Factors That Drove Rolls Royce to Choose Singapore as Its Manufacturing Location - Case Study Example

Research Report Table of Contents Introduction 3 2.Factors that drove Rolls Royce to choose Singapore as its manufacturing location 3 3.Risks/challenges to be considered to improve Rolls-Royce’s international supply chain performance 5 4.Recommendations for Rolls Royce to handle the potential challenges/risks in the company’s international supply chain 7 5.Conclusion 8 Reference List 9 1. Introduction An effective supply chain management is one of the most important ingredients of operational efficiency. Supply chain management plans are regarded as the moral fibre of organizational success (Gunasekaran, Patel and Tirtiroglu, 2001). This is precisely because effective supply chain management strategy increases market coverage, improves product placement and reduces the cost of sales by a considerable margin. Ensuring all the aforementioned factors allow companies to increase their profit margin by a significant margin. Effective supply chain management also enables companies to cater to the increasing and incessantly changing demands of customers and therefore is considered as a fundamental element of client relationship tactic (Christopher, 2012). It allows managers to make sure that products are being delivered to customers at the right time, place and quantity. They always seek the opportunity to expand their business to those companies that offer them with cheaper source of labour and raw materials in order to decrease their raw materials (Prater, Biehl and Smith, 2001). In addition, their move to expand into a different country is also driven by their urge to cover a greater market (Gunasekaran, Patel and McGaughey, 2004). It is with regards to this fact that the researcher will be reviewing the case of Rolls Royce strategy to choose Singapore as its manufacturing location. This study is inspired by an article published in the Financial Times written by Grant (2014) titled “Aerospace manufacturers head to Singapore innovation hub.” In this study the researcher will be providing an in-depth explanation of the factors that has driven this move by Rolls Royce managers to shift its manufacturing base to Singapore. The researcher will also be emphasizing on the risks and challenges that needs to be considered by the managers of the company in order to improve its global supply chain performance. Finally, the researcher will be endeavouring to recommend certain strategies that can be implemented by Rolls Royce managers in order to tackle the potential challenges and risks in the company’s international supply chain. 2. Factors that drove Rolls Royce to choose Singapore as its manufacturing location Rolls Royce’s decision to shift its manufacturing division to Singapore was driven by a number of reasons associated with the requirement to bring down cost of sales, increase operational and supply chain frequency and meet the growing demand of its customer base. First of all the corporate tax rate is considerably lower in Singapore (17%) (Grant, 2014) when compared to the rate that is charged in the UK (21%) (Crown copyright, 2015). Therefore a drastically decreasing corporate tax rate will allow Rolls Royce managers to increase their profit margin equivalently. The government in Singapore has enacted these relaxed legislations in order to attract investments from foreign companies particularly in the aerospace sector. Singapore has proved its mettle in aerospace technology by developing one of the most technologically superior international airports in the world which has been ranked the world’s number one airport consistently by Skytrax (Skytrax, 2014). Alongside that Singapore airlines has taken this development to the next stage by owning the second largest fleet of luxury Airliner Airbus A380. This goes to show that people in Singapore are craving for world class flying experience and the government is doing everything in the power to ensure the same. This has appealed Rolls Royce managers as they believe that the company has a lot to contribute in the aerospace sector especially and the surrounding Asian countries such as India, Thailand, Japan and China (Simchi-Levi, 2005). The effective global supply chain performance by suppliers in Singapore is what grabbed the attention of managers in Rolls Royce. According to the verdict provided by the World Bank, Singapore ranks number one in terms of the service delivered by the logistics hubs. This verdict was based on the reports published by the Logistics Performance Index (Singapore Economic Development Board, 2015). Rolls Royce managers were apprised of this fact and were also aware of the strategic location of the country. Singapore is situated at the nucleus of South East Asia and is well connected with various countries through water borders. This makes Singapore a perfect channel for world trade. Singapore hosts a magnanimous base of leading international logistic companies, world class transportation and robust global interconnectivity (Jüttner, Peck and Christopher, 2003). That is why it is the most preferred supply chain management and logistics hub for companies based all over the world. The main benefits offered by the suppliers in this country are minimised inventory levels, clearer responsibility and improved procurement manufactured products (Kersten, et al., 2011). The international supply chain in Singapore has created sustainable sources of competitive advantage for many companies who have expanded their business in this part of the country. The expansion of customer base in Singapore and the surrounding countries is another major reason behind Rolls Royce’s move to shift its manufacturing division in this country. Building fuel efficient engines was always the primary target of Singapore based manufacturers that is why companies like Rolls Royce as well as Pratt & Whitney strategized to spend in Seletar based in Singapore. The underlying reason behind such mammoth expansion is to build next generation aero engines that will take flying experience to the next level (Brown, 2011). The supply of cheaper yet more efficient and experienced labour are other reasons behind Rolls Royce expansion in Singapore. The majority of staff in the company’s manufacturing division were from Singapore and were recruited straight out of the government funded highly prestigious technical institute. The students who were recruited from this institute had superior quality training on operations and supply chain management. This provided Rolls Royce to hire qualified and skilled supply chain managers at a lesser cost to company. Lastly, by shifting to Singapore Rolls Royce had reduced the distance of procurement with one of its primary suppliers based in Japan (Grant, 2015). Therefore, this move to shift the manufacturing division at Singapore not only helped the company to reduce its procurement cost but also brought down the delivery time substantially (Handfield and McCormack, 2007). 3. Risks/challenges to be considered to improve Rolls-Royce’s international supply chain performance As is evident from figure 1 given below the main risks/challenges that needs to be considered by Rolls Royce managers in order to enhance international supply chain performance can be categorized into internal risks and external risk. While the internal risks are associated with supply chain operations within the company, the external risks are related to the supply chain management aspects outside the organization. Figure 1: Rolls Royces global supply chain risks and challenges (Source: Rolls Royce, 2014) First and foremost, the researcher will be explaining external risks that Rolls Royce’s supply chain is exposed to in Singapore. Political risk is one factor that Rolls Royce managers need to consider while conducting their supply chain operations in Singapore. Even though the political regulations are very flexible and favourable for foreign based manufacturers in the country but they may change anytime due to invariable economic scenario (Geunes, 2009). The import/export and industry regulation are considerably flexible in Singapore but the labour law may change in the not so distant future. This in turn may increase the cost of labour in the country which in turn may translate into a greater cost of supply chain management. Selection of appropriate suppliers is another challenge for Rolls Royce. The invariable demand for raw material may compel suppliers to either increase the price of raw materials or compromise on their quality. This may increase the risk exposure of a company of the stature of Rolls Royce as use of deteriorated quality products may result in fatal outcomes which in turn will tarnish the reputation of the company. Therefore selection of the right supplier may prove to be challenging for Rolls Royce managers (Sheffi, 2001). Inadequate availability of raw materials is another alarming risk exposure of Rolls Royce. Given the fact that the customer base in Singapore as well as in the surrounding countries is increasing rapidly, Rolls Royce managers will be driven to increase their production volumes equivalently to satisfy the invariably growing demand for their products (Christopher and Lee, 2004). Therefore, unavailability of raw materials will hinder the operations of the company which in turn will delay the delivery of the finished products. This is one risk that can plug a hole in the otherwise effective global supply chain of Rolls Royce (Sheffi, 2001). Delivery risk is another major concern for manager of Rolls Royce as far as the risk exposures of the company’s international supply chain is concerned. The managers will now have to recruit new procurement managers and establish partnership with new logistic companies in order to strengthen its strong hold in the logistic department (Germain, Claycomb and Droge, 2008). However, in the initial period the company might encounter several delivery delays which in turn may increase the cost of delivery for the company. Consequently, the efficacy of the organization’s global supply chain management will degrade. Therefore, this may prompt several customers to question the capability of Rolls Royce’s logistics department which in turn may also degrade the company’s reputation (Geunes, 2009). Research and development risk is another challenge that Rolls Royce managers need to consider in order to improve supply chain management. The failure of the supply chain managers to produce advanced design logic for the procurement and logistics of raw materials and finished products may result in a highly ineffective supply chain management (Christopher and Peck, 2004). Rolls Royce may encounter severe delays while delivery of raw materials and finished products. Therefore, the top tier managers should encourage their supply chain managers to work their way towards developing innovative logistic designs in order to enhance the efficacy of supply chain management. Production risk is another challenge that should be considered as it is associated with the increasing cost of production (Christopher and Lee, 2004). Production risk may decrease the operational efficiency which in turn may delay the production of a particular product and hence delay its delivery. In addition, as a result of production risk Rolls Royce managers may find it very difficult to meet the growing demand of the customer base in Singapore and bordering nations (Cooper, Lambert and Pagh, 1997). Planning risk is a very integral aspect of a company’s supply china management and hence should be considered by managers without fail. This is precisely because planning involves precise forecast and prediction of demands. Therefore an inaccurate forecast will result in an inappropriate plan which in turn will deteriorate the supply chain performance of Rolls Royce. It is extremely important for the supply chain managers in Rolls Royce to make an accurate prediction of the demand in the market. In that way they can apprehend the requirement of particular raw materials. By doing so, the managers will be able to order to the right quantity of raw materials and at the right time thereby preventing any form of inventory wastage (Christopher and Peck, 2004). The effectiveness of a company’s supply chain is determined by the degree to which accurate information is being transmitted between various functional departments. However, often supply chain performance deteriorates because either the transmitted information is inaccurate or there is not appropriate communication framework that allows lucid information transmission. This in known as information risk in the context of supply chain management and hence should be considered by Rolls Royce managers (Germain, Claycomb and Droge, 2008). Lastly, organizational risk can be another hurdle to an effective supply chain management. Mangers may find it difficult to establish a strong coordination and collaboration between the employees which in turn may result in decreased operational efficiency (Gunasekaran, Patel and Tirtiroglu, 2001). 4. Recommendations for Rolls Royce to handle the potential challenges/risks in the company’s international supply chain In order to handle the potential challenges/risks of the international supply chain Rolls Royce managers are advice to incorporate lean management principles in their supply chain management framework. The supply chain managers in the company should emphasize on optimizing the use of resources in order to prevent resource wastage as well as to bring down the cost of sales (Cooper, Lambert and Pagh, 1997). Application of lean management principles will allow the managers to make an accurate estimation of the demands. In that way they will be able to plan the delivery of raw materials accordingly thereby reducing the cost of holding excess inventory. In addition application of lean management principles will also allow Rolls Royce managers to enhance operational efficiency thereby being able to meet the growing demands of their customer base in Singapore and surrounding customers within schedule (Gunasekaran, Patel and McGaughey, 2004). Setting up an effective quality control system is another recommendation set forth to the managers of Rolls Royce. It is extremely important for the managers of Rolls Royce to ensure that the raw materials they receive as well as the finished products that they deliver are of superior quality (Christopher, 2012). They should have experienced quality control managers who would be entirely responsibility for inspecting the quality of the raw materials received as well as the finished products delivered. Alongside that Rolls Royce managers needs to have appropriate material handling framework in place in order to ensure that raw materials and finished goods are not tampered with (Simchi-Levi, 2005). This will also allow them to prevent any form of involuntary damage to their products that may be caused during production or while delivery. Rolls Royce managers should also consider the adoption of six sigma process in order to eliminate the defects from their operational process. This will allow the managers to speed up the production and delivery process thereby enhancing the efficiency of the supply chain management (Prater, Biehl and Smith, 2001). Besides that, incorporation of the six sigma process will enable the managers to prevent resource wastage by ensuring that the resources are being properly utilized and distributed. By eliminating the defects from the operations the managers will be able to reduce the wastage of raw materials (Jüttner, Peck and Christopher, 2003). Lastly, Rolls Royce managers are recommended to establish a continuous improvement framework that will encourage employees to think creatively and design innovative processes that enhances the efficiency of the operations related to supply chain. 5. Conclusion Rolls Royce move to shift its manufacturing division to Singapore has been regarded as a well thought strategic decision by academic scholars and managers of big companies. The research has highlighted that this business expansion of magnanimous scale was carried out by Rolls Royce managers in order to reach out to the demands of a significantly increasing customer base in Singapore and bordering nations. In addition to that shifting to Singapore was a decision driven by the requirement to reduce the cost of supply chain management. Not only has the company been able to avail a cheaper source of labour but they have successfully tapped a market that offers cheaper supply of raw materials with the quality kept intact. In addition Rolls Royce managers have also been able to reduce the cost of procurement by shifting its manufacturing base close to its suppliers. Nonetheless this strategic expansion is associated with various internal and external risks that have to be tackled with effective supply chain management strategies such as lean management, six sigma, quality control and material handling. Reference List Brown, K., 2011. Rolls-Royce targets growth in Asia. [online] Available at: [Accessed 17 March 2015]. Christopher, M. and Lee, H., 2004. Mitigating supply chain risk through improved confidence. International Journal of Physical Distribution & Logistics Management, 34(5), pp. 388-396. Christopher, M. and Peck, H., 2004. Building the resilient supply chain. The international journal of logistics management, 15(2), pp. 1-14. Christopher, M., 2012. Logistics and supply chain management. UK: Pearson UK. Cooper, M. C., Lambert, D. M. and Pagh, J. D., 1997. 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