International Supply Chain Management in Rolls-Royce Plc in Singapore - Case Study Example

International Supply Chain Management in Rolls-Royce Plc, Singapore. Introduction In February Rolls Royce Plc had opened a manufacturing facility in Singapore. It is the company’s first facility location in the Asian market. Rolls Royce Plc is one of the world’s largest manufacturers of aircraft engines. The company also caters to the defence segment. The headquarters of the company is in the United Kingdom. The reason for several aerospace manufacturers, such as, Rolls Royce, to shift their focus towards Singapore is because of the following reasons (Supply Chain Finance, 2014). Hub of the Asian market- Singapore is considered to be one of the leading markets of Asia. Asia itself is one the fastest growing markets in the world. High customer base- Customer orders for Rolls Royce in Singapore is considerably high. This has influenced the company to invest in Singapore. Staying close to the customers is an important factor that has driven Rolls Royce to open a facility in Singapore, especially with one of its major client, Singapore Airlines. Business efficiency- The country is one of the best places in Asia to do business or to invest. It is also one of the largest economies of Asia. Efficient Government- Compared to the other states in Asia, Singapore has a very transparent government, as far as business matters are concerned. Labour- Asia is abundant in labour supply. Hence, getting adequate manpower is not an issue for Rolls Royce. Moreover, the company has been closely working with universities and training institutes in Singapore in order to develop skilled and efficient employees for the facility. Low on corruption- Singapore has a very low rate of corruption compared to other developed countries in Asia. This is due to its highly efficient government. Beneficial tax system- Taxes are a key concern when it comes to setting up a business. Singapore has very low corporate and personal tax rates. Convenient Immigration Policies- The immigration policies of Singapore are open and liberalized. This facilitates movement of manpower from UK to Singapore as Rolls Royce requires highly expert team of workers from its main headquarters that is located in UK. Management of Intellectual property rights- The country takes its IP related regulations very seriously. So, it is highly developed in matters of managing IP rights, which is a benefitting factor not just for Rolls Royce, but also for any company that operates in Singapore. At Singapore, Rolls Royce assembles engines for A380 jets, which are manufactured by Airbus. Additionally, the company manufactures titanium fan blades, which allow three times more weight saving compared to conventional fan blades. The company has been doing well with its Singapore facility, gaining immense profits. Rolls Royce expects to cater to the aerospace requirements of other markets in Asia as well, apart from Singapore airlines, thereby increasing the Asian customer base. Air travel has immensely surged in Asia, which attracts many aerospace manufacturers. It is soon going to become the aerospace hub of the eastern world. Rolls Royce has also developed academic relations and collaborations in Singapore so as to generate more talent pool. The facility is at present operating at 20% of its capacity and mainly produces engines for A380. The company plans to further increase this capacity in the year 2014 in order to be able to cater to Boeing 787. By 2016, Rolls Royce Plc expects to serve 50% of its clients from Singapore and the remaining from UK. Although Singapore is abundant in labour resources, it still faces a crucial challenge of high qualified employees. Therefore, employees for the Singapore location are hired from the government backed Institute for Technical Education; Rolls Royce has developed training initiative with the same. Rolls Royce will continue to use engine parts that are supplied from Japan. The company also has suppliers from Thailand and other facilities that are locally situated in Singapore (The Financial Times, 2014). Challenges in international supply chain In an international supply chain, a company aims to cater to its clients that are spread across the world with help of highly effective logistics network. The end-to-end logistics management can either be self-managed by the company or can be outsourced by contacting (National Shipbuilding Research Program, 2007). Rolls Royce needs to develop an extremely efficient network of supply chain as to be able to cater to needs of the Asian market. Some of the challenges that Rolls Royce is likely to face in the international supply chain management can be cited as follows (Chopra, 2008): Customization In present scenario, customer loyalty has significantly reduced. The primary reason for this is existence of suppliers that provide highly customized services. Rolls Royce might have significant competitors in the future who manufacture and supply aircraft engines in a highly customized fashion as required by the client (Rolls-Royce, 2010). Currently, the company provides customized engine only for A380 jet aircraft at its Singapore location. The company needs to provide more customized services for other types of aircrafts as well. Otherwise, it is likely that such potential areas will get tapped by other companies. Therefore, if the company wants to increase its client base in Asia, it needs to concentrate significantly on development of customized engines for different airlines (Coyle, et al., 2008). Accurate forecast of demand and supply This is one of the most crucial aspects faced while managing the supply chain. The prime reason for this is the fact that there is high volatility in client requirements and fluctuations in supply from suppliers of raw materials. So, it becomes extremely difficult to correctly forecast a firm’s production as well as optimum amount of orders to be taken from customers. Moreover, Rolls Royce is a new player in the Asian market. The company has comparatively less idea regarding demand pattern existing for its products in this market (Das, 2011). Hence, when the company decides to expand, it needs to thoroughly analyze the demand pattern of its customers so as to be able to correctly forecast the required amount of production. Similarly, Rolls Royce should ensure the supplying capacity of its suppliers. If the suppliers are not able to deliver the required quantity at the right time, then entire production process will go into jeopardy (Christopher, 2013). Complexity in management The success of a globalized business, like, Rolls Royce, depends solely upon effectiveness of the company in managing its complex network of clients. So, a suitable supply chain needs to be established for effectively fulfilling this requirement. Every client will have a different lead time, unit’s requirement, time interval between each batch and units to be delivered in each batch. Hence, the firm will be required to produce in such a manner that it can easily cater to the requirements of each client. Furthermore, in case of an international supply chain, clients are located worldwide. Therefore, it becomes all the more challenging for the company to adequately supply goods on time. Moreover, the greater the customer base, higher will be the level of complexities (Cox, Harris and Parker, 2005). Transportation Through the Singapore base, the company plans to effectively cater to the Asian market. Reaching out to the clients located at different corners of this continent will be challenging as many regions of South East Asia are underdeveloped and cannot support effective flow in the distribution chain. Hence, Rolls Royce needs to establish an exhaustive network of transportation in order to reach its clients and provide them with goods on time. For this, different transportation options need to studied and then carefully planned (Plunkett, 2007). At present, since Rolls Royce is primarily catering to Singapore Airlines, transportation will not be an issue as client location is the same as company location. In future, when the customer base of Rolls Royce will expand throughout Asia, transport will become one of the major issues to tackle. The issue also rests in the fact that major supplier for the Singapore facility is in Japan. Therefore, there must be efficient and highly systematic transport system existing between the supplier location and the facility (Lambert, 2008). Reducing bottlenecks The flow of semi-produced goods must be fast and effective. If there is a bottleneck in the production chain, then movement of goods from one production department to another will get delayed. Hence, overall lead time is affected. In a big establishment with numerous production functions, it becomes significantly difficult to track bottlenecks as and when they arise and reduce them accordingly. Bottlenecks may surface from different factors such as, breakdown of machines, facility failure and shortage of raw materials and so on. When such bottlenecks occur in a production facility, a firm’s output level as well as time limit for production gets impacted. Therefore, suitable measures should be planned early on and kept on hold so that time is not wasted in analyzing ways to reduce the bottleneck. However, it is difficult to determine where and how bottlenecks are expected to arise. (Arlbjorn, 2010). Efficient management of flow of goods Different production units will require different time scale to finish their job. The flow of goods from one department to another depends on how effectively the previous department does the work required. If there are flaws in the work done by a particular department, it automatically hampers the work to be performed by its subsequent departments in a line production system. Similarly, if one department is slow in its work, other departments are also seen to lag behind (Fredendall and Hill, 2000). Quality check In a supply chain that involves numerous activities to be performed for making the final product, products’ quality must be checked after each stage of production to avoid deterioration. Every department should have a particular standard of quality to be met before the goods are sent to the next department. So, quality checks need to be performed at different stages. This becomes a difficult aspect, especially when a firm has different levels of production spread across different production units (Shah, 2009). Reduction of costs This is a major challenge in managing supply chain. Optimizing costs is extremely crucial for proper supply chain management. Rolls Royce needs to adhere to a type of supply chain that not only serves its business purpose, but also controls the cost of manufacturing. Since Rolls Royce expects to cater to needs of the Asian market that is predominantly driven by low prices, it is a challenging aspect for the company to maintain a suitable level of prices without compromising on quality. Innovation and change The Asian market is highly prone to changes. So, it becomes necessary for a firm to adhere to innovation so as to develop new technologies, thereby fulfilling changing market scenarios. Also, it becomes a challenging aspect for the company to be able to incorporate innovative methods and technologies within the production system. A change in the system may adequately affect a department’s flow of work. In addition, a lot of time is lost for employees to get used to the new system. This may lead to a significant amount of lag (Ivanov and Sokolov, 2009). Supply chain environment A supply chain interacts with different factors of the environment such as, suppliers, financiers, political aspects and the society. It is important for the supply chain system to not have any negative influence on these environmental factors. The company should, therefore, maintain a facility that does not degrade the environment. It also needs to be checked whether the facility follows all rules and regulation as laid down by the government of the country, where the facility is located. Similarly, employee needs should be met and violation of human rights must be avoided. High competition Globalization has although created huge market for products, but it has also increased the level of competition. Every firm is at a race against each other to grab more opportunities and tap a larger portion of the market. Therefore this has led firms to concentrate more upon the development of supply chain. As this is an important criteria to meet the demands of the people effectively. Difference in regulatory systems Ina global supply chain system, a firm effectively operates in different nations. As a result it is exposed to different regulatory authorities. This creates immense pressure upon the firm as management systems at different facilities located in different nations will vary. Therefore it becomes important for the firm to make its governance and operation pattern as flexible as possible so as to suitably match with the different regulations existing in different nations. This will also lead to developing different types of supply chain strategies. Recommendations for improving supply chain In order to avoid the above stated problems and improve the supply chain management of Rolls Royce, following factors are needed to be considered (Monczka, et al., 2008). Matching supply chain with product It is important that the supply chain system matches with the product. Not all types of supply chain methods will suit the aerospace manufacturing sector. Similarly, every firm will have its own specific characteristics that need to be catered (COI Annual Conference, 2013). Hence, a highly strategic supply chain needs to be planned upon and implemented. For this, Rolls Royce needs to identify all requirements of the product and steps involved in production phase. Accordingly, the company must allocate work to each department. Guidelines regarding the lead time and value addition process need to be directed and applied. The supply chain should be designed in a manner, which allows very little scope for bottlenecks. Similarly, adequate measures should be taken so as to avoid stoppage of work due to lack of inventory positioning. The flow of inventory should be continuous (Tiwari, 2005). Effective Distribution design It is highly important for the company to work upon and generate an effective distribution network. This is not an easy task when the clients are spread far and wide across the globe. It is also important to design a network that effectively delivers clients with goods on time. For this, all kinds of roadblocks in the transportation network should be identified and removed. Careful analysis needs to be done in this respect (Jackson, n.d.). Also, the company should have sufficient pre-planned remedial measures so that any sudden roadblock can be adequately managed. The distribution network should also be cost efficient. Since Rolls Royce manufactures engines for aircrafts, it is important that the company delivers finished products with adequate safety; this would prevent any damages to the finished product. Hence, a suitable distribution channel needs to be planned to cater to all these needs (Rolls-Royce, 2008). Well-established network of communication It is important that different departments and components of the supply chain are able to effectively communicate with each other. So, it becomes important to establish a sound channel of communication. This would help in conveying important changes in the plans or urgent requirements. Without an effective communication network, it becomes difficult to exchange important information (Phillips, 2004). Continuous improvements A firm must not stop improving its supply chain system. It should constantly seek methods for improving the system so that greater efficiency and improvement in the quality of products can be achieved. This involves analysing the potential shot comings in supply chain and taking measures accordingly. Nothing is so good that cannot be further improved. This applies for all management activities, not just supply chain. Therefore it becomes significantly necessary that a firm develops an ever learning and continuously improving perspective towards supply chain. (Osys, 2012). Immediate corrections Rectification and changes should be made as and when mistakes are detected. A faulty inventory must not be left to pass through one production system to another. It is much more simpler to make alterations at the semi production stage than to make them at the end of the production. Sometimes, such faults may get hidden in the product and surface only after a long time of usage. Hence a firm shall not be able to rectify the error as it is not visible. In order to avoid suh a situation it becomes important to implement quality check and product scanning mechanism after each stage of production. Managing relations with suppliers This aspect includes managing effective relations with suppliers as well as customers. By collaborating with the suppliers, the company can effectively plan strategies for improving efficiency of the supply chain. It is also possible to enter into contracts with suppliers and customers in order to share profits and make investments. In this way, maintaining good relations with different interest groups not only helps the company to increase its business, but also allows to competently conduct business by involving them as part of the production process. It is also recommended that facilities should be close to the supplier location. This reduces the cost of transportation and also facilitates just in time inventory system. Lower inventory levels Most firms believe in maintaining a huge stock of inventory to meet their supply chain requirements. They completely neglect the just in time inventory. There are however a significant benefits of maintaining just in time inventory. In the context of defects, it is easier to manage and do corrections in a smaller level of inventory rather than in large stocks. The re- engineering cost is significantly lower. Also another major benefit is just in time inventory adequately serves the current demand of raw materials. There is no excess raw material that gets stored. When a firm alters its manufacturing process or make changes in the product, a lot of the stored inventory can go to waste. This problem can be avoided through just in time inventory system (NC State University, 2011). Conclusion The investment of Rolls Royce in Singapore has not gone unnoticed from the supply chain perspective. Other companies manufacturing engine parts and other engineering solutions have shifted their focus towards Singapore, considering growth and success of Rolls Royce. RLC Engineering group is one such company (The Wall Street Journal, 2013). Therefore, it can be undoubtedly said that the facility at Singapore will help Rolls Royce not only to grow in terms of profits, but also in terms of customer base. This will generate a long-term benefit for the company. The company can slowly start catering to numerous airlines in Asia. Rolls Royce already has a strong base at UK and is recognized as a supreme player in the industry of aerospace in the western world. Through its Singapore location, Rolls Royce is set to capture the Asian market (Rolls-Royce, 2014). Reference List Arlbjorn, J. S., 2010. Supply Chain Management. Massachusetts: Academica. Chopra, S., 2008. Supply Chain Management. New Jersey: Pearson Education. Christopher, M., 2013. Logistics and Supply Chain Management. New Jersey: Pearson Education. COI Annual Conference, 2013. Requirements to be an Aerospace supplier. [pdf] Rolls-Royce Plc. Available at: [Accessed 22 March 2014]. Cox, A., Harris, L. and Parker, D., 2005. Privatization and Supply Chain Management. 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