Connecting you to your customers

6 November 2012
Procurement at Babcock is working ever-more closely with operations to satisfy customers’ growing demand to share risk with its suppliers. The Ministry of Defence is no exception. Warship refits have traditionally been approached as the equivalent of 10,000-mile services of cars, where a standard series of maintenance tasks will be completed at fixed intervals and any problems dealt with as they arise. This approach can – and has – worked, but smaller fleet sizes and increasing operational workload make it desirable to maximise the availability of each asset. Or in this case, maximise the days at sea of each ship. Contracts of this nature, with commitments based on the availability of the asset, require Babcock to manage additional risk and balance this with potential for increased reward. If failure rates of components are well understood, there may be an opportunity to increase the interval at which they are replaced, reduce cost and share this with the customer. In a complex and multi-level supply chain, this change of approach needs to be reflected in the contracting model below the top tier. To achieve this, we found it essential that operations and procurement were closely aligned in presenting the need for change to a supply base well established in its current way of working. If the project managers, who own the day-to-day relationships with the suppliers, did not present the same case for change as the category manager responsible for reflecting this change in the new contracting model, we would quickly fail. Where we achieved success was working jointly with procurement to communicate the benefits of the new approach and making it visible internally, and to the supply base, that we were aligned in our thinking. The internal case for change was important because to make the new contracting approach work we would have to move away from a tradition of micro-managing suppliers to give them space to make their decisions balancing risk and reward within their scope of work. Results on the first ship where we employed this new approach were impressive and the reduced overall cost of the work justified the change. We saw improvements in the health and safety record that suggested with more responsibility came a more responsible approach. That a significant change, impacting both Babcock and supplier teams, was achieved in a short time is testament to the close relationship and joint approach we fostered between operations and procurement. Buying at Babcock 1. Procurement capability is fundamental to both cost reduction and growth at Babcock International Group as our customers seek to outsource more and expect to see a reduction in total cost when they do this. 2. A good relationship between procurement and operations enables us to understand risk and how we mitigate and share it with our supply chain. The principle that risk should sit with the organisation best placed to manage it is simple, but it requires honest relationships to ensure that this can happen. 3. Where a change to the contracting model requires change in the internal culture of the customer and supplier, procurement can be the leader. Transferring new ideas from supplier to customer and vice versa adds value to a relationship beyond the scope of the contract. ☛ Mike Weeks is the head of operations for Warship Support Business Unit (Devonport) at Babcock International
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