Time to focus on the supply chain

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Jet engine manufacturer Rolls Royce has an order book worth £71.6bn, its underlying sales rose 27 per cent last year and its underlying pre-tax profit was up 23 per cent.

Rolls Royce is a world beater in terms of its technology, and it has produced the sort of performance that many will be envious of, but the share price dropped after it released its results last week.

The reason, it transpires, is that the company expects a pause in revenue and profit growth, reflecting offsetting trends across the business.

“This is a pause, not a change in direction, and growth will resume in 2015. Cash flow is expected to be broadly similar to 2013, the company said when it announced its results. “Our record order book underpins our confidence in the long-term growth of our business.”

But, this is also driving far reaching changes in the company’s supply chain. In particular it is moving production away from high cost countries and it is consolidating its supply chain.

No small task: in 2010, the company said its supply chain spend exceeded £4.7 billion. It had 950 purchasing employees globally and employed 18,000 active suppliers.

Now, at the same time as consolidating the supply chain, it is building newer, more efficient facilities and capacity that will support a doubling of production of Trent engines.

However, it concedes that the highly regulated nature of the aerospace industry means that it will take both time and tenacity to drive cost out of the business. “We are still not where we need to be. However, there are a number of areas where progress is being made,” it said.

I well remember learning how Rolls Royce grows high pressure turbine blades as single crystals of metal – an astonishing technological feat that enables the blades to withstand the heat of the engine.

A great product deserves a great supply chain.

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