Rolls Royce

The report indicates a number of changes either in progress, or planned within the Supply Chain structure of Rolls-Royce aimed at resolution of operational challenges, support of strategic plans and increase in overall organizational efficiency. This supported by the fact that Supply Chain restructuring program was a highlight, which has stretched beyond 2006 into the next year. The focus on information is evident with a number of systems and initiatives on track, enabling the company to have access to data and analysis necessary for performance evaluation of drivers within the supply chain.

Facility: One of major changes within supply chain drivers was the launching of operations in new facilities in UK and phased closing the old ones. In overall, company invested £400 million in new facilities and along with move to new UK locations there were several new facilities opened and construction of others international locations started. Cantos provides the interview of Mike Terrett where he states that the reason of replacement of Rolls-Royce UK facilities was their inefficiency due to age and the investment made to new ones will allow the company to raise productivity with running modern facilities.  This restructuring had its impact on organizational efficiency in 2007 causing disruption as shown in Rolls Royce 2007 Preliminary report. This would have had an impact on delivery schedule and as a result would affect its revenue and cash flow due delayed billing. However, this move gives company strategic long-term advantage by improvement in responsiveness of overall operations. This practice once more corroborate the statement of Chopra and Meindl (2012) that “Locating facilities close to customers increases the number of facilities needed and consequently reduces efficiency”.

Inventory: In response to market growth as well as to increase availability of aftermarket and rare spares, Rolls Royce increased its inventory stock, which was a strategic decision following issues with delay in supply of raw materials in the past. This in turn has increased inventory expenditure however, Rolls Royce have attempted to balance this out by increasing its other working capital utilization efficiency.

Information: In 2006, Rolls-Royce has managed to sustain its IT expenditure on the same level while expanding the business. A number of previously launched programs continued along with implementation of new initiatives. Amongst these are Process Excellence program, which allowed to establish better quality performance of supply chain in 2006, Enterprise Resource Planning standartisation was completed in European divisions in 2006 and this expected to help the company to achieve its major goal of global supply chain management system creation after completion in 2007 of ERP standardisation in rest of its divisions. These systems will help to improve the quality of information available to enable better management decision making.

Sourcing: Another major improvement made in 2006 was supplier evaluation, resulting in decrease of suppliers range with increase of supply chain quality. One of the major reasons of restructuring in supply chain for Rolls-Royce was increase of supply chain quality, which they have achieved with review of suppliers database. In addition, in order to drive the costs down they have increased the share of low-cost emerging market purchases. The latter should increase profitability of the company due to savings resulting from this initiative.

Pricing; As stated in the report, 2006 inflation of commodity prices resulted in unit sale price increase throughout a year. However, the conclusion can be made that initiatives driven in sourcing as well as in suppliers network allowed the company to minimize the impact of the increases in costs on product unit price.

References:

Cantos. Investor Day 2007. Interview of Mike Tirrett. [Online] Available at: http://w3.cantos.com/07/rolls_in-710-1o3h9/interviews.php?task=view&i=1&cnt=bb&med=asx&int=changed&type=video. (Accessed: 05 December 2012)

Chopra S., Meindl P. (2012) Supply Chain Management, 5/e Vitalsource ebook for Laureate Education. Pearson Learning Solutions

Rolls-Royce Group plc. Rolls-Royce annual report 2006. [Online]. Avilable at: http://www.rolls-royce.com/reports/2006/pdfs/eng_ops_serv.pdf (Accessed: 02 December 2012)

Rose J., Shilston A., Terrett M. Preliminary results 2007 [Online].Available at: http://www.rolls-royce.com/Images/prelims07_tcm92-5655.pdf (Accessed: 02 December 2012)