Further submission from BAE Systems on
Royal Ordnance Defence Strategy (3 May 2002)
Thank you for your letter of 30 April, asking
for an update on the rationalisation of RO Defence sites and the
consequences for sourcing the supply of ammunition, explosives
and other key components.
Since our paper of 24 January, there have been
developments relating to the sites at Birtley and Bridgwater.
These are set out in the attached paper. The Committee may also
find it useful to understand the Company position on outsourcing,
and the paper includes a section to explain our policy and process
as regards selecting strategic suppliers.
I hope this information meets your request.
Please do not hesitate to get in touch if you have any further
BAE Systems RO DefenceStrategy
Following the conclusion of the work of the
joint TU/Management working group, RO Defence announced on 24
April that it would be pursuing an option to consolidate on the
Birtley site. Under the consolidation option agreed with the trade
unions, a phased manpower reduction programme will commence towards
the end of 2002. This will be substantially complete by the end
of 2006 when it is anticipated that the workforce will have been
reduced by about 50 per cent. It Is expected that this reduction
in manpower will be realised through a combination of natural
wastage and voluntary means.
Due to the downturn in current workload, RO
Defence has decided to exit forging and cartridge case manufacture
at Birtley. Requirements in these areas will be sourced through
international competition. (A note on our policy and processes
for selecting strategic suppliers is included at the end of this
RO Defence will be investing in and growing
its munitions design and manufacturing capability on the Birtley
site. While the details of the consolidation plan have yet to
be finalised, RO Defence is confident that a way forward has been
found that will allow continued operations at the facility. When
the plan has been concluded and implemented, RO Defence will have
a modern and efficient factory and working practices, enabling
the facility to compete effectively to win future business as
a core part of RO Defence.
A formal consultation process with local and
national officials has begun. The Bridgwater facility has manufactured
at a virtual loss for several years, virtual because it is an
integral part of the business and not a separate profit and loss
centre. Due to the high fixed cost of re-qualifying products that
have been made at Bridgwater for many years, the Company has continued
to absorb the operational cost of an inefficient facility. However,
with the possible introduction of new products which will utilise
insensitive explosives, it is sensible to review whether the economic
case for running an inefficient facility is still sound. The new
factor in the equation is the avoidance of re-qualification costs
as the legacy products and materials are replaced by novel ones.
The likely cost of re-qualifying new materials will be the same
wherever those materials are sourced and it is possible that they
can be obtained from external suppliers at a lower total cost
than by intramural production. These are the issues that the Company
will be discussing with the TU representatives.
An associated issue relates to the need to invest
in insensitive munitions processing plant for shell filling. It
is the Company's intention to locate this plant, should an investment
decision be taken, at its fill and pack facility at Glascoed.
The industrial logic of this intent is sound but the TUs have
indicated that they would like the Company to consider making
this investment at Bridgwater instead. RO Defence is prepared
to review this in the context of the other issues facing the Bridgwater
RO Defence applies robust industrial source
selection processes to all strategic sourcing decisions. Using
industry knowledge and research, potential suppliers are identified
and subjected to strategic review. Issues such as financial stability,
security considerations, customer and product base, technological
capability and security of supply are considered at this stage.
Candidate suppliers are then selected and site visits made to
validate the research findings. At this time much more detailed
reviews are undertaken of business and process capability, process
control, capacity, engineering resource availability, quality
standards, health and safety standards and willingness to enter
into long-term contracts which demand continual improvement.
The results of this review are combined with
the results of commercial and pricing dialogue and a full risk
assessment is undertaken. This risk assessment includes aspects
such as capacity, cultural fit, potential for continual improvement,
future research and technology plans. Security of supply issues
are discussed with MoD. The results of this work are finally brought
together with the more traditional aspects of supplier selection
such as quality rating, delivery performance (historic or forecast),
and commercial criteria before a supplier selection is made. Strategic
supply contracts are then agreed, which require formal, regular,
senior management reviews to consider performance in all areas
and agree improvement plans.
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