Framework developed around Rolls-Royce’s post pandemic supply chain issues
An Executive MBA graduate of Cambridge Judge Business School, Gunnar Droescher (EMBA 2020) is the Berlin-based Vice President of the Bombardier Programmes at Rolls-Royce, which makes jet engines for plane makers such as Boeing and Airbus as well as Gulfstream, Bombardier and Dassault. Under the supervision of Feryal Erhun, Professor of Operations and Technology Management at Cambridge Judge, Gunnar developed a new case study based around issues that Rolls-Royce faced following the pandemic regarding the component supply chain for a Rolls-Royce engine used in business jets. That case study, for teaching at business schools and elsewhere, focuses on how Rolls-Royce can prevent a recurrence of supply chain issue stemming from its configuration in a very constrained environment. This all happens against the backdrop of an ultra-competitive market where the most luxurious model of these business jets can cost $75 million.
Yet whether a product costs $75 million or $7,500, or whether a company is worth billions or very little, there are common supply-chain principles that firms should heed in preventing problems and fixing them should they occur.
How small and medium sized firms can understand and navigate supply chains
Small and medium enterprises need to consider their unique situations when it comes to supply chain management. They are more resource constrained, they may not carry as much weight in their supply chains, and they are more bound to a path dependency of their own supply chain. At the same time, they should not underestimate their power. They often operate in specialised niches, which means their customers face high switching cost and they are an important source of revenue for their suppliers.
For these smaller firms, supply chain strategy and management are thus 2 sides of the same coin and they need to feed each other with information. The integration of these 2 sides can be easily missed if emphasis is put on one side only. The consequences are often seen only when they materialise in poor business results that take long to fix.
Key questions to optimise your supply chain efficiency
Supply chain strategy
It is tempting to think that both are possible. However, in reality choice is often required – and a decision needs to be made considering the objective of the supply chain, the variability in demand, and the amount and frequency of product changes. For products with a large materials bill, components may require a cost-optimised supply chain; other products may require greater a focus on flexibility at the possible trade-off with cost.
Problems often occur if there are different incentives across the supply chain or a misaligned information flow. The ability to react to events and adapt to structural shifts in the business are also important strategic considerations..
While inventory ties up capital and there is a general drive to minimise this, it also helps to mitigate risk of supply variability. Therefore, this question needs to go beyond a financial calculation into understanding the risk of supply for each component.
Supply chain management
Being able to monitor parts supply into your company and understanding the work-in-process inventory in your supply chain is key to preventing or managing delivery issues. Depending on the level of collaboration in your supply chain, this does not need to be a laborious task.
This tends to be a key driver of supply chain issues, so it is important to understand the upstream effect of demand variability as this can usually be adjusted quickly. It is also an area where cross-functional collaboration (supply chain with marketing and sales) is paramount.
Being able to fund short-term capital requirements is often a problem for smaller businesses, which is amplified in crises. It’s important to have an in-depth understanding of the funds needed to support ongoing operations and also invest in project improvements. Being able to articulate this well will make it easier for small and medium size enterprises to obtain additional funding.
Why timeframe, business strategy and KPI alignment are crucial to success
With all of these questions, it’s important to understand what the time horizon is – as time may or may not be on your side. If your timeframe for addressing the problem is short term (6 months or fewer), ask yourself whether you have an executable choice such as deciding whether it is quicker and cheaper to fix an issue or launch an alternative. But if the timeframe is longer than 6 months, ask whether you can generate an executable choice – such as knowing the cost of fixing the problem and living with it.
Some of the questions may seem obvious. However, going through them diligently should inform a constructive discussion between the management teams in small- and medium-sized enterprises. This is only a starting point with the aim to find items that reduce resilience of the operation of such companies. The management teams should then also look at how consistent the supply chain strategy aligns with its business strategy.
On the supply chain management side, how well do the KPIs integrate with the KPIs in other areas of business, such as financial or people-related metrics? A common pitfall is the misalignment between different areas that small- and medium-sized enterprises are not protected from. While the risk at smaller enterprises may be less than in large corporations, management systems at smaller businesses are not as sophisticated – and the “we have always done it that way” mentality might be even more pronounced.
While the risk at smaller enterprises may be less than in large corporations, management systems at smaller businesses are not as sophisticated – and the “we have always done it that way” mentality might be even more pronounced.
The study: more about Gunnar Droescher’s research
The new case study on Rolls-Royce – entitled “To restructure or not to restructure? Rolls-Royce weighs its options during a supply chain crisis” – will form part of the Cambridge Judge Business School collection on the Case Centre website
An article by Gunnar forthcoming in the International Journal of Procurement Management also explores this supply-chain topic.
The article – entitled “Optimal supply chain strategies for large, complex product developments” – addresses how determining the optimal supply chain strategies is a crucial decision for complex development projects in the jet-engine and railroad rolling-stock sectors.
Based on past studies and interviews with executives in those industries, the article finds that:
- design stability is a key determinant of such supply chain strategy
- time-to-market factors need careful consideration in developing such strategy
- the product introduction capability of suppliers is distinctively important in devising effective plans
- it can be beneficial to use different supply chains for product development and serial production
- the decision on sourcing should be agnostic of the life-cycle of the product
“With regards to the supply chain design, firms should approach this with the end in mind and work backwards,” the article says. “If the ultimate objective is to produce the part in a low-cost economy for example, the tools and equipment available there need to be considered in the component design phase. Often, the process is set up in one supplier and then does not fit another. This leads to delays and adds costs.
“The implication is that the selection of the long-term source should be as early as possible. However, it is important to understand how much a product is likely to change and if the tooling strategy can accommodate those changes or not.
“Product introduction capability provides the bridge between efficient product development and serial production. It is a capability in its own right, one that is quite unique.”