Supply chain lessons from Rolls-Royce for small businesses

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

Supply chain management

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.