The impact of Rolls-Royce:
Challenges and Perspective on its UK supply chain
Edoardo Pisciotta London - 3/05/2018
The British engineering giant is going through challenging times. Fixing the woes on the engines supplied to wide-jet Boeing and Airbus airplanes will likely cost £ 750 Million in 3 years, according to company data. This estimate does not include compensation to airlines and is not final as the process could well drag into the early 2020s. To overcome this challenge, Warren East, Rolls Royce CEO, slashed discretionary spending, and is preparing the company for a drastic plan of cost-cutting.
The company has 300 suppliers in the UK. Those suppliers have different sizes and range from family owned businesses to listed multinationals. Relations between Rolls-Royce and its UK supply chain are rumoured to be rocky although the company is trying to change its approach, according to the Financial Times. To deliver on a huge backlog of orders, which amounts to £ 71 Billion, and manage the issues that affect its wide-jet engines, Rolls Royce needs a close relationship with a strong and resistant supply chain.
However, always according to reports from the FT, it is reported that some suppliers lament very strict conditions in terms of inventory, liability insurance, and deadlines. Other suppliers instead seem to be happier and report improved relations and a long-term approach in negotiations from the company.
Tight regulation and certification requirements mean that UK suppliers will be central to Rolls Royce production for some time to come. However, Rolls Royce is looking to reduce the number of suppliers and to switch its make:buy ratio from 70:30 to 20:80. The company is looking to rebalance its supply chain footprint to make it more global and less dependent on Europe and North America. Procurement to be spent outside the UK is expected to raise twofold to £ 1 Billion by 2020. Moreover, last year Rolls Royce executives visited Chinese engineering companies in a move that can be interpreted as switch in focus from the British giant. Ultimately, half of the orders for jet-engines come from the Asia-Pacific region.
It is reasonable to assume that Rolls Royce will switch its attention to foreign markets and will try to rely on local suppliers in those markets. Companies who are not delivering essential components to the UK giant will face a tough time convincing the British giant of their role in its supply chain. Or else, they will have to look for new opportunities.
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