Steering away from a sea of troubles

15 November 2001
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15 November 2001

Better purchasing practices, including collaboration, could put the UK's shipyards on the road to recovery, according to a study of the industry's supply chains. David Arminas reports

The first major survey of the shipbuilding and shiprepair industry's supply chain provides a sound basis for moving forward with better procurement practices. The industry must understand where it is now so that it can move forward.

Hard evidence of purchasing practices in the report from the Shipbuilders and Shiprepairers Association (SSA) can now replace the anecdotal evidence that suggested the industry is holding on to outmoded procurement practices, including an overreliance on competitive tendering.

The figures show that only a few suppliers and sub-contractors to the building yards account for most of all contracts by value. Yet the survey found that for shipbuilders and repairers, most purchases are based on competitive tendering.

This means a lot of time, money and manpower is going into the tendering process between the same companies. The SSA is right to ask if there is a better way of using these resources that could benefit not only the major players but engage the small and medium-sized companies as well.

The alternative is collaborative relationships where competitive tendering is not always the first step towards working together. Exactly what form these relationships take is up to the parties involved. But they must operate on the assumption that a partnership of sorts exists. They enter into collaboration believing a win-win outcome is not only possible for all companies, but is essential to continue working in the future, whether in the same partnership or not.

Importantly, collaboration encompasses more information exchanges than normally happens, always a touchy area if companies are used to operating pretty much alone.

But is the industry ready for this type of change? The imperatives for seeking any cost reductions remain as pressing as ever. Ship owners continue to face low freight rates and so insist on ships being built cheaply. It's not unreasonable for shipyards to expect annual cost reductions of 3 per cent through more efficient procurement. And the survey noted a growing willingness by all concerned to learn from industries such as automotive and aerospace.

Generally, long-term collaboration in the industry has been difficult because the industry has traditionally focused on individual ships. Much of the design process is necessarily bespoke, requiring small volumes from second and third-tier suppliers producing for a short period.

In the automotive industry, where hundreds of thousands of cars are produced annually, a supplier can be contracted for several years producing high volumes. Even the aerospace industry can enjoy several years supplying production for one plane.

Ideally, buyer-supplier relationships can best be developed where there is security of work over a sufficient period to allow strategic engagement. But this should not be an excuse for inaction. Successful relationships will be those where the shipbuilder talks to its suppliers before the contract is won. There is much equipment that can be common for many ships and it is at the pre-contract stage where direct cost savings can be made. This stage, where risk and incentives can be allocated among suppliers, could also be fertile ground for increased efficiencies.

There is always a danger with any change that the baby will be thrown out with the bathwater. The SSA survey uncovered some good examples of relationships that have lasted for decades. But shipping does not have a good record of spreading the gospel of its successes among the industry as a whole, and the major players are very guarded about how they do business. This will have to change.

The starting point for better procurement in the industry could begin later this month. The SSA is organising a conference where supply chain academics, yard owners and suppliers will discuss better procurement methods. Other industries, such as motor manufacturing and aerospace, will be scrutinised for guidance on best practice, benchmarking and collaboration.

It won't be easy changing the often confrontational approach to supply chain relations. Nonetheless, there is plenty of room for optimism. The key to success will not be to drag companies along unwillingly, but to give them good reason to move forward.

SMnov2001

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