Highlights of the year
In 2003 we consolidated the improved performance achieved in 2002
and delivered additional improvements whilst coping with a further
production load reduction of some ten per cent. The re-sizing of
our operations was completed in anticipation of 2004 being the
trough year for production and purchasing volumes. Once again I
must pay tribute to the teamwork of our entire workforce in
achieving these changes without industrial disruption.
- Rationalisation and restructuring completed without industrial
- Progress in restructuring supply chain and renewing
- Significant product cost reduction achieved despite load
- First production parts made at new Inchinnan factory in
- Five engine types meet 40 Day Engine targets.
Rolls-Royce gas turbine operations are global, with
manufacturing facilities in the UK, US and Germany and joint
ventures in the UK, Italy, Spain, Israel and China. In 2003, the
added value from our manufacturing operations was 30 per cent (down
from 32 per cent in 2002), with the remaining 70 per cent purchased
from our global supplier network. Our strategy is to manufacture
the highest value-added components ourselves and to purchase the
remainder. Each purchasing and manufacturing operating unit will
service all four businesses.
In 2003 we made significant progress in our initiative to
restructure our supply chain. We completed the implementation of a
tiered supply chain with structured build packages for the Trent
500 and delivered the associated productivity improvement on
target. Other engine types are following. We reduced our supplier
base by 142 to 765 after adding 37 new suppliers, mainly in
emerging low-cost markets.
We expanded our use of Exostar, the aerospace and defence
industry’s electronic trading exchange adding capability for
catalogue management (involving 300,000 line items), e-auctions and
a tool for collaborative engineering via the Internet known as
We have continued to react quickly to lower our cost base in the
face of production volume reductions from the marketplace. In 2003
we were able to lower operating cost sufficiently to more than
offset the fixed cost penalties resulting from the lower volumes.
Despite the volume reductions, both our factories and our supplier
network responded well to our product cost reduction programmes and
delivered a more than five per cent year on year reduction.
We made positive progress in the ongoing consultations with our
workforce regarding implementation of Modern Working Practices in
the UK. These will be required to underwrite the business cases for
new factories which we expect to bring forward in 2004.
Construction of our new factory at Inchinnan, Scotland, was
completed in December on schedule. Initial production output was
achieved prior to this, in June 2003. The full transfer of
capability from the old Hillington factory will take place during
2004 for completion in early 2005.
Manufacturing lead times for parts reduced further in 2003 and by
the year end met their component of the 40 Day Engine initiative
target. Engine assembly lead times also reduced and by the year end
five engine types were meeting the 40 day goal.
Other lean manufacturing initiatives, including implementation of
the Rolls-Royce Production System, advanced during the
year. The combined effect of all of these has produced a
significant inventory reduction and consequent improvement in
working capital utilisation.
In 2004 our priorities will be to continue with the implementation
of our lean manufacturing initiatives, complete our plans for
factory renewal, drive unit cost reduction and intensify our
programme for quality improvement.