1. The CIPS Supply Management
Awards 2012
ENGINEERING MATERIAL
RATIONALISATION
THE CIPS SUPPLY MANAGEMENT AWARDS
ENGINEERING MATERIAL RATIONALISATION

2. CATEGORY – CROSS FUNCTIONAL TEAM
PROJECT TITLE – Engineering Materials Rationalisation (MRO)
ORGANISATION – Jaguar Land Rover
Challenges Faced
When Jaguar Land Rover (JLR) separated from Ford it was left with four manufacturing sites,each with its own engineering
material stores (MRO). These were run independently with no shared visibilityof stock, part number structure,facilities for
stock sharing,or defined processes for managing the stores,for example, anyone on the manufacturing floor could raise a
new part number.The implications ofthese ways of working were:
 MRO stock availabilityat each site was <50%, yet while one site was out of stock on a particular item,another site
was overstocked
 JLR had 23 part numbers for AA batteries and more than 300 different types of hammers. There were a total of
88,000 MRO part numbers,with £40million ofstock for an annual spend of£12m,against a supplier base of73.For
comparison,the total number ofparts used to make all JLR models was less than 50,000.
 The shiftof responsibilityfor these sites from Ford to JLR increased the administration workload,requiring JLR to
increase the team from 2 to 9 people with no extra funding.
 Significant‘urgent’ spend on ProcurementCard which was uncontrolled and unleveraged.
Aims & Objectives
A cross functional team was formed and a Project Charter drafted, with the following aims:
1) Reduce inventory by 20%
2) Reduce the number ofparts by 20%
3) Reduce the purchase price of MRO materials by5%
4) Implementstock classification and appropriate stock policies
5) Reduce ProcurementCard spend on MRO Parts
Planning and Execution
From the offset it was clear that the projectwould only succeed if Planning,Manufacturing and Purchasing worked closely
together. There were some significantorganisational difficulties thatrequired addressing organisationally,in order for the
projectto be successful. The first step was to engage the three Senior Directors responsible for these areas,and briefthem
on the challenge and the objectives and secure their sponsorship.A full project plan was then developed and used to track
progress.
 Thousands ofhourly& staff users of the service across all sites,resulting in a high business impactacross a
diverse range of customers.
 Functionallythe procurement,stores management& machine spares elements ofthe existing service sat
across differentdepartments/owners.
 If successful trade-offs between cost,service & space would be required. Such trade-offs would require
understanding & involvementof senior JLR members.
The organisation solution for the projectwas a key reason thatthe procurementlead for the projectwas able to able to work
successfullyto conclusion. The first part of this was to splitactivity across 3 work streams,where each work stream had a
functional owner with mutual dependencies upon other functions to deliver the content of the work stream. (Please see
Appendix)
THE CIPS SUPPLY MANAGEMENT AWARDS
ENGINEERING MATERIAL RATIONALISATION

3. Key steps included:-
Benchmarking –The team visited a number of similar companies and quicklyrealised thatour key internal processes
needed to be cleaned up as a priority. An interesting finding from our benchmarking was thata high percentage ofthe
benchmarked companies had outsourced their stores and mosthad achieved significantgains.Unfortunatelya few had
outsourced without firstcompleting their internal clean-up and the outcomes were notpositive. Our team took this on board
as a key learning.
 MRO Part Clean Up & CommodityRationalisation
 MRO Single Provider
 MRO Spares rationalisation.
Stock Analysis – This painstaking task required detailed analysis ofall 88,000 parts including stock levels,cost,and stock
availability at each site. Each part was classified with regards to its criticality and availability. The strategy for each part was
based on this classification. The second partof the stock analysis was to clean the parts database,with the aim of reducing
the number ofparts in stock. Initial internal efforts enabled the number ofparts to be reduced to 65,000; however the team
felt there was further opportunity We worked with suppliers and achieved a dramatic reduction to 8,000 parts numbers in
total, a reduction in excess of 90%.
Prepare for Tender – The cleaned up stock profile was divided into 23 bundles ofitems and each was separatelytendered
to the external market. Given that JLR’s volumes were significantlylower than those of the combined Ford Motor Company;
our best hope was to maintain current pricing.
However, through the tender process we reduced
prices by 10% and delivered £1m of annualised
savings. The number of suppliers was reduced or
changed from 73 to 36; a best in class approach
based on our benchmarking.
Define Stock Share Mechanisms – Our aim
was to implement a process where stock held in one store was available to all sites.To achieve this we needed a common
part number coding.We brought together the MRO managers and agreed new partnumbers for the 65,000 part numbers we
had after the initial stock clean up. The next stage was to make the stock visible across all the stores.The only way to
achieve this was to investin a new IT system.A decision on this was delayed until later in the project.
Introduce Governance and Control Gatekeepers – The continued success ofthe projectwas dependenton strong
governance to control the creation of new part numbers and to ensure communication between the sites. The JLR MRO
managers were given the final decision on all new submitted parts for the stores to ensure tight control was maintained
throughoutthe projectand beyond. There is now a weekly Gatekeeper Meeting where Manufacturing, Stores and
Procurement mustagree the purchase ofany new MRO parts.
Material Advantages – This projectdid not start as an outsourcing plan,butit was clear from our benchmarking thatthis
was a further cost-reducing option ifmanaged correctly.Once our internal procedures were in place we were in a position to
be able to confidently compare quotes from the external marketand a decision was taken to place the services with an
external provider. Included in the requirements was the IT system which would allow cross site visibilityto satisfyour
immediate needs,as well as to be compatible with the upcoming JLR global SAP implementation.
Innovation and Creativity
The key to initiating this projectwas upside down Procurement,in other words looking atProcurement priorities in a different
way. Traditionallyprocurementdid notactively manage MRO as it was a (relatively) small spend,however,MRO stores did
have a big impacton service levels into the site and a disproportionallynegative impacton the perception of Procurement
within JLR. When someone can go and buy a hammer cheaper from B&Qthan within JLR stores,it’s Procurement’s name
that is tarnished!
Classification Policy
Non critical spares Minimal Centralised stock holding
Consumable Centralised stock holding
Critical specific spares Hold on each site
Industry standard
spares
Nil stock holding
THE CIPS SUPPLY MANAGEMENT AWARDS
ENGINEERING MATERIAL RATIONALISATION

4. The projectchallenged the corporate culture as it engaged three members ofthe Executive
ManagementTeam and conveyed the message thatthis was an importantand supported
project. This project provides a great example of how Procurementcan extend its reach and
provide benefits beyond cost. In many cases the MRO stores are the only contact staff has
with Procurement, and the new process means theyno longer feel the need to store stock
in their bottom desk drawers!
Best Practice
The key elementofthis process was thatwe carried out the nitty gritty work to ensure we
understood the situation before we considered outsourcing the services. This level of
granularityis not common in today’s business world butwas absolutelycrucial to the
successes achieved as itprovided us with a clear insight into the MRO operation and the
needs ofthe business. Through our benchmarking process we gained fantastic awareness
of how other companies had approached their MRO spend.It was clear that good work had
been done in this area,but generallythrough top down approaches. We found it was this
approach which had led to projects notdelivering the expected outcomes and itwas
importantthat we first carried out the groundwork first.
Organisational Benefits Achieved
The projectover delivered on all of its key targets.The operating costs were reduced by
£1m,the costof parts purchased came down by£1.7m and stock holding was reduced by
more than 75%. This at a time when, production has doubled. The neteffect of these
financial reductions is a decrease in the costof production of £34 per vehicle. (Please see
table and Appendix).
The savings have not
just been financial.
The number of parts
was reduced by more
than 90%,significantly
simplifying stock
holding and picking
complexity. On time
delivery has increased
from 67% to 96% and purchase of MRO parts via Procurement Card has been eliminated,
reducing the annual P Card expenditure by £5m and increasing the visibility of purchases.
Our decision to outsource to an external provider will ensure a number of additional benefits
as well as reducing the costs ofrunningthe service. We have alreadymoved one ofthe stores
off site, which has provided more space for manufacturing plant expansion. We are looking
to move all of the Midlands based stores to a single location, reducing costs further and
simplifying the process.Finally,our outsourcer alreadyhad an IT tool developed to facilitate
stock visibility and ordering, which eliminated the need for us to develop or buy our own
system.
In Summary
Jaguar Land Rover has been a UK manufacturing success storyover the lastfew years,
and projects such as these,with an attention to detail and a passion for improvement,are
what has made the difference.This project has truly met our Corporate Objective:
‘TO BE AGILE AND COST EFFECTIVE’
Summary of Benefits
Part numbers down from 88,000 to 8,000 (target 55,000)
Unit prices down by 10% or £1.2m pa ( target £600k)
Further price reductions of £515k
Service running cost savings £1m (target 400K)
Stock Holding down from £40m to £8.9m
On time delivery up from 67% to 96%
‘Thisprojecthas brought
JLR intothe 21st century
…………….. the feedback
fromour usersis that
storesservice have
improveddramatically”
Darren Kendal,MRO
Stores Manager
"There were many
obstaclestoovercome
alongthe way and itwas
onlybystrong team
work, and sheer
determinationthatthe
teamwere successful in
deliveringandexceeding
the original objectives
witha significant
businessbenefit.”
David Dyke, Director,
Global Material Planning
& Logistics
"The projectdeservesto
be recognisedforits
innovative andmulti-
disciplinary approach,
withgreatteamworkat
itscore, leadingonto
very tangible benefitsfor
the company."
Paul Cope,Board
Director of
Manufacturing
THE CIPS SUPPLY MANAGEMENT AWARDS
ENGINEERING MATERIAL RATIONALISATION

5. APPENDIX
Total Saving Achieved related to vehicle production:
Savings Area
Cost
impact
(£000's)
Unit Price Savings 1,200
Further Unit Price Savings 515
Reduction in Stock Holding Costs
(@9% pa) 2,799
Service Running Costs 1,000
Pcard Fee 100
Avoidance of Staff Recruitment 210
Total 5,824
Number of vehicles 170,000
Cost impact per vehicle £34
Project Team Work Stream:
Engineering Materials Rationalisation (MRO)
Board Review I. Harnett P. Cope
Quarterly Purchasing Director Manufacturing Director
Level 1
Work stream 1 Work stream 2 Work stream 3
MRO Part & Commodity MRO Single Provider MRO Spares
Work stream
DirectorOwners B. Davy D. Dyke P. Peterson
Monthly Purchasing Director Logistics Director Adv Manufacturing Director
Level 2
Work stream
Leaders& Teams R. Vaughan R. Osborne C. Holman
Weekly Procurement Manager Logistics Manager AME Manager
Level 3
Cross-functional team Cross-functional team Cross-functional team