supplier briefing pack

©2012 Rolls-Royce plc

The information in this document is the property of Rolls-Royce plc and may not be copied or communicated to a third party, or used for any

purpose other than that for which it is supplied without the express written consent of Rolls-Royce plc.

This information is given in good faith based upon the latest information available to Rolls-Royce plc, no warranty or representation is given

concerning such information, which must not be taken as establishing any contractual or other commitment binding upon Rolls-Royce plc or

any of its subsidiary or associated companies.

SABRe

Review of Requirements Related to Product (Contract Review)

Supplier Briefing Pack

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Supplier Briefing Pack : Issue 4.0 - April 2012

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Contract Review : definition Contract Review is the systematic activities carried out to ensure that

requirements for quality, delivery and cost are adequately defined, free from

ambiguity, documented and realisable by the supplier.

The process involves:

Evaluating any proposal, instruction (e.g. purchase order) and supporting

documentation and changes thereto.

It is recommended that this is done in 4 stages:

Stage 1 is an initial assessment to establish whether the contract matches the

supplier’s core competencies

Stage 2 is a more detailed evaluation to determine timescales, costs and risks

etc. to be identified thus enabling a full response to be compiled

Stage 3 obtains internal commitment from those who will fulfil the contract

Stage 4 prepares a response to the proposal.

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The Purpose of Contract Review is to Assess:

Capability to perform the contract offered

Capacity required

Machines,

Fixtures,

Tools,

Sub-contract,

Hours / Lead Time, Finance etc

Material availability

Costs

SWOT (Strengths, Weaknesses, Opportunities, Threats)

Risks and their mitigation

Timescales to launch and deliver first part

Profitability

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Contract Review provides the following outputs: Statement of assumptions

Outline Method of Manufacture

Milestone Chart

Resource Plan (how many people / machines for each category)

List of potential Fixtures and Tools

Identification of sub-contract support

Review of Approvals

Cost Breakdown:

Review of Risks and Mitigation

Profit indication

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A Well Executed Contract Review

Is a valuable proactive tool which, scopes the task and resources, Identifies

and mitigates risks

Minimises potential for cost and lead time overruns, hence protects

profitability.

Gives the customer confidence in the supplier’s Planning and Costing

Processes.

Provides the basis for a business case if the supplier wishes to seek finance

to purchase new capital equipment.

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Contract types

Rolls-Royce awards contracts in a number of ways dependent upon the

product or service purchased, the most common being:

Make to print (i.e. the definition is established and firm).

Concurrent Engineering (i.e. the definition is in concept form and the supplier is invited to join an integrated team to concurrently develop the design and manufacture).

Design / Make (i.e. a specialist supplier is invited to design and manufacture to a set of performance criteria defined by Rolls-Royce).

Supply of standard / catalogue parts.

Repair & Overhaul of existing / established product(s).

Whatever the form of contract, the same basic review process applies. The

maturity of the definition also impacts on the level of risk involved.

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Stage 1: Initial Assessment

Stage 1 involves understanding the Rolls-Royce requirements and evaluating Strengths,

Weaknesses, Opportunities and Threats (SWOT).

Strengths and Weaknesses are derived from an internal assessment of the supplier’s capability

of meeting the contract, whereas Opportunities and Threats are more likely to be driven by

external factors affecting the supplier’s ability to perform the contract.

This initial assessment establishes whether the contract on offer fits the supplier’s core

competencies and capacity. For example: contracts involving significant sub-contract support

require sub-tier management skills, which smaller suppliers may lack.

Plant currently under-utilised may provide an opportunity to make use of available capacity.

Shortfalls in capacity or key competences may over-utilise capacity and threaten the smooth

operation of other work.

Timing is a critical success factor and the supplier is advised to assess the impact of introducing

this new contract on existing work and any other contracts which may come to fruition at the

same time – an understanding of the load / capacity balance and window of opportunity is

therefore important.

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Stage 1: Initial Assessment (contd.) Consideration given to the degree of complexity enables internal engineering

support on start up and throughout the programme of activity to be

determined. This is driven by the maturity of design.

Other considerations include:

How the launch of a new programme of work matches the current capacity and load within the various departments

Whether material can be available to support the launch and ongoing programme

What degree of sub-contract support can be available and constraints on capacity

Whether the necessary approvals are in place

What level of product and / or process substantiation is required

Whether there is sufficient understanding of what is required or must assumptions be factored into the response.

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Stage 1: Some initial questions:

Is the definition available and fixed?

If the answer is “No”, it is important to set down any assumptions on

which the contract review is made and whether any changes to these

assumptions affect Cost and Lead Time.

Lack of a fixed definition carries significantly higher risks, therefore the

importance of a Risk Review cannot be understated.

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Are there any similar previous contracts or experiences that can be drawn

upon?

This assists in demonstrating capability and gives indications of cost and

timescales

Are the necessary approvals in place to support the contract?

Lack of approvals can lead to significant delays in the contract initiation and

may require external sub-contract assistance.

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Is the necessary capacity available to fulfil the contract Start-up and

execution?

Understandably there is great reluctance to turn work away as the uncertainty

of contract award often makes future work load difficult to predict.

The customer however has expectations that the contract will be met on time,

to cost and achieve specification requirements.

This is where Risk Analysis and Contingency Planning are beneficial e.g. are

people resources available that would allow an additional shift to be run if

necessary?.

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Stage 1: Outputs

• Understanding the requirements having, if necessary, sought more information or

clarification from the customer.

Identified risks

Identified assumptions on which response can be based.

Confirmation of approvals held to conduct contract.

An understanding of whether to decline the business (i.e. proceed immediately to Stage 4).

Whether to evaluate further (i.e. proceed to Stage 2)

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Stage 2: Prepare an outline

If there is sufficient definition of requirements, an outline of Method of Manufacture

(or service to be provided) has the following advantages:

Identifies problems and solutions through the supply chain

Identifies key operations

Identifies special process operations (e.g. Heat Treatment, N.D.T. etc.)

Identifies machine types, tooling and fixture requirements

Identifies raw material requirements

Provides the basis for capacity, lead time and cost assessment.

Provides the basis for engineering capacity to be assessed prior to launch.

Enables a project plan (Milestone Chart) to be compiled

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Stage 2: Prepare a Plan

Stage 2 also includes the preparation of an outline project plan, and where the

product definition is available the outline method of manufacture identifies the

key activities.

The purpose of this is to begin identifying resources - labour, machines, tooling

etc and associated costs and timescales.

Costs are broken down into:

Non-recurring engineering costs

Non-recurring costs (e.g. fixtures).

Material costs

Sub-contract costs

Operating costs - labour and consumables

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Stage 2: Outputs

Project Plan / milestone chart

Outline method

Rough order of magnitude (ROM) costs

Indication of plant and tooling required

Indication of resources and capacity required

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Stage 3: Review and Commit

An internal review conducted with all involved parties is utilised in

order to:

Firm up the project plan, resources and costs

Obtain commitment from the heads of departments to make resources, capacity and capability available.

Identify all the risks and a mitigation plan (e.g. insufficient time to obtain material

can be mitigated by requesting authorisation to order material in advance).

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Stage 3: Outputs

Internal commitment to support project plan in the form of a resource plan.

Identification of risks and their mitigation.

Identification of sub-contract sources and their commitment and costs.

Identification of material sources and their lead time and costs.

Identification of tooling source and their lead time and costs.

Identification of standard and / or proprietary parts sources and their lead time

and costs

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Step 4: Prepare a Response

A response can now be compiled based on the outputs of the preceding Stages.

The response comprises:

Statement of assumptions

Approvals statement

Project plan / milestone chart identifying key stages

Outline proposal for manufacture or provision of service

Component Cost Breakdown (CCW) sheets are used where specified

Resource / capacity plan including any sub-contract assistance and material lead-time

Risk / mitigation analysis.

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Some Common Mistakes

Too many new products taken on in same time period

Floods Engineering resource

Insufficient Engineers to cope with launch

Engineering time underestimated

Insufficient recognition of numbers of Engineers required to maintain support

during manufacturing start-up

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Failure to obtain necessary Process Approvals or identify Approved Sub-

contract and Material sources.

Failure to plan Process / Product Substantiation Tests and overlook the impact

on Lead time and Costs.

Both:

Lead to delivery delays after manufacturing value is added whilst

Substantiation / Approval activity is completed.

Have the potential to demonstrate that initial parts made are unacceptable.

Introduce additional costs after cost breakdown has been agreed - leading to

customer dissatisfaction.

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Failure to adequately define Material requirements:

Lead times under-estimated for “long lead material” (e.g. Castings).

Substantiation costs overlooked (e.g. Test Pieces and Reports).

Inaccurate material costs and lead time due to market fluctuations.

Opportunity missed to request purchase order to facilitate “advance order” of material, thus improving launch date.

Investigating acceptable, alternative substitutions that may reduce lead time.

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Failure to evaluate availability of Standard / Catalogue Parts

Long lead time not appreciated.

Design may exist but part may not be qualified.

Failure to recognise classification of parts

Additional substantiation work

Fixed Process Documents required

Failure to identify Sub-contract capacity requirements and timescales

All of the aforementioned common mistakes create bottlenecks in the business

and inhibit its capability to turn added value into sales, hence cash.

This not only affects new products / services but impacts on existing business

leading to generic dissatisfaction from the customer.

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Closing Thoughts

Many businesses fail - not because of a lack of work but because of a lack of

cash.

A little cash, constructive thought and time spent during the initial stages of

Contract Review Planning can mitigate the potential for nasty, expensive

surprises appearing later.