Highlights of the year
- Gross operating margins improved from 17.4 per cent to 19 per cent.
- Product cost reduction continued successfully.
- Product quality improved significantly.
- Agreements reached on Modern Working Practices at all UK sites.
- IT costs significantly lowered whilst service levels improved.
- Working capital utilisation improved.
We entered the year with plans that anticipated 2004 being the
‘trough year’ in this civil aerospace cycle. By the end of the
first quarter it was apparent that market conditions had improved
and we could expect growth to resume. By the end of 2004 production
load in aggregate was running at some 20 per cent above the rate at
the end of 2003. In consequence restructuring expenses were lower
than planned and there was substantial productivity improvement,
which allowed the load increase to be delivered without increasing
the workforce in Operations.
Local load/capacity imbalances produced a degree of disruption to deliveries but our workforce and our supply chain again demonstrated considerable commitment in seeking to overcome this and I take this opportunity to compliment them for their efforts.
In 2004 we continued to make progress in the restructuring of our supply chain. We further reduced our supplier base by seven per cent to 711 after adding one new supplier. Our sourcing in emerging, low cost markets increased from four per cent to six per cent of purchases.
Our drive to lower operating costs persisted in 2004 against a background of rising volume. Both our factories and our supply chain were able to deliver the planned five per cent year-on-year product cost reduction. Increased overtime costs and some primary materials cost increases were more than offset by higher productivity, better quality and improved fixed cost absorption.
We reached agreement on the implementation of Modern Working Practices with our UK workforces at our sites in Derby, Hucknall, Barnoldswick and Bristol. This formed an essential part of the business cases for new factories in these locations. Construction work has commenced in all locations except Bristol where planning permission is pending.
Discussions on Modern Working Practices have opened in a number of other Rolls-Royce locations around the world.
Agreement has been reached with all of our workforces for the implementation of a Global Works Council which will be put in place in early 2006 to cover both represented and unrepresented Rolls-Royce employees globally.
We launched a culture change programme under the banner of ‘Process Excellence’ aimed at developing a culture of systematic, continuous improvement, targeting world-class quality performance for both operational and transactional processes. In 2004 we achieved a significant improvement in product related quality with parts-per-million (ppm) defect rates halving to close at approximately 1,000 ppm for our whole supply chain.
In conjunction with our IT supply chain and our principal outsourcing partner, EDS, we achieved substantial operating cost reduction for our IT estate. This resulted from a multi-year initiative driving standardisation, productivity and improved service levels.
Our lean manufacturing initiatives coupled with a specific focus on non-cash working capital resulted in further improvement to working capital utilisation from 6.8 per cent to 6.4 per cent of sales.
In 2005 our priorities will be to persist with our lean manufacturing and Process Excellence initiatives, continue to drive product cost reduction, build our new UK factory infrastructure and manage the anticipated continuing growth in load.
Local load/capacity imbalances produced a degree of disruption to deliveries but our workforce and our supply chain again demonstrated considerable commitment in seeking to overcome this and I take this opportunity to compliment them for their efforts.
In 2004 we continued to make progress in the restructuring of our supply chain. We further reduced our supplier base by seven per cent to 711 after adding one new supplier. Our sourcing in emerging, low cost markets increased from four per cent to six per cent of purchases.
Our drive to lower operating costs persisted in 2004 against a background of rising volume. Both our factories and our supply chain were able to deliver the planned five per cent year-on-year product cost reduction. Increased overtime costs and some primary materials cost increases were more than offset by higher productivity, better quality and improved fixed cost absorption.
We reached agreement on the implementation of Modern Working Practices with our UK workforces at our sites in Derby, Hucknall, Barnoldswick and Bristol. This formed an essential part of the business cases for new factories in these locations. Construction work has commenced in all locations except Bristol where planning permission is pending.
Discussions on Modern Working Practices have opened in a number of other Rolls-Royce locations around the world.
Agreement has been reached with all of our workforces for the implementation of a Global Works Council which will be put in place in early 2006 to cover both represented and unrepresented Rolls-Royce employees globally.
We launched a culture change programme under the banner of ‘Process Excellence’ aimed at developing a culture of systematic, continuous improvement, targeting world-class quality performance for both operational and transactional processes. In 2004 we achieved a significant improvement in product related quality with parts-per-million (ppm) defect rates halving to close at approximately 1,000 ppm for our whole supply chain.
In conjunction with our IT supply chain and our principal outsourcing partner, EDS, we achieved substantial operating cost reduction for our IT estate. This resulted from a multi-year initiative driving standardisation, productivity and improved service levels.
Our lean manufacturing initiatives coupled with a specific focus on non-cash working capital resulted in further improvement to working capital utilisation from 6.8 per cent to 6.4 per cent of sales.
In 2005 our priorities will be to persist with our lean manufacturing and Process Excellence initiatives, continue to drive product cost reduction, build our new UK factory infrastructure and manage the anticipated continuing growth in load.