What is advanced manufacturing? Looking beyond products for better industrial policy

By Dr Mateus Labrunie, drawing on the report The changing value and structure of the UK manufacturing sector, commissioned by the Department for Business and Trade (DBT).

When people think of advanced manufacturing, they often picture semiconductors, aircraft, robots or other high-tech products. While these industries are important, defining advanced manufacturing by the products it produces tells only part of the story.

A product does not have to appear technologically sophisticated to be manufactured using advanced capabilities. Equally, producing a high-tech product does not automatically make every firm in its supply chain an advanced manufacturer.

A more useful question is not what a company makes, but how it makes it. The defining characteristic of advanced manufacturing lies in the capabilities required to produce goods reliably, efficiently and at high quality – capabilities that are difficult for competitors to replicate.

This distinction is more than a matter of definition. It shapes how we measure the contribution of manufacturing to the economy, identify strategic industrial strengths, and design policies that support innovation, competitiveness and long-term growth.

The report The changing value and structure of the UK manufacturing sector, commissioned by the Department for Business and Trade, argues that focusing on manufacturing capabilities, rather than product categories alone, provides a more accurate framework for understanding advanced manufacturing and developing effective industrial policy.

Five characteristics of advanced manufacturing

Drawing on academic research, international policy definitions and practical examples, the report identifies five closely connected characteristics.

1. Innovative technologies, methods and materials

Advanced manufacturing uses innovative technologies, production methods or materials to create market value. Examples include automation, robotics, artificial intelligence, additive manufacturing, advanced materials, sensing systems and real-time data analytics.

However, innovation does not necessarily mean using an entirely new technology. It may involve applying an established technology in a new context or combining it with other capabilities to improve production and competitiveness.

2. Specialised knowledge and a highly skilled workforce

Technology alone is not enough. Advanced manufacturing relies on people who can operate, adapt and improve sophisticated production systems.

This may require expertise in engineering, materials science, biology, chemistry, computer science or data analysis, alongside practical production knowledge. Engineers, technicians, operators and managers must also understand how to scale innovations while maintaining cost, safety and quality.

3. Strong supply chains and knowledge networks

Advanced manufacturing rarely takes place within a single organisation. Firms depend on suppliers of equipment, materials, software and specialist services, and often collaborate with universities, research organisations, customers and other manufacturers.

These wider networks help firms access expertise, solve technical problems and develop or adopt new technologies. Advanced manufacturing value chains can therefore include R&D, design, engineering and materials processing, even when these activities are performed by organisations that do not manufacture products themselves.

4. The integration of products and services

Modern manufacturing increasingly combines physical products with services such as design support, software, diagnostics, data analytics, predictive maintenance and after-sales support.

Advanced manufacturing may therefore involve activities across the product lifecycle, from R&D and design to production, maintenance and end-of-life management. Physical production remains central, but related services can be an important source of customer value.

5. A sustained competitive advantage

Using sophisticated technology does not automatically make an activity advanced. The technology, method or material must help create a product or product–service solution that is difficult for competitors to replicate or substitute.

This advantage may come from proprietary knowledge, specialised skills, advanced equipment, intellectual property or complex production systems and partnerships.

What this means in practice

The report therefore defines advanced manufacturing as:

“Advanced manufacturing is a set of activities aimed at making products or integrated product–service solutions that are hard to replicate or substitute because of their use of innovative technologies, methods or materials. These innovative technologies, methods and materials typically draw on specialised knowledge from the physical, biological and computer sciences, often requiring a highly qualified workforce and access to collaborative knowledge networks.

 

Advanced manufacturing can be applied to producing existing products or, especially, new high-value products enabled by emerging technologies. What makes advanced manufacturing hard to replicate or substitute may be the use and coordination of innovative production technologies (e.g. tools, metrology, sensing, automation), sophisticated support activities embedded in the production process (e.g. data analytics, diagnostics, quality control) or the techno-organisational structure required by complex production systems (e.g. new product development workflows, specialised skills and training, customer demand management systems).”

Ultimately, advanced manufacturing is not innovation for its own sake: its purpose is to create market value and a competitive advantage that can be sustained over time.

How can advanced manufacturing be measured?

Once advanced manufacturing has been defined, a more difficult question follows: How can it be identified in economic data?

There is no universally accepted international method. Governments and institutions generally use four broad approaches:

1. measuring research and development intensity;
2. examining workforce qualifications or the concentration of STEM occupations;
3. matching expert-selected technologies or products to existing industrial classifications; and
4. conducting expert assessments of individual firms.

Each approach provides useful information, but each also has limitations.

R&D intensity, for example, is relatively easy to compare across sectors, but it may miss innovation that is not recorded as formal R&D. Workforce data can reveal the concentration of specialist skills, but qualifications alone do not show how effectively those skills are used. Lists of advanced products or technologies can be informative, but they can become outdated and may reinforce the assumption that advanced manufacturing belongs only to certain sectors.

Expert firm assessments can offer much greater detail. They can examine technology use, production processes, workforce capability, organisational practices and business outcomes together. However, assessments can require significant time, reliable information and carefully designed criteria.

Why sector classifications are not enough

The main weakness of sector-level analysis is the diversity hidden within every industry classification.

A sector can contain both highly advanced manufacturers and firms using conventional technologies and business models. Sector averages can therefore obscure the very differences that policymakers need to understand.

They may overlook an innovative food producer because food manufacturing does not perform strongly enough as a whole. They may also classify an entire high-tech sector as advanced even though some of its firms do not place advanced manufacturing at the core of their operations.

The report consequently recommends moving towards firm-level identification.

Under this approach, it would not be enough for a company to operate one isolated smart production line. Advanced manufacturing would need to be central to the firm’s strategy, operational routines and competitive advantage.

A firm-level assessment could examine factors such as:

• the use of automation, robotics, process-control systems and advanced production equipment;
• investment in R&D and ownership of intellectual property;
• the employment of scientific and technical personnel;
• the integration of data analytics, quality control and product-lifecycle systems;
• collaboration with research and innovation partners;
• improvements in productivity, quality, lead times, resource use and time to market; and
• the extent to which these capabilities produce higher revenues, stronger margins or greater market share.

No single indicator is likely to be sufficient. A robust approach would combine evidence about a firm’s capabilities with evidence about the outcomes those capabilities generate.

Better measurement can support better policy

Identifying advanced manufacturing at the firm level is not easy, but international experience demonstrates that it is possible. Some countries use certification systems, expert assessments or structured maturity frameworks.

More accurate identification would allow governments to target support more effectively. Potential instruments could include innovation grants, tax incentives, accelerated depreciation for equipment and access to patient or subsidised finance. Firm-level information could also help create communities of practice, connect manufacturers with research organisations and recognise firms that demonstrate exceptional capabilities.

Crucially, better targeting does not mean supporting only the most visibly high-tech industries. It means identifying the firms that are genuinely building difficult-to-replicate production capabilities, wherever they are found.

A more useful way to think about advanced manufacturing

Advanced manufacturing is not a neat collection of products, technologies or sectors. It is a way of organising production around innovation, specialised knowledge, sophisticated systems and strong collaborative networks.

It can be found in a semiconductor fabrication facility, an aerospace supplier, a synthetic-biology company or a highly automated food factory. What connects these businesses is not what appears on the product label. It is the depth of the capabilities behind the product.

Recognising this has important implications for industrial strategy. Policies based primarily on broad sector labels risk overlooking advanced firms in unexpected places and directing support towards companies that may not possess genuinely advanced capabilities.

A firm-level perspective offers a more demanding approach — but also a more accurate and useful one.

To explore the proposed definitions, international measurement approaches and options for identifying advanced manufacturing in the UK, read the full report or contact our team to continue the conversation.

Explore the report: The changing value and structure of the UK manufacturing sector