In-Depth Analysis on Recent News of International Supply Chain Management - Case Study Example

In‐Depth Analysis on Recent News of International Supply Chain Management Table of Contents Table of Contents 2 Introduction 3 2. Driving Factorsfor Rolls Royce to Manufacture Engines and Parts in Singapore 4 3. Challenges (Or Risks) to be considered in For Improving Rolls Royce’s International Supply Chain 7 4. Recommendations to Mitigate the Identified Challenges (Or Risks) in Rolls Royce’s International Supply Chain 9 5. Conclusion 12 References 14 Bibliography 18 1. Introduction From the past two years, it has been witnessed that Singapore has had a huge development in the aerospace business due to which the leading manufacturers of airline jet engines have heavily invested for establishing manufacturing facilities at the city-state of Singapore (Allurentis Limited, 2013). These manufacturing bodies have selected Singapore to manufacture its products as the corporate tax at the city-state is 17% which is relatively lower as compared to other countries (Grant, 2014). Moreover, the political environment at Singapore is quite stable and the regulations framed by the government tend to be supportive and transparent. The regulatory framework of the country has resulted in attracting bulk investment which also includes investment in aerospace. In the year 2006, there was a rapid growth in foreign investment wherein investors invested on the Seletar airport of Singapore and converted it to Seletar Aerospace Park that covered an area of 320 hectares (Grant, 2014). At the early phase of 2012, Rolls-Royce started a manufacturing unit for the first time at Singapore with the objective of assembling Trent series of engines along with manufacturing titanium fan blades wherein the weight of fan blades significantly reduced to three fold (Grant, 2014; Ballantyne, 2012). In this regard, there was a rapid development in Singapore as it became a global hub for manufacturing of aerospace related products that was a resultant of investment made by companies of the United Kingdom and the United States which amounted to above 810 million US Dollars (Grant, 2014). Singapore has also profited a lot as it creates fuel efficient engines for Pratt & Whitney along with Rolls Royce at Seletar. Supply of skilled workers has also been an important aspect for development in Singapore wherein almost 90% of the workers at Rolls Royce are local people. In relation to the perspective of supply chain, the amount invested has benefited both investors and the manufacturing units globally (Grant, 2014). Correspondingly, the main objective of the research report is to identify and analyse the problems faced by the aerospace manufacturers in the international supply chain at Singapore. It also provides solutions to deal with the identified problems in the practical context. 2. Driving Factors for Rolls Royce to Manufacture Engines and Parts in Singapore In the present day era, Singapore has become the most attractive location for companies to manufacture jet engines and body parts of aeroplane because of which a huge bulk of foreign investment is getting injected to the Singapore’s economy. Singapore as observed has an infrastructure that is completely of a world class level, due to which there are companies which get attracted to the infrastructural facility provided by Singapore. Similarly, Rolls Royce also chose to manufacture aeroplane parts and engines in Singapore as there were certain driving factors in Singapore that were taken into consideration by the company (Singapore Economic Development Board, 2014). Flexibility in the government policies of Singapore for international companies is one of the major driving factors that paved the way for Rolls Royce to manufacture its high technology products in the country. The overall population of Singapore have a mind-set of technological advancement and they have a complete willingness to excel in technology that would directly result in the development of the country. Rolls Royce took into consideration this mind-set and used it to their advantage for manufacturing their high technology products. Manpower skills and capability of the people to quickly get adapted to uncertain changes was also a driving force for the company to select the location of Singapore. According to the International Institute for Management Development (IIMD), Singapore is ranked second as the most competitive nation in the world after United States (US). Singapore is a global business arena and the products developed in Singapore are renowned for its quality, proficiency and reliability in the global market. Rolls Royce selected Singapore for manufacturing its products as the competency level in the nation has been continuously growing and the driving factor for Rolls Royce has been that the company could capitalise on this competency level along with the skilled workforce who possess exceptional manufacturing capabilities (Institute for Manufacturing, 2011). CORE which involves connectivity, openness, reliability and enterprise provides a clear understanding about the driving factors that paved the way for Rolls Royce to select Singapore to manufacture its jet engines and products. Connectivity involves widespread and sophisticated air connection of Singapore with the entire world along with free trade agreements. This has been the other driving factor for Rolls Royce in selecting the location as the place is suitable for the supply of goods and services to the international market. The strategy used by Rolls Royce should be provided certain emphasis as the company made the most out of the nation’s location which is considered as one of the best regions for getting connected to the entire world through its products (International Air Transport Association, 2011). Openness in the culture of the country was also a driving factor for Rolls Royce in selecting the location. Singapore is an aerospace hub that bridges the gap between eastern and western countries therefore international supply chain management of the required materials for production i.e. engine and body parts got completely covered and was not concerning the company. Singapore is a place which is diverse in skills and competencies wherein people have an international mind-set for business which makes it ideal for Rolls Royce to carry out its operation in the nation. Reliability in the nation’s political stability also attracted Rolls Royce as the government policy is quite proactive along with being highly transparent which makes it a suitable place for business functioning of the company. Enterprise ecosystem in Singapore for foreign companies is witnessed to be quite vibrant and supportive which has continuously benefited Rolls Royce and added more value to the functioning of the business (Singapore Economic Development Board, 2004). Rolls Royce has decided to invest 700 million Singapore Dollars in the campus of Seletar as the demand for flight services was continuously growing in the Asian market. From the last few decades, Asia resembles 45% of flight booking which amounts to a figure worth 120 billion Singapore Dollars and there has been a continuous growth in the order of flight tickets. Asia is considered as a continent which covers half of the international market for production of jet engines and it has been determined in the year 2012, there was an annual demand of 500 Trent engines from Rolls Royce functioning at Singapore. Besides, it is witnessed that the demand is continuously growing. Rolls Royce also decided to create an extra manufacturing facility at Singapore as the driving factor for the company was growth in the demand of the customers along with growth in the international aerospace market. Moreover, Rolls Royce’s driving force to establish a manufacturing plant at Singapore has been that the company could make the most out of the establishment by getting nearer to the customers in the Asian region. Rolls Royce also has a strong partnership with Singapore Airlines Engineering Company due to which there has been an optimum productivity in the manufacturing unit of Rolls Royce. From the past 10 years, Rolls Royce has been witnessed as a successful company in Singapore as the manufacturing level of the engines and body parts continuously increased which paved the way for the company to establish an additional facility through the support provided by the government policies and regulatory measures (Civil Aviation Authority of Singapore, 2012). 3. Challenges (Or Risks) to be considered in For Improving Rolls Royce’s International Supply Chain Rolls Royce’s supply chain is under pressure due to the cost cut in airline sector along with relatively lower traffic demand. The supply chain of Rolls Royce has had a continuous effort to reduce their cost of production but their efforts are merely meeting the purpose (Adams, 2009). Rolls Royce competitors have gained experience in outsourcing their manufacturing units in order to reduce the cost incurred while manufacturing the engines and body parts. One of the biggest challenges faced by Rolls Royce is to meet the demands of the Boeing and Airbus in delivering engines and body parts as per the given schedule. This in turn can result in a problematic situation for the airline company as they will be left with very less time to assemble other products along with the engine and body parts of the aircraft. Rolls Royce if in case is not able to provide the delivery of its manufactured products to the assemblers on time there would be a possibility that the assemblers will have to delay the delivery of other products from the manufacturing units (Jefferys, 2011). This factor poses a major challenge to the Rolls Royce supply chain management as the engines and body parts are not delivered on time. Management in the supply chain process of Rolls Royce has become much more complicated than earlier due to the increase in outsourcing and the requirement for deriving new ways to manage the supply chain process. Other airline companies have raised the bar for Rolls Royce to create more visibility and accessibility along with meeting the supply of engines and body parts based upon the demand in the business function. Rolls Royce (Tier 1 manufacturers) also has been facing the challenge to collaborate with the Tier 2 manufacturers that directly poses a huge threat to the supply chain management performance of the company (Exostar LLC, 2013). It has been ascertained that if in case there is any kind of disruption in the supply chain process of Rolls Royce then it would result in production delay in the manufacturing units. There are certain risks involved when Rolls Royce outsources its task of development to the Tier 2 partners as they may not have technical competency of completing the given task due to a lack of knowledge which would cause deferral in the production function of the company (Tang & Zimmerman, 2009) Operational risks of qualitative aspects and innovativeness have been observed under risks related to supply chain management. The company remains at risk of disruption that arises from economic and physical reasons such as natural disasters, bankruptcy and other reasons. The company is also at risk that involves intangible assets which arises from supply chain (Kossovsky, 2011). Other challenges in the supply chain management of the company involve longer start-up period that results in high cost of learning, thus high effort in validation is required in the process of manufacturing along with the demand for approval of the products manufactured (2Rolls-Royce Plc, 2011). It is very essential for the company to produce engines that are lower in weight irrespective of the fact that there are many additional features to be installed within the engine that is challenging to the manufacturing personnel involved in the supply chain process. Rolls-Royce has faced a major challenge in ensuring longer lifecycle in the supply chain process. The other challenges in the international supply chain process of the company involve requirement for global growth along with the capacity of developing, high value addition in the products developed and to be a leading class in the supply change process (1Rolls-Royce Plc, 2013). Rolls-Royce’s problem related to supply chain management involves escalation of the product margin which is only possible to achieve through the reduction in the production and the cost of supply chain in the upcoming years. According to Özlen and Hasanspahic, the major challenge faced by Rolls Royce in its supply chain management is that the growth in supply chain is quite slow, the industrial alliance and the market maturity require to be appropriately balanced along with pressure to reduce the cost of operations. Furthermore, it is determined that the prime issue in the company’s supply chain is to produce the products, deliver at a given time and reduce the overall cost of production as the airline industry focuses to have supply chain that involves lesser cost (Özlen & Hasanspahic, 2013). Therefore, the aforesaid challenges require to be addressed to ensure that Rolls Royce has an effective supply chain performance. 4. Recommendations to Mitigate the Identified Challenges (Or Risks) in Rolls Royce’s International Supply Chain The international supply chain of Rolls Royce has been facing certain challenges and risks due to which there is a huge set of problems being faced by the company to effectively collaborate the supply chain. Therefore, it is very essential for the company to mitigate the challenges and efficiently integrate the process of supply chain in the company. It is believed that excellence can be attained in the supply chain management performance of the company through understanding what supply chain actually means for the manufacturers. Supply and demand is the main aspect in the supply chain management which includes the process of buying the raw materials, producing the products, moving the products from the producers to the sellers and managing the stock of products effectively to cater the requirements. It is also considered very important for the company to understand the dynamics of the supply chain and adopt different approaches to implement the most effective process of supply chain that would benefit the organisation in the best possible way. Models for managing supply chain should be developed that would be useful to classify distinct phases in the supply chain process and directly help in assisting the employees to control the process of manufacturing. The three essential models in managing the process of supply chain and reducing the risk associated with functioning include Model of Supply Chain Operation Reference (SCOR), Constraints Theory and a model of New Agenda for Supply Chain and Economic Value. It would be advantageous for the company to adopt a unique approach for supply chain which would act as a collaborative tool in integrating the process of supply chain. There is a belief that if the supply chain process is not measured then it cannot be managed as well. Key Performance Indicators (KPIs) must be established in the manufacturing unit of Rolls Royce that would continuously monitor the performance of the workers and determine certain targets based upon the product requirement and its demand from the assemblers. Traditional supply chain used by the company should be changed to a modern and advanced supply chain process which would help in deriving alternative strategies to enhance the performance of supply chain (Euro Petroleum Consultants, 2014). Supply chain performance can be enhanced by increasing the extent of investment done in capital expenditure that would result in significant growth on the amount of products produced. This capital expenditure should involve investment in appropriate machineries along with modern tools and equipment that would facilitate optimum utilisation of resources and increase the margin of production. As the challenges and risks have been identified, it is necessary for the productions managers to mitigate these challenges through a sound strategy formulation and implementation of the developed strategies. It is considered that the suppliers of raw materials for Rolls Royce must be strong so that these suppliers maintain a continuous flow of materials required for production (3Rolls-Royce Plc, 2013). Correspondingly, it would be worth mentioning that the risks associated with the supply chain can be managed effectively if the members involved in the process supply chain work in a unified way and effectively coordinate with one another. Coordination should be given extreme focus as it helps in redesigning the work flow and resources amid the supply chain members to influence and enhance performance that would result in large margins of profit along with faster reaction time. Continuous synchronisation and cooperation within the members of supply chain can result in risk avoidance and increased production. Supply chain integration measures must be initiated through information system and stock management that would reduce the overall cost incurred in production process. Moreover, supply chain members can undergo contracts that would create a better buyer supplier relationship and mitigate the risks involved in the supply chain. The contracts would include a specific time, quantity, price and quality wherein the order is placed by the buyer and the supplier would deliver the product based upon the given parameter. Supply chain members should share facts regarding the product requirements in order to ensure that the perceived performance is actually achieved (Arshinder & et. al, 2011). It is highly recommended that the company must clearly integrate and coordinate the supply chain process through ensuring the effectiveness of suppliers in relation price, quality and time. It is required for Rolls Royce to set certain targets for inventory, required volume and given time to ensure effective work flow in the supply chain management. Monitoring the conditions of supply and demand along with communicating performance with the workers would be the best way to handle the risk associated with supply chain management (Spring Singapore, 2010). Therefore, it can be asserted that the proposed solutions to handle or manage the challenges and risks can turn out to be productive in the international supply chain management of Rolls Royce. 5. Conclusion From the aforesaid study, it can be revealed that within the recent two years Singapore had a huge development through the aerospace business due to which there has been a bulk of investment flowing into the economy of the country. This bulk of investment also included investment made by Rolls Royce to manufacture body parts and engines of airplanes. Consequently, in relation to the observation of one of the key recent developments, the driving factor for Rolls Royce to select the location of Singapore involves flexibility in the government policies of Singapore, willingness of the people to outshine in technology and the competency level of the people in adapting sudden changes. These factors have resulted in Rolls Royce’s establishment of manufacturing units at the Seletar campus of Singapore. However, in recent times, there are certain challenges faced by the company regarding the international supply management. As the airline sector is undergoing cost cutting policies, there has been an increased pressure on Rolls Royce to manufacture its products at a relatively lower cost. Delivering the body parts and engines at a given time has also been a major challenge being faced by the company as the demand for low cost engines and body parts has continuously been increasing. Moreover, the qualitative and creative aspects have also been a major concern of the company concerning the international supply management. In addition, the supply chain of Rolls Royce is at jeopardy as there is a slow growth in its supply chain based activities. Besides, industrial alliance and maturity in the market have become quite uncertain and the objective of reducing the manufacturing cost has hardly been achieved. Nevertheless, it has been perceived that outstanding supply chain can be achieved by the company if the workers understand the actual meaning of the influence related to supply chain in the manufacturing performance. Supply chain engulfs major factors i.e. supply and demand which includes a systematic process related to purchasing the raw materials, developing the final product, transferring the product from the producer to the consumer and effectively managing the stock to meet the demand requirements. It is considered very essential to recognise the dynamics of supply chain and adopt suitable approaches to derive alternatives and select the best possible alternative to achieve the desired results. As recommended, the supply chain management should be systematised in such a manner that would mitigate the risk and challenges connected to the business of Rolls Royce. References Adams, C., 2009. Supply Chain: Problems and Solutions. Access Intelligence, LLC. [Online] Available at: http://www.aviationtoday.com/am/repairstations/Supply-Chain-Problems-and-Solutions_32278.html#.Ux7p4T-Sxy0 [Accessed March 11, 2014]. Allurentis Limited, 2013. Investing in ASEAN. 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