations or
data protection laws, for example. These can vary
across countries and also within them, making it
potentially complex to secure blanket approval for
testing and use of the robots.
However, in a sign of how local authorities are
increasingly seeing the potential of autonomous
delivery, Washington DC city council has recently
passed legislation specifically authorising the use
of delivery robots on the pavement. The Personal
Delivery Device Pilot Act states that companies
need to prove that their delivery devices are “safe
to operate on sidewalks, crosswalks, and public
thoroughfares” and that the robots can recognise
things like cars, bikes, pedestrians, and road signs
and street lights. However, if these requirements
are met, testing is allowed and this kind of
regulatory approach could be followed by other
municipal authorities.
Another advantage of this technology and the use of
the delivery robot is that it is safe and does not bring
new risks to the public. Its low speed reduces the
potential for problems and the ability for a remote
operator to intervene means this technology can be
implemented quickly without needing major changes
in regulation or legislation.
All of this means that Starship robots provide a
very clear example of the potential of connected
technology to disrupt traditional ways of doing
things and solve business problems, in ways which
will bring improvements in cost and convenience for
the end customer.
20
Future of Manufacturing: the emerging legal challenges
Future business models:
products as a service
The latest digital technologies can help manufacturers
change their business models and offer a complete
end-to-end service to consumers.
Manufacturers that adopt a ‘product-as-aservice’ approach to their operations can
develop stronger, more direct relationships
with customers. At the same time the
approach can help manufacturers address
environmental concerns about the whole
lifecycle of a product and the scarcity of
some raw materials.
A new approach
Traditionally manufacturers’ business
models have been built on a ‘take, make,
and dispose’ approach. However, this can
lead to perfectly serviceable products
being wasted when replaced and fails to
account for a push for greater product
customisation and service-orientated
opportunities in the market.
A product-as-a-service approach would
allow manufacturers to provide goods
directly to consumers and charge them
on a perpetual per-outcome basis rather
than via a single upfront payment.
The business model opens the way
for consumers to return products to
manufacturers after they have used them,
allowing the businesses to make the used
assets available to other consumers. It has
the benefit of allowing consumers to only
pay for what they use products for and to
avoid having to buy goods, often at great
expense, where they might only use them
infrequently.
New sensory
technologies
can be built
into products to
monitor when and
how they are used.
Additional revenue streams
New sensory technologies can be built into
products to monitor when and how they
are used. These technologies, together
with advanced data analytics software,
can allow manufacturers to explore the
product-as-a-service business model.
Continued on next page>
21
> Continued from previous page
Being able to glean more information
about consumers’ use of their products
would help manufacturers to provide
associated services. For example, knowing
how long a product has been used for
over a period of time would enable
manufacturers to schedule maintenance
services or offer upgrades. Alternatively,
where data shows that consumers have
used products sparingly there would be an
opportunity for manufacturers to engage
with consumers to find out why that is and
to offer them the opportunity to trial new
features or iterations of those products.
Business models
will need to be
agile to enable
businesses to adapt
to a fast changing
global market.
Understanding what additional services
consumers would be willing to pay extra
for, and what services they would expect
to be provided for free, will be vital for
manufacturers looking to adapt their
business models.
Challenges of a sharing economy
The concept of consumers sharing assets
with other people has risen to prominence
in recent times with the rise of businesses
such as Airbnb. Policy makers and
regulators have already begun looking
into the potential impact of the risk of
a ‘sharing economy’ on existing legal
frameworks and consumer regulations.
For manufacturers the idea of making
products that consumers would use and
then return for use by others poses a
number of issues they need to consider.
Firstly, there are logistical and economical
issues to consider concerning some items,
for example washing machines and other
large, cumbersome items, and how they
could be put into use, recovered for
maintenance and distributed to new users.
Manufacturers’ revenue structure will also
change if most customers pay an ongoing fee rather than the upfront cost for
their products. That, in turn, will require
different accounting treatments.
22
Issues of product liability and consumer
rights also need careful consideration.
There might be uncertainty over who
would be responsible for faults in products
that have been shared between multiple
users and what remedies would consumers
have in the event those goods stop working
or cause damage to other property.
In an era where everyday things are
increasingly becoming internet-connected
devices, capable of conferring data about
their use or surrounding environment
that might qualify as personal data,
manufacturers would also need to consider
how goods they produce and develop use
charging models for would conform to data
privacy regulations.
The digitisation of manufacturing and a
move to greater service-led solutions in the
industry could also result in a reshaping of
industry boundaries and new competitors
into the market. For example, technology
businesses adept in gathering, analysing
and using data, could look to use advanced
technologies to turn goods into a service
product.
Opportunities to collaborate
There may be opportunities for
manufacturers to collaborate with others
in this regard, but selecting whom to work
with could raise legal and contractual issues.
Incumbent suppliers are likely to be
protective over data streams generated by
manufactured devices, but they might lack
the technology to make best use of that
information. In contrast, innovative new
service providers might have the technology
to read and analyse the data and use it to
operate new business models that might
disrupt manufacturers’ existing markets.
As a result, business models will need to
be agile to enable businesses to adapt to a
fast changing global market.
Future of Manufacturing: the emerging legal challenges
Good collaboration is built on
strong relationships and trust.
Collaboration in manufacturing:
encouraging new contract models
New contract models have emerged to underpin collaborative partnerships
in manufacturing and reflect major changes in the sector.
Traditional linear contracts, individually
linking participants in the supply chain, are
being replaced by more flexible multi-party
and behavioural contracts to account for
new cooperative commercial relationships.
New digital technologies, increasing
connectivity, the drive for innovation, a
greater focus on services and changes in
customer demands are behind the push
towards more collaborative models.
Manufacturers and other businesses
moving into the sector need to consider
how the changes affect issues such as their
ownership, management and licensing of
intellectual property (IP), as well as their
exposure to product liability risk.
Ultimately, good collaboration is built on
strong relationships and trust.
Collaboration in action
Businesses can benefit in many ways from
collaborating with others, from expanding
networks and insights, to accessing new
talent pools, techniques, processes and
funding, potentially increased productivity,
faster growth and increased global reach.
As a concept collaboration is not new,
and there are countless successful joint
R&D projects involving universities and
companies over the years. What has
changed is that collaboration has become a
necessity for incumbents battling to retain
market share in the face of competition
from digital disruptors.
In financial services, for example, we
have seen the emergence of digital-only
challenger banks and other ‘fintechs’
looking for a share of markets such as
payments and peer-to-peer (P2P) lending.
Banks have taken steps to develop their
customer-facing technology and services in
response, including through collaboration,
for example with Apple on mobile
payments. Metro Bank’s agreement to lend
via P2P platform Zopa is another example.
Digital technology has helped to blur
previously well-defined lines between
different markets and unlikely partnerships
have emerged between companies which
would never previously have worked
together.
New commercial tie-ups have also been
forged in the manufacturing industry. For
example, Audi, BMW and Daimler acquired
Nokia’s mapping and location business
“HERE” and have teamed up to support
the platform to develop new products
for the connected and autonomous
car market. Their collective vision for
the future includes the development of
Continued on next page>
23
IP rights exist
to encourage
innovation, but
for collaboration
to be successful
there is a
demand for
openness.
intelligent real-time maps, location-based
services and highly-automated driving,
all aimed at creating a more personalised
driving experience. It reflects the fact that
everyday items – in this case cars – are
being transformed into devices capable
of transmitting and receiving data in the
expanding Internet of Things (IoT) network.
innovation, enables organisations from the
manufacturing sector to collaborate with the
academic community sometimes under the
express understanding that any IP created
will be freely available and not subject to the
usual protections. Despite this, the initiative
has been hugely successful and many have
demonstrated a willingness to share IP.
IP issues to consider in
collaborative contracting
IP rights exist to encourage innovation,
but for collaboration to be successful
there is a demand for openness. There is
a balancing act and a question over how
much information should be shared. This is
a difficult balance to strike and can often
lead to parties not committing fully to the
venture and holding certain information
back. Although in some areas, such as
Defence, contractors often accept they will
not have any exclusivity over any IP.
Other collaborative models have been
developed to help companies work together.
The BS11000 collaborative business
relationships tool7 became an international
standard in early 2016. It provides an eight
stage framework aimed at supporting
business to collaborate effectively to create
value and to deliver mutual benefits.
The new era of collaboration needs to be
reflected in business contracts. Companies
that would previously just send out standard
form drafts and refuse to contract on any
other basis are now being more flexible
and are much more prepared to negotiate.
This approach requires businesses to think
carefully about their IP.
Collaborative Frameworks
The Catapult network, which the
UK Government has developed to
support research, development and
24
Similarly The Lambert toolkit8 exists to assist
R&D between business and universities
whether on a one-to-one or multi-party
basis. There are a number of template
agreements to use in different situations, as
well as a decision guide and further guidance
can help companies navigate complex IP
issues that come with collaborating and
sharing knowledge. The original Lambert
agreements were revised in 2014.
Trust and relationships
Working with new partners across industries
raises new issues in supply chains. Sharing
knowledge with unfamiliar partners and
protecting their IP rights without stifling
progress is just one example. Relationships
are also critical.
Future of Manufacturing: the emerging legal challenges
There can often be
an element of tension
between the shortterm goals of each
individual company
and the over-arching
interests of the
consortium.
Fujitsu and Collaboration In Action
IT supplier Fujitsu is one of the companies to
embrace collaboration in manufacturing by:
• being a member of The Open Automotive
The UK Government-commissioned
Dowling report9 published last summer,
which focused on business and university
research collaboration, provides a useful
ranking of the most important factors and
barriers to successful collaboration. “Strong
and trusting personal relationships” was
the number one “key success factor for
a successful collaboration” identified by
stakeholders.
Changing customer demands can require
suppliers to form consortia and collaborate
with their competitors. In these situations
there can often be an element of tension
between the short-term goals of each
individual company and the over-arching
interests of the consortium. Acting for the
good of the consortium, particularly if it is
at their own company’s expense, can be a
real challenge.
A shift to a more open approach and a
focus on what can be gained rather than
what can be lost from the relationship
will help companies make a success out of
collaborative initiatives. As collaboration
becomes more widespread a firm’s
reputation as a trustworthy collaborator
will become so commercially important
that the risks of one party breaching the
trust will be significantly mitigated. We can
expect contract models to evolve to reflect
that development.
Alliance, a group made up of car manufacturers
and technology companies that “share a vision
for making technology in the car safer, more
seamless and more intuitive for everyone”
• working with Volvo in Sweden to trial
technology that can track the weather and
report it to Volvo drivers
• working with Toyota in Japan, to develop
information services for connected cars and
develop cyber security measures for their vehicles
• working with Microsoft and Intel, to control
the management of connected car information
whilst ensuring that intelligence can pass to
and from connected cars and their systems,
regardless of the car’s make or model, to
eliminate information silos and instead provide
integrated transport solutions that support
better safety, transport routing and real time
data use and decision making.
7 http://www.bsigroup.com/LocalFiles/en-GB/bs-11000/resources/BSI-BS11000Product-Guide-SME-Smart-Guide-UK-EN.pdf
8 https://www.gov.uk/guidance/lambert-toolkit
9 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/440927/
bis_15_352_The_dowling_review_of_business-university_rearch_collaborations_2.pdf
25
Industry Perspectives
Martin Starkey, Ricardo
Niche manufacturing will
remain a key strength for the UK
It is still common for commentators to lament the decline of UK
manufacturing. Yet the reality is that in niche manufacturing of
high-quality products, the UK has led the way for many years and
looks set to maintain that leading position.
Much of the success in this area stems from
our long-standing relationship with the
automotive sector where, in recent decades,
the UK has taken a very different approach
to the likes of Germany and Japan, not
trying to compete on mass production but
focusing on establishing itself as the worldleading niche manufacturer.
This is not an easy part of the market to
succeed in. It requires a clear focus on
product development, on securing the
supply chain to support that development,
and effective controls and structures that
will deliver complex products to a short
time scale.
It also needs a clear understanding of how
to manufacture at a particular scale, which
26
can be more complex than higher volume
production, and to develop the particular
technology that is needed to support
that work. That is not straightforward.
Developing a single prototype is very
different from making a hundred products
and that in turn is different from making
1000 products. They require different
processes, different supply chains and a
real understanding of the requirements
of niche manufacturing and assembly. It
is easy to underestimate this challenge
and how good UK manufacturers have
become at this work over recent years.
Whilst the automotive sector has been
the leader in UK niche manufacturing,
there is clearly now increasing presence
from companies developing a wide
Future of Manufacturing: the emerging legal challenges
Quality control and reliability
are only going to get more
important in a rapidly changing
and more competitive world.
range of other innovative products.
These include a broad range of
electromechanical and electronic devices
from the heights of aerospace through
to the depths of subsea exploration.
Developing these products requires
the same quality control and ability to
manufacture small volumes of complex
mechanisms reliably and effectively
that has been refined and documented
in automotive for over a hundred years.
These requirements are only going
to get more important in a rapidly
changing and more competitive world
for manufacturers where niche markets
offer the opportunity to secure high value
market share.
The UK will be well placed to make the
most of these opportunities. It will be
able to continue to harness the benefits
of a powerful combination of culture,
technology, academic partnerships and
highly professional support companies.
This can build on a very strong heritage
of generating ideas and, in recent years,
academic institutions have become much
better at working with industry to bridge
the gap between concept and production.
The challenge ahead for UK niche
manufacturers will come from needing to
continue to do this work while reacting to
disruptive technology which, by its very
nature, is hard to anticipate. As recent
history has shown, this can bring dramatic
changes from the supply chain through to
the end retailer, making it critical for the
UK both to keep innovating and to harness
those ideas effectively.
Innovative, niche
manufacturing
success is in the
DNA of the UK.
There are plenty of reasons to be optimistic
that this will prove successful. Innovative,
niche manufacturing success is in the
DNA of the UK, and can draw on a strong
heritage and track record of generating
ideas. That means it is exceptionally well
placed to thrive in a future where the pace
of manufacturing change is increasing,
and where niche manufacturing and
customisation are all becoming ever
more important.
27
Smart environment opportunities for
a demand-led supply chain
Manufacturers can use data to improve the way they source equipment, parts
and materials and help optimise their production processes as a result. Smart
environments increase the data available to manufacturers enabling them to
collaborate with their supply chain to share data about what their demand needs
are and to shape how those suppliers respond to those needs.
Real-time forecasting and subsequent demand-led supply
is possible if manufacturers work with suppliers to link
systems together to capture and analyse data from a
variety of sources.
The power of data
Increased connectivity in manufacturing will enable
continuous demand sensing. The sharing of data through
machine-to-machine communication will enable a fully
demand-led agile supply chain which responds in real time
removing forecasting errors and uncertainty and the knock
on impact of this within the supply chain.
The smart environment also poses opportunities for a truly
demand-led supply chain to also harness data from end users.
As more and more products become connected devices,
which transmit data back to manufacturers, the use of
products can be monitored to better predict when customers
will need maintenance services or to replace those items.
On a global scale this data will offer a real-time picture
of when peaks and troughs in demand might occur and
allow manufacturers to work with suppliers to source the
materials and parts to meet real-time demand.
Having access to data about the way a product is used,
its likely lifespan, areas for optimisation, and how
consumers view the goods can help manufacturers to
become proactive service-based businesses. They could
28
use the data to approach consumers to offer maintenance
services, opportunities for replacements or upgrades as
well as customised versions of their products.
The data could also help manufacturers improve the
efficiency of factories. Knowing when demand is likely
to spike can help manufacturers plan their labour and
equipment needs and cut down on waste.
Delivering ‘just-in-time’ supply
With more real-time data that manufacturers can use
and share, suppliers will be increasingly expected to
become more responsive to bespoke needs of their
manufacturing customers.
Manufacturers might expect suppliers to deliver more
materials or parts within a shorter timescale to account
for likely surges in demand they anticipate from their
data analysis. For manufacturers operating on low profit
margins and often without major cash reserves this ‘just
in time’ (JIT) approach to supply offers an attractive way
to regularly tweak their supply orders and avoid major
capital outlays on stock.
These changes in the dynamics and relationships in the
supply chain also present opportunities. Manufacturers
could embrace beacon technologies such as RFID tagging
to manage work flows on the factory floor and improve
management and utilisation of assets.
Future of Manufacturing: the emerging legal challenges
Data could
become such an
important asset for
a manufacturer in
their market that
unfairly withholding
others’ access to
the information
could contravene
competition rules.
Knowing when demand is likely to
spike can help manufacturers plan
their labour and equipment needs
and cut down on waste.
The success of utilising data from the smart environment
to support demand-led supply chains will depend on
the flow of information and communication within the
supply chain. This will require a cultural shift away from
traditional linear models to more collaborative models
of working.
Connectivity can enable collaboration
Manufacturers and suppliers that invest time and money
in delivering a demand-led approach to production can
potentially exploit opportunities for collaboration.
Where demand levels can be more confidently predicted
through data, manufacturers could work together to
share resources. For example, if equipment would sit idle
during a lull in demand, manufacturers could consider
leasing it out to others. Similarly, businesses could
share some staff so as to manage labour costs, tapping
into that resource when demand surges and allowing
collaboration partners to deploy the workers when
demand falls and productivity levels are reduced.
be used and that the whole supply chain understand
what use they can make of the data and how it is to be
protected. Contractual arrangements should provide
clearly for data transfer and confidentiality obligations.
It is also possible that data could become such an
important asset for a manufacturer in their market that
unfairly withholding others’ access to the information
could contravene competition rules. Equally, however,
sharing confidential business information can also fall
foul of competition laws, so manufacturers need to be
careful as to how they use and share that data and put in
place appropriate processes.
Developing successful collaborations also requires
manufacturers to rethink contracting. Traditional linear
supply contracts may no longer be appropriate, and
provisions should be flexible to account for potential
changes as projects evolve and be focused more at
encouraging cooperation than on setting unreasonable
contractual obligations and penalties.
Managing the legal challenges
The management of data will be critical. In some cases,
particularly where data is gleaned about how a product
is used, data could be considered to be personal data
about customers and need to be handled in accordance
with data protection laws. Manufacturers will need to
ensure they notify consumers about how that data could
29
The potential for generating energy
from heat and waste
Large manufacturers should explore the potential for capturing heat and
waste from their industrial processes and using it to power their own
operations, local homes and businesses.
Achieving competitive advantage
The latest energy technologies offer manufacturers the
chance to secure their own future energy supply and
reduce their reliance on, and costs of, accessing energy
from wholesale markets.
Decentralised or on-site energy generation can also open
up new revenue opportunities by offering manufacturers
the chance to provide neighbouring businesses and
communities with electricity. This also sits neatly with
the sustainability agenda and environmental regulations
facing businesses.
Manufacturers that are successful in energy management
can achieve a competitive advantage. However, it requires
sound strategic planning, significant internal resourcing
and major capital expenditure, perhaps to the detriment
of competing projects.
From an environmental perspective a number of reports
have indicated the potential cuts to emissions energy
intensive industries can deliver. This includes through
energy efficiency schemes and use of new technologies,
30
including carbon capture, electricity decarbonisation,
biomass, and energy efficiency and heat recovery.
A report produced for the Scottish Government, for
example, revealed that 8.3 million tonnes of CO2 was
emitted by the eight most energy intensive industries in
Scotland in 2012, 15% of all annual Scottish greenhouse
gas emissions. The report said that “progressive grid
decarbonisation of 2012 electricity use”, together
with “continuing investment in ‘incremental’ energy
efficiency and heat recovery measures and increased use
of biomass” is expected to result in a 27% reduction in
those emissions by 2050.
There are already best practice examples in the market.
For instance, Diageo10 harnesses organic waste from their
plants and turns it into a source of energy to help power
site operations.
Regulatory Intervention
Environmental policies have been developed to help drive
greater energy efficiency.
Future of Manufacturing: the emerging legal challenges
The ECA scheme encourages businesses to invest in qualifying
technology with energy-saving or other environmental benefits.
The Electricity Demand Reduction pilot initiative, for
example, rewarded businesses financially where they
reduced their demand for electricity from the national grid
at peak times. The pilot enabled organisations to apply
for financial incentives to install new energy efficiency
measures. The second phase pilot auction was held earlier
this year and 24 organisations across the UK were awarded a
total of £4.74m for a total of 37 projects to reduce demand
for electricity through efficiency schemes at peak times.
Large energy users in the UK are also subject to the
CRC Energy Efficiency Scheme, which requires them to
“monitor their energy use, and report their energy supplies
annually” and buy allowances for every tonne of carbon
they emit. The UK Government announced in the 2016
Budget that the CRC Energy Efficiency Scheme will be
abolished following the 2018-19 compliance year.
Other initiatives include the Enhanced Capital Allowances
(ECA) scheme and Climate Change Agreements (CCAs).
The ECA scheme encourages businesses to invest in
qualifying technology with energy-saving or other
environmental benefits by allowing them to “write off the
total cost of the equipment against their taxable profit
as a 100% first-year capital allowance”. The CCAs offer
businesses in energy intensive industries, including some
manufacturers, the chance to reduce the amount they need
to pay towards the Climate Change Levy if they “meet
government-agreed energy efficiency improvement targets”.
The EU Emissions Trading System (EU ETS) is a further
regulatory scheme that businesses in heavy manufacturing
industries must comply with. In the UK, more than 700
UK-based energy intensive installations, including power
stations, manufacturing facilities and oil refineries,
participate in the EU ETS. The scheme places a limit on the
total greenhouse gas emissions businesses subject to the
regime can emit and forces companies to either reduce their
emissions or buy allowances if they will exceed the cap.
The UK Government is also supportive of smart metering,
which is aimed at giving businesses and households
greater information about their energy consumption and
development of time-of-use tariffs in an effort to reduce
the pressure in demand for energy at peak times.
Taking back control
Beyond environmental and regulatory factors, managing
energy output and efficiency can help manufacturers
reduce their expenditure on energy which often accounts
for a large proportion of their total costs.
Many manufacturers already invest in the fabric of their
buildings in an effort to reduce the costs of lighting
and heating. However, manufacturers are increasingly
thinking about energy consumption, capture and services
on a grander scale.
There has been an increase in focus on efficient
distribution of heat, heat networks, trigeneration
(cooling, heat and power) and waste heat capture from
industrial processes. A significant portion of industrial
heat usage is in heat-intensive industry, which is often
electricity-intensive too. These industries are considered
as vital to delivering a greener economy.
Continued on next page>
10 http://www.diageo.com/en-us/csr/casestudies/Pages/help-from-friendlybacteria-brings-carbon-savings.aspx
31
Decentralised energy
is a rapidly-deployable
and efficient way to
meet demand.
> Continued from previous page
Manufacturers can, for example, plug in to district heating
schemes to supply heating and hot water services to
nearby social housing. This offers the potential to make
money from energy generated in their factories that would
otherwise be wasted as well as a chance to tackle problems
such as fuel poverty in partnership with local authorities, in
line with corporate social responsibility objectives.
Decentralised energy
Some businesses, particularly energy intensive users,
might consider decentralised energy schemes as a means
of securing their own energy supply, reducing energy costs
and as a potential new source of revenue given it can offer
the opportunity to offset demand placed on the National
Grid at peak hours of the day or through energy service
contracts with local businesses and communities.
Decentralised energy is a rapidly-deployable and efficient
way to meet demand, whilst improving energy security
and sustainability at the same time. Added to this, a
growing number of energy technologies such as anaerobic
digestion, biomass combined heat and power, solar and
wind, now also carry zero or near-zero emissions.
Decentralised energy, however, remains a relatively new
and unfamiliar area for many businesses that have not
previously considered energy management as a core part
of their business. Constraints on capital budgets have also
meant that the payback for these projects must compete
with other projects across any business.
32
As the energy system changes, continuing to rely
on supply-side solutions alone would be expensive.
Therefore new ways of providing flexibility in the
energy system are emerging. Businesses that take
control of their energy use and generation stand
to benefit from the shift towards an energy system
that takes greater account of so-called ‘demand-side
response’ (DSR). DSR is where businesses are paid to
alter their demand for power, such as by regulating
their use of electricity or tapping into their own on-site
energy generation supply.
In a recent report the Association for Decentralised Energy
said that a significant proportion of UK peak electricity
demand could be provided by businesses that flex their
demand and make better use of onsite generation. The
report recommended a series of changes to allow DSR to
compete more equally in the energy system.
The National Grid is targeting “a step change” in DSR
activity by 2020. The National Infrastructure Commission
has also recommended that Ofgem, the UK’s energy
regulation, open a review into the regulations and
commercial arrangements surrounding demand flexibility
with a view to making participation easier.
The outcome of such a review could help reduce the
barriers manufacturers currently face in deploying energy
technologies and help them take greater control of their
energy consumption and supply.
Future of Manufacturing: the emerging legal challenges
The Brexit silver lining
for manufacturing
Whilst “Brexit means Brexit”, the model for the UK’s future
relationship with the European Union remains unclear.
The uncertainty can be unsettling but the upheaval may also
bring manufacturers opportunities too.
Ch
an
ge
i
le
Maximise
changes that
mean lower costs
Pass on cost
increases
Changes to
models
Catalyst
for improved
business
processes
Take advantage of
lessor regulated
areas
Lobby for changes
in business
critical areas
l
gu
Re
es s
es
on
ns
pr
oc
t io n
sla
io
at
&
gi
iffs
Pass on
cost increases
Mitigate
customs clearance
time delay
Ope r
If there is a shortage of migrant workers to
fulfil low-skilled jobs, such as those in logistics
and warehousing, then it could encourage
manufacturers to invest in and integrate robotics
into their production processes. It could serve to
increase UK productivity levels which have largely
remained static since the financial crisis of 2008.
s
&
r
ta
n
A large number of migrant workers are employed
in the manufacturing sector. Post-Brexit
businesses in the UK manufacturing sector might
face a challenge in sourcing workers, many of
which currently originate from other
EU countries.
Manufacturers that plan for these changes
and are prepared can gain a real competitive
advantage and ensure that profit margins are
protected or even enhanced through careful
contract management.
Brexit could
provide the spur UK
manufacturers need
to revolutionise
their assembly lines
and provide a boost
to UK productivity.
at
i
One of the most fundamental aspects of
EU membership is the free movement of
labour across borders. This aspect was at the
cornerstone of the UK referendum and has led
to a great deal of uncertainty as to what the UK
Government will negotiate in relation to the
UK’s exit from the EU.
st
om
Investing in technology
Brexit could provide the spur UK manufacturers
need to revolutionise their assembly lines and
provide a boost to UK productivity.
Gaining a competitive advantage
As the impacts of Brexit start to crystalise
this will impact on manufacturers who could
become involved in complex renegotiations of
their contracts with retailers and suppliers if
the cost of performing contracts in the sector
changes when the UK leaves the EU.
Cu
If manufacturers plan they can create their own
certainty and maximize opportunities to make
the most of any Brexit silver lining.
Continued on next page>
33
> Continued from previous page
Manufacturers
should consider
only key areas for
lobbying around
regulations and
take advantage
of these potential
opportunities.
Customs and tariffs
Exiting the EU could mean significant
changes to customs regulation and tariffs.
This could impact manufacturers’ cost
of delivery as well as the time it takes to
deliver the products (customs clearance is
anticipated to add at least a day to delivery
lead times).
Manufacturers should review contract terms
to identify whether the risk of tariffs can be
passed on to customers. Maintaining an open
and early dialogue with relevant customers
will enable manufacturers to pass on these
costs and negotiate better deals before
customers are approached with a rush of
suppliers all seeking the same.
Acting early can minimize impact on delivery
timetables by changing processes to ensure
that onward supply is not effective. This will
ensure they have a competitive advantage
against the market when changes occur.
Changes in legislation
Given that a substantial amount of English
law now derives from European regulations,
Brexit could spur a number of changes in
legislation. These could impact on the cost of
performing contracts.
In some cases it could become more
economical to deliver contracts particularly
where there is less red tape or bureaucracy.
But it might also make existing contracts
unprofitable or lower margin. In those
circumstances parties to the contracts
might look to renegotiate the terms of their
agreements, seek termination or exercise
‘pass through’ rights, which is a contractual
right to pass the increased cost on to the
customer.
34
Operations and processes
Brexit could also lead to changes in the way
manufacturers operate. Offshoring could
become more popular as manufacturers
seek cheaper ways to deliver services or
technology, for example, in a potential
change to business models.
Business processes might also evolve to
account for changes in economic conditions
and the risk environment post-Brexit. In
practice this might mean new contract
approval or sign-off processes are introduced,
as well as new procurement policies and
procedures for determining whether to bid
for new contracts. It could be a catalyst for
change to improve business processes.
Regulation
In other areas of manufacturing, a move
away from EU regulation could cause some
product uncertainty. Many sub-sectors of
manufacturing, such as in the area of medical
devices, are heavily influenced by EU policy
and legislation. It is unclear whether the UK
will adopt a radically different approach to
the regulation of such products in future.
Common EU regulation, and an ability
to influence it, has been critical in
manufacturing to ensure product
consistency. This has been especially the case
in the automotive sector where standard
regulations on emissions and safety have
been developed. There is a risk these types
of regulations will not be appropriate for the
UK market if the UK can no longer influence
them. Previously the UK helped to shape the
CO2 regulations to ensure it was appropriate
for niche and small volume manufacturers –
critical and almost unique to the UK market.
On the upside, some people believe the
manufacturing industry and suppliers to it
are too heavily regulated. Brexit will offer
an opportunity for the UK Government
to simplify the regulatory burdens on
those businesses. Manufacturers should
consider any key areas for lobbying and take
advantage of these potential opportunities.
Future of Manufacturing: the emerging legal challenges
About the Pinsent Masons
manufacturing team
Digitisation is disrupting every business in the Advanced Manufacturing sector.
Manufacturing companies are typically rich in
intellectual capital and are targeting new markets
against a backdrop of uncertainty and innovation.
Both larger and smaller companies need to adapt the
more conventional business models in this digitally
disrupted environment to allow them to be creative
and nimble in introducing new and more efficient
products and services. In this sector all businesses
need the freedom to succeed.
At Pinsent Masons we are at the forefront of advising
a number of early adopters globally who have each
recognised the need for innovation and technological
advancement in their products and how they
manufacture them. We provide new legal solutions
and approaches to turn the series of new legal
challenges manufacturers face into opportunities.
We are helping manufacturers understand how
increased connectivity and availability of data impacts
on their supply chains and is galvanising consumers
to influence product development and delivery. This
creates the opportunity to increase collaboration
within, and the flexibility of, supply chains.
Manufacturers can also develop new relationships
with their customers and adapt their business models
and products for additional sources of revenue.
Our supply chain, commercial, TMT, IP, data
protection, regulatory, corporate and infrastructure
teams all have a wealth of experience within the
sector and regularly draw upon the complementary
and specialist skills each offers within the field.
Pinsent Masons is an international law firm with a
long-standing reputation for delivering high quality
legal advice rooted in our deep understanding
of the sectors and geographies in which our
clients operate. Recognised among the most
innovative law firms in Europe by the Financial
Times, Pinsent Masons are different from other
law firms in bringing together these fast-moving
digital industries under a single banner. Advanced
Manufacturing, Technology, Telecoms, and Life
Sciences & Healthcare all sit within our AMT sector.
This makes it easier for us to create synergies from
working with over 2,600 clients operating in these
markets globally. We have specialised teams based
across Europe, the Middle East and Asia Pacific.
35
For more information on any of the issues
raised in this white paper, please contact:
United Kingdom
Germany
Nicole Livesey
Partner, Head of Manufacturing
T: +44 121 623 8637
E: [email protected]
Stephan Appt
Partner, Automotive, IT & Data Protection
T: +49 89 203043 561
E: [email protected]
Clare Francis
Partner, Commercial & Supply Chain
T: +44 121 335 2927
E: [email protected]
Marc L. Holtorf
Partner, Head of IP, Munich and Düsseldorf
T: +49 89 203043 574
E: [email protected]
Cerys Wyn-Davies
Partner, IP & Data Protection
T: +44 121 625 3056
E: [email protected]
France
Peter Feehan
Partner, Commercial & Energy
T: +44 20 7490 6449
E: [email protected]
Sarah Cameron
Legal Director, Technology,
Media & Telecommunications
T: +44 20 7490 6335
E: [email protected]
Annabelle Richard
Partner, IT, Telecoms & Data Protection
T: +33 1 5353 0223
E: [email protected]
Emmanuel Gougé
Partner, IP & IT
T: +33 1 5353 0868
E: [email protected]
Middle East
Ben Gardner
Solicitor, Commercial & Supply Chain
T: +44 121 335 2946
E: [email protected]
Kate Turner
Legal Director, Energy & Projects
T: +44 131 777 7124
E: [email protected]
Neil Black
Partner, Employment
T: +44 161 250 0177
E: [email protected]
36
Diane Mullenex
Partner, Technology,
Media & Telecommunications
T: +44 20 7490 9250
E: [email protected]
Asia Pacific
Jon Howes
Partner, Construction & Engineering
T: +65 6305 0913
E: [email protected]
Future of Manufacturing: the emerging legal challenges
External contributors
Professor Janet Godsell
Professor of Operations and Supply Chain
Strategy, WMG, University of Warwick
Rick Smith
Co Founder and CEO, CloudDDM
Henry Harris-Burland
Marketing and Communications Manager,
Starship Technologies
Martin Starkey
Business Development Director
of Performance Products, Ricardo
37
Our offices worldwide
London
30 Crown Place (Headquarters)
Earl Street
London
EC2A 4ES
UK
T: +44 (0)20 7418 7000
F: +44 (0)20 7418 7050
Doha
PO Box 22758
Tornado Tower
West Bay
Doha
State of Qatar
T: +974 4426 9200
F: +974 4426 9201
Aberdeen
13 Queen’s Road
Aberdeen
AB15 4YL
UK
T: +44 (0)1224 377 900
F: +44 (0)1224 377 901
Dubai
The Offices 1
One Central
PO Box 115580
Dubai
United Arab Emirates
T: +971 (0)4373 9700
F: +971 (0)4373 9701
Beijing
10th Floor
Beijing China Resources Building
No 8 Jianguo Menbei Avenue
Beijing 100005
PRC
T: +86 10 8519 0011
F: +86 10 8519 0022
Düsseldorf
Wilhelm-Marx-Haus
Heinrich-Heine-Allee 53
40213 Düsseldorf
Germany
T: +49 (0)211 88271 500
F: +49 (0)211 88271 501
Belfast
The Soloist Building
1 Lanyon Place
Belfast
BT1 3LP
UK
T: +44 (0)28 9089 4800
F: +44 (0)28 9089 4801
Edinburgh
Princes Exchange
1 Earl Grey Street
Edinburgh
EH3 9AQ
UK
T: +44 (0)131 777 7000
F: +44 (0)131 777 7003
Birmingham
3 Colmore Circus
Birmingham
B4 6BH
UK
T: +44 (0)121 200 1050
F: +44 (0)121 626 1040
Third Floor Quay 2
139 Fountainbridge
Edinburgh
EH3 9QG
UK
T: +44 (0)131 225 0000
F: +44 (0)131 225 0099
Brussels*
Office 15
4 rue de la Presse
1000 Brussels
Belgium
T: +44 20 7418 7000
F: +44 20 7418 7050
Falkland Islands
56 John Street
PO Box 21
Stanley
Falkland Islands
T: +500 22690
F: +500 22689
38
Glasgow
141 Bothwell Street
Glasgow
G2 7EQ
UK
T: +44 (0)141 567 8400
F: +44 (0)141 567 8401
123 St Vincent Street
Glasgow
G2 5EA
UK
T: +44 (0)141 248 4858
F: +44 (0)141 248 6655
Hong Kong
50th Floor
Central Plaza
18 Harbour Road
Wan Chai
Hong Kong
T: +852 2521 5621
F: +852 2845 2956
Istanbul
Büyükdere Caddesi No 127,
Astoria B Kule,
Kat 5, No 13-14-15-16
Esentepe 34394 Şişli
Istanbul
Turkey
T: +90 212 336 6050
F: +90 212 336 6051
Leeds
1 Park Row
Leeds
LS1 5AB
UK
T: +44 (0)113 244 5000
F: +44 (0)113 244 8000
Manchester
3 Hardman Street
Manchester
M3 3AU
UK
T: +44 (0)161 234 8234
F: +44 (0)161 234 8235
Melbourne
Level 23
360 Collins Street
Melbourne
VIC 3000
Australia
T: +61 3 9909 2500
F: +61 3 9909 2501
Munich
Ottostrasse 21
80333 Munich
Germany
T: +49 (0)89 203043 500
F: +49 (0)89 203043 501
Paris
21 – 23, Rue Balzac
75406 Paris CEDEX 08
France
T: +33 1 53 53 02 80
F: +33 1 53 53 02 81
Shanghai
Room 4605
Park Place
1601 Nanjing West Road
Shanghai 200040
PRC
T: +8621 6321 1166
F: +8621 6329 2696
Singapore
16 Collyer Quay #22-00
Singapore 049318
T: +65 (0)63 050 929
F: +65 (0)65 343 412
Sydney
Level 5
2 Bulletin Place
Sydney
NSW 2000
Australia
T: +61 2 8024 2800
F: +61 2 8024 2801
Future of Manufacturing: the emerging legal challenges
39
This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.
Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by the Solicitors
Regulation Authority and the appropriate regulatory body in the other jurisdictions in which it operates. The word ‘partner’, used in relation to the LLP, refers to a
member of the LLP or an employee or consultant of the LLP or any affiliated firm of equivalent standing. A list of the members of the LLP, and of those non-members
who are designated as partners, is displayed at the LLP’s registered office: 30 Crown Place, London EC2A 4ES, United Kingdom. We use ‘Pinsent Masons’ to refer to
Pinsent Masons LLP, its subsidiaries and any affiliates which it or its partners operate as separate businesses for regulatory or other reasons.
Reference to ‘Pinsent Masons’ is to Pinsent Masons LLP and/or one or more of those subsidiaries or affiliates as the context requires. © Pinsent Masons LLP 2016.
For a full list of our locations around the globe please visit our websites: www.pinsentmasons.com and www.Out-Law.com.