ACA Supply Cost Challenge 2014 – 2015 Overview and Events...ACA Supply Chain Cost Challenge 2014 – 2015 Overview 21st January 2016 Stephen Appleby, BAE Systems Supply Chain Director
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ACA Supply Chain Cost Challenge2014 – 2015 Overview
21st January 2016Stephen Appleby, BAE Systems Supply Chain DirectorRoss Elliott, PwC Director
PROTECT COMMERCIAL
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The Problem
As part of a contract re-baselining, in October 2013 the ACA and MoD agreed a significantreduction to forecast outturn costs
The primary objective of the cost challenge project was to save the programme £86m (the Supply Chain part of the larger challenge) from an addressable supply chain budget of c£800m, with c.85% already committed in supplier contracts.
The target was based on 4 savings groups…
‘Baked-In’ Opportunities Escalation New Savings
Savings which have been incorporated
within the baseline but without a delivery plan
Delivery of a number of cost reduction ideas
Mitigate and renegotiate terms for
cost escalation
Identify a number of new savings that are
needed to achieve the target
The Approach
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• What is your reconciliation process & capability?• When did the last reconciliation take place?• How many payment requests are declined?
• Should cost model?• What was the result?• What was the negotiation process;
team experience & skills?
• Was the contract competed?• How mature is the procurement strategy?• Make vs Buy assessment?
• Escalation factor being applied? Rationale?
• Challenge the supplier?• Commodity price estimating?
• Supplier health?• Cross BAE Systems perspective?• % revenue for supplier? Importance to their
business? Profitability?
• Influence of the MoD?• Cross Enterprise perspective?• Cost comparisons?
• Contract motivation & incentive?• Supplier performance and
maturity? • Operating model (i.e. spend per
FTE, suppliers, spend type, distribution , cash health etc)
• Opportunity register? Aligned incentives?• Performance/cost improvement?• Cost comparisons?
Team was formed comprising senior internal supply chain staff supported by PwCThe team identified a number of cost reduction levers from which savings might be achieved
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# Opportunity Group Individual Opportunity Title SCCC Owner Short description of the saving and its basis SCCC WorkstreamUnfactored Savings Size
£k
Factored Savings Size £k
Confidence In Unfactored Saving
Size (%)
Maturity StageI, Q, S, R
e Ch
171 171c Steel and Temp steel Multi sourcing Ronnie Mann
Multi sourcing‐ Qualifying other primes and benchmarking, renegotiation with incumbents exploit Type 26
Naval Ships Procurement
£ 900 £ 675 75% Secure 2 09/05/14 02/07/14 30/09/14 31/10/14
171 171d Steel and Temp steel Substitution of redundant material Ronnie MannSubstitution on Redundant Material/Regrading Plates Naval Ships
Procurement £ 562 £ 562 100% Secure 2 09/05/14 02/07/14 30/09/14 31/10/14
158 158a Cable Review of saving opportunities for Cable Tom Reid
1) review of surplus cable and identify re‐use/ resale opportunities2) Category management and alignment with other Maritime projects
Naval Ships Procurement
£ 650 £ 488 75% Secure 1 09/05/14 02/07/14 31/03/15 31/03/15
172 172b NS Valves Buy back of existing stock for valves Tom Reid
Score Marine have offered to purchase surplus valves back at 25% of the original purchase price; or sell to other project or cannibalise
Naval Ships Procurement
£ 400 £ 400 100% Secure 1 09/05/14 02/07/14 15/10/14 29/10/14
67 67a First FixingsSubstitution of Hilti cold fired studs for welded stud type ‐ Ship 02
Tom Reid
Opportunity 3801 ‐ to be realised but need to understand Rosyth implications
Naval Ships Procurement
£ 600 £ 300 50% Secure 1 30/04/14 31/05/14 15/10/14 29/10/14
171 171e Steel and Temp steel Bespoke plate sizes Ronnie MannMove to purchase bespoke plate sizes for plates >20mm in thickness (13m to 10.5m)
Naval Ships Procurement
£ 300 £ 225 75% Secure 2 09/05/14 02/07/14 30/09/14 31/10/14
171 171f Steel and Temp steel Relofting, renesting and utilising Ronnie MannUse Babcock/PNB best practice ref relofting, renesting and utilising remants across yards
Naval Ships Procurement
£ 300 £ 225 75% Secure 2 09/05/14 02/07/14 30/09/14 31/10/14
171 171g Steel and Temp steel 18 week lookahead Ronnie Mann
Provision of 18 week lookahead for all build yards (not just call off ship1 and therefore lose benefits of X nesting)
Naval Ships Procurement
£ 400 £ 200 50% Secure 2 09/05/14 02/07/14 30/09/14 31/10/14
Savings Description and OwnershipRealise Stage Complete
Secure Stage Complete
Qualification Stage Complete
Idea Stage Complete
Savings Details
Cost Reduction Levers
Addressable Spend Areas
Savings Potential
What are the priority/addressable areas of spend?
Register ~200 discrete opportunities
Major Sub-Contracts
Naval Ships
Babcock
Mission Systems
Alliance Management
Thales
Integration
PrioritisationPotential vs Ease of Implementation
Heat map Levers vs Areas
£% savings based on lever maturity and benchmarks
The Approach
Governance
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Defined savings maturity gates…• Idea
• Qualify
• Secure
• Realise
Measure progress against plan
Robust decision making roles and boards
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The Outcome
A wide range of savings were delivered across a large number of areas. The project has so far achieved savings of £139m from 67 separate activities including
2014 & 2015
£86m…the original Target
£116m …realised during 2014£139m …realised to date
Sir Peter Gershon…“This is one of the best
projects on supply chain cost reduction I have come across.
Well done!”
Key Savings Achieved…• Re-negotiation of long running incentivised
contracts using leverage and ‘Should Cost’ models (£42m)
• Escalation savings by, for example, moving from fixed to firm contracts (£34m)
• Identification of engineering or operational change and demand challenges to reduce cost (£30m)
• Make v Buy activity across a range of activities including electrical installation and ship joins (£12m)
• Reconciliation of long running contracts to claw back costs and leverage negotiations (£9m)
• Revision of procurement plans for commodities such as IT, spares and temporary labour (£8m)
• Warehousing negotiated cost savings (£4m)
Find and deliver the ‘quick wins’ to build momentum
Good comms and engagement withstakeholders
Follow a robust process and governance (activity, approvals, budget reductions)
Clear targets and visible measurement of achievement
Mixture of team members with clear internal ownership
Clear Board Sponsorship and review of achievements
Lessons Learned
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Drive performancethrough daily, weekly, monthly targets and leading indicators
Embed savings through reduced budgets
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