Safety comes first at air traffic control operator NATS, but as supply chain director Tim Bullock explains, there are ways to innovate and transform the business through procurement.
The first thing you notice stepping into an air traffic control room is the hush. The people here at NATS in Swanwick, Hampshire, are in charge of around 8,500 aircraft a day passing into and around London and the Southeast, but you wouldn’t think it from the level of calm. There’s none of the dashing about so familiar in Hollywood depictions.
Then you notice the air. It’s at a precisely controlled temperature. Highly trained controllers work typically for 50-60 minutes – a maximum of 90 minutes – before taking a 30-minute break. No one here is taking any chances with someone losing concentration.
Planes blip across screens showing their course and altitude, while controllers communicate with them through voice systems. Until last November flights were tracked and organised using paper ‘flight strips’, the room ringing with the sound of these strips clacking in and out of controllers’ desks.
Controllers must still be able to use this method in case of a technological breakdown, but the process is being digitised. And that’s not all. The controllers’ screens, bespoke devices costing many thousands of pounds, are being replaced with off-the-shelf LG ones costing 10 times less. The voice system is being changed. The desks are changing. In fact, the whole room is changing, for while the people controlling air traffic over the Southeast work away, an entirely new room is under construction just next door. This will bring together two teams, one that controls flights in and out of airports in the southeast, including Heathrow, and the other that directs flights in and out of the Southeast’s airspace.
This is no simple matter. When the new setup becomes fully operational in 2024, it will have been the work of the best part of 20 years. For each controller terminal, around a dozen suppliers are involved. Every system, from radar monitoring to voice control to power supply, is duplicated in full. This means two companies are providing entirely different radar monitoring systems, with separate devices, wiring and support systems. If one fails, the other kicks in and support staff work onsite at NATS. The service life of these products is 15-25 years. The attention to safety is understandably intense.
Working in procurement in this environment is a challenge, simply because the normal levers around retendering and switching suppliers are not an option. You are quite literally in it for the long haul.
United for the future
NATS and its German and Spanish equivalents formalised a collaboration in 2007 to jointly develop the Single European Sky ATM (Air Traffic Management) Research programme, known as SESAR. NATS has taken the opportunity of SESAR, which aims to increase efficiency and introduce shared technology and ways of working across Europe, to overhaul its own technology and practices, explains supply chain director Tim Bullock.
Bullock joined NATS in 2012 and began preparations for the regulatory period 2015-20, when SESAR would begin being deployed. As a regulated private business – with shareholders including airlines, the UK government and pension fund the Universities Superannuation Scheme – the prices NATS charges for its services are set for five-year periods, following talks.
Bullock’s tasks included overhauling the procurement function, investing in new technology and setting the stage for SESAR – no small job. “I was building a function in order to deliver the change and transformation for the future,” he says. “It wasn’t being built out of some desire for academic excellence, it was being tailored to deliver this transformation programme. We moved from 17 people to 44. That was a massive investment.”
Critically, he says, procurement was involved in SESAR right from the outset.
“That is where people can sometimes go wrong,” he adds. “They put themselves in the position where they are just there to answer the procurement questions – don’t be surprised if you then only get the procurement questions. You can’t put yourself in that position of being able to drive change or influence a business if you don’t understand it. You need to spend the time and effort to get out and understand it and make sure enough people in the team understand it.”
Testing on the first computer code for SESAR started in 2012 and in 2016 its first implementation was put into NATS’ Prestwick centre. The plan is to implement the system in Swanwick in 2020 and roll it out across the UK in 2024.
Sourcing suppliers for the equipment and systems required was no mean feat, particularly as the systems are so niche they tend not to exist in the marketplace. The answer? Market conditioning.
“We had to encourage people to bid for some of this work,” says Bullock. “We had to encourage them to spend some of their R&D money on these programmes. Some of these products don’t even exist yet.
“If we invite people in and deliberately try to make ourselves easy to do business with and help them enhance their products, we become customer of choice. That all happens pre tender. If the first time you are having a conversation with a supplier is when you’ve sent the tender, you’ve lost it already. You’ve got to sell them the opportunity.”
The vast majority of contracts have been awarded and the team is now focused on contract management and delivery.
NATS has three strategic partners: Harris, the provider of the primary communications system; Indra, which supplies the core flight data processor; and Leidos, the systems integrator, making sure everything works together. Each of these firms has been allocated a contract manager.
“We’ve got category management, but it’s category management adopted and evolved to work in this environment,” explains Bullock. “I don’t think it’s common to have dedicated relationship managers for your biggest supplier partners, one-to-one.”
NATS has 1,300 suppliers, including 21 key suppliers, two preferred supplier partners and the three strategic partners already mentioned. Twenty suppliers account for 80% of spend.
It also invests in cutting-edge organisations, having recently bought a stake in a company (Aireon) that will provide a satellite-based monitoring system for aircraft crossing the Atlantic. At present, there is no radar monitoring for this route, and planes must stay at the same altitude, course and speed before reappearing on screens once they reach the other side.
Collaboration is essential
Relationships are at the heart of how NATS operates. “Traditional sourcing levers don’t work but relationship skills absolutely do,” says Bullock. “How do you collaboratively work to optimise the price, to ensure on-time delivery? A lot of what we’re doing is time critical, [so] time can be as big a proxy for money as physical product because most of these costs are in people.” To ensure relationships work, three-quarters of candidate assessments is based on behaviours rather than technical skills.
However, maintaining commercial disciplines in long-running relationships (the contract with Harris, for example, is for rollout plus 15 years of support) can be tricky. NATS makes sure individuals at suppliers are personally bonused based on go-live dates.
“Having these relationships and collaborations is not some soft fluffy environment where you don’t cover controversial subjects – they can be pretty hard-nosed commercial discussions,” says Bullock. “The key thing is you’re not threatening to walk out the door because people know that’s not credible, but that doesn’t stop you having a tough discussion. You might equally go for a beer with them afterwards because these are people you’re going to be working with for the next 10 years.
“That’s quite a skill to pull off: that balance between relationship management, collaboration and still maintaining good commercial disciplines. They are not mutually exclusive; you have to do both. I think some organisations can confuse that and switch off their commercial disciplines because they’re focused on relationships.”
Relationships between suppliers is equally important because the technologies have to complement each other, and NATS assesses them on their soft skills. “I can’t go live with the Harris system unless the Rohde & Schwarz [backup communication system] is working, and vice versa,” says Bullock. “A lot of people were selected based on their ability to work together.”
Equally, relationships with internal stakeholders are critical. “At a lot of the NATS equivalent [companies], the procurement function is the people who process the purchase orders, whereas we sit at the strategic heart of the business,” says Bullock. “This is not about procurement doing it and the engineers not doing it, it’s about acting as a single team. That’s what makes the thing powerful. Procurement is about connections, joining dots together. It’s not my money; I am a proxy. I am spending it on behalf of the business. When we make a sourcing decision, we make that together.”
NATS’ status as a regulated body (it is a monopoly) means the main opportunity to improve margin is through reducing the cost base.
“During my six years the level of expenditure has broadly remained the same yet we have increased levels of traffic and increased levels of capital expenditure,” says Bullock. “We’re spending a similar amount of money but in terms of driving down that price point we’re getting more for that money and shifting increased amounts of traffic.”
Income this year will be £720m, while annual expenditure runs between £250m and £280m. The split between operating and capital expenditure is 50:50. In 2016-17 savings of £19m were achieved.
“We incentivise savings but those savings are always invested back into the business,” says Bullock. “So where we can make savings on, say, capital programmes, it simply allows us to do more capital projects. That’s a big difference in the way we operate compared to other businesses.”
Bullock on Heathrow third runway
A third runway at Heathrow would have big implications for NATS. NATS is almost half way through a 10-year strategic partnership with the airport, which involves helping Heathrow maximise the use of airspace. An extra runway would help with the approximately 25,000 additional air movements that will be needed in the 2020-25 regulatory period.
“It would be a massive piece of work for us in terms of how we structure the air space around Heathrow and how they get the capacity benefits out of building that runway,” says Bullock. “We have had an embedded team within the Heathrow operation for quite some time.”
Bullock on Brexit
NATS has conducted checks with tier one suppliers over the possible impact of Brexit and is now in the process of extending these checks to firms further down the supply chain.
“Regardless of what happens with Brexit, aircraft will have to operate in a system interoperable across Europe,” says Bullock. “The need for us to cooperate with European air traffic providers won’t go away if we are to give our customers what they want.
“Like many other businesses, until we understand what a deal looks like it’s hard to plan for every eventuality. But the majority of what we are procuring is services – software services, development services. “Not having clarity on what may or may not exist is shackling the thinking of many businesses and we wouldn’t be any different in that regard.”