By empowering suppliers in creating the best solutions, Rolls-Royce scooped the Overall Winner award as well as the prize for best SRM
When Rolls-Royce’s year-on-year value improvement slowed, the iconic engine-maker knew it needed to engage with suppliers in a new way. Rolls-Royce understood that by committing to greater collaboration it could significantly increase the benefits to both itself and its suppliers, and so far the move has led to more than £250m in annualised hard savings.
Bold corporate ambitions to be the world leading industrial technology company and simultaneously improve its cash position by an extra £1bn by 2020 necessitated a similarly bold approach to procurement. So rather than taking a ‘one-size-fits-all’ approach, the direct and indirect procurement teams were empowered to develop their own best practice for their specific areas and supply chains.
Gordon Tytler, director of procurement at Rolls-Royce, says: “Instead of a single specific programme, we designed and introduced toolkits and methodologies that could be used across each of our businesses – a freedom-within-a-framework approach to implement SRM strategies, which matched the dynamics of the businesses they were supporting.”
It wasn’t just about cost reduction or improving supplier quality performance, but also about developing trust to enable both sides to invest in new technology and bring that technology to market, with the benefits shared between Rolls-Royce and its suppliers. “In 2017 we reviewed best practice in Rolls-Royce procurement and found that different areas of the business were at different stages in terms of excellence and development of their SRM approach,” explains Tytler. The company also externally benchmarked best practice, looking at models from different sectors and organisations, while CIPS provided support in finding examples of best practice.
Suppliers’ customer of choice
Within direct procurement, the focus was on unifying the cross-functional and supply chain unit teams with a one-team approach involving 100 key suppliers representing some 75% (£2bn) of Rolls-Royce Civil Aerospace spend. The plan was designed to challenge the usual processes, behaviour and culture, and engage the hearts and minds of senior leaders.
Among the initiatives was a Collaborate, Don’t ‘Tell’ annual global aerospace supplier conference, focusing on sharing experiences and building trust, with interactive sessions to encourage feedback. An element of fun, in the form of a mock Who Wants to be a Millionaire game show, was added to the conference. Procurement wanted to make Rolls-Royce the ‘customer of choice’ for its suppliers. It worked, says Markus Kreisle of aviation component maker Ro-Ra Aviation Systems, who agrees: “What better place than a supplier conference to come together to learn in a collaborative way?”
An integrated supplier scorecard was also introduced, as well as a supplier engagement plan – co-created and co-owned by Rolls-Royce and the supplier – to drive simplicity and pace while removing ambiguity.
Becoming an open-minded purchaser
Within indirect procurement, a Premier Supplier Group (PSG) was established, chaired and led by the suppliers, and category PSG meetings have been introduced to share best practice, held at different suppliers’ key sites.
“The PSGs are designed to support our indirect and operational support procurement. The structure works both at a specific category and at the total buy, providing a forum to work with the partners as equals,” says Tytler. This forum was used to support one of Rolls-Royce’s major transformation programmes, to help design and test the solution, which had to be effective for suppliers, partners and the Rolls-Royce procurement team. “The members of the PSGs are very challenging – in a positive way. They challenge us, and are very confident about challenging us, which is a refreshing and positive process to be a part of,” says Tytler. “This ethos is common across all the SRM programmes deployed within our businesses and helps ensure that we deliver tangible value from the programme.”
Rolls-Royce says the PSG is a key enabler to ensure its indirect procurement team can deliver at least 5% cost savings each year. Indeed, £91m was delivered in 2018.
Richard Bennell, director of supply chain management firm IESA, a Rolls-Royce supplier, explains that prior to the PSG, Rolls-Royce took a traditional approach, typically presenting the supplier with a statement of an issue and offering solutions that Rolls-Royce felt would best fix the problem. “This method somewhat stifled supplier creativity,” he says. “The approach since the PSG is much more collaborative. Rolls-Royce has moved from being a prescriptive purchaser to an open-minded one, allowing suppliers to position new and exciting products and services that might not have previously been considered.”
Unusually, competitors now often work together for the greater good of their shared client. In Direct Civil Aerospace, the approach has enabled the business to deliver savings of £153.2m, as well as helping to shape Rolls-Royce’s strategy in several areas.
One long-standing issue Rolls-Royce was keen to resolve in indirect procurement in its submarines business was the allocation of engineering work packages and control of contingent labour in an environment where the need for security clearance limited the accessible market. Again, trying a new approach, it encouraged two suppliers to create an unincorporated joint venture, bringing together fierce competitors in a single organisation.
By doing this, contingent labour is available when needed, but Rolls-Royce has also generated more than 10% savings through economies of scale. This has received enthusiastic support from the operations director along with many other senior managers, as well as positive feedback from the suppliers on a type of collaboration they had never considered before.
Strategy input
While Rolls-Royce acknowledges that it may not have all the answers to procurement puzzles, it has committed to engaging with its suppliers on an ongoing basis.
A further example is its Civil Aerospace focus groups, three groups so far set up to deal with different areas and topics, known as Zero Defects, Digital and Working Together. The input garnered from these groups helps shape thinking, strategy and direction within these important topics. Rolls-Royce has engaged with 30 suppliers in this way over the past 18 months.
“All this was made possible,” says Tytler, “with the collaboration of a great team driving the changes across our civil, defence, power systems and group business services procurement organisations.”
Stephen Daintith, chief financial officer at Rolls-Royce, says he’s delighted with the progress made in supplier collaboration and relationship management. “We have seen a significant contribution to our overall business transformation activity, including cost and spend management. In 2019, we are targeting to reduce our indirect expenditure by £100m,” he says. “How the teams continue to work on their collaboration with suppliers will be the key enabler to get us there.”
CIPS SM Awards 2019 judging panel said: “This innovative approach focused not only on savings, but on improving end-to-end supply chains.”
CIPS SM Awards 2019 Leader of the year