UK: Car Industry Review 2 - The Rover Revolution.

UK: Car Industry Review 2 - The Rover Revolution. - Rover's strength could be its relationship with suppliers. By Jack Semple.

Last Updated: 31 Aug 2010

Rover's strength could be its relationship with suppliers. By Jack Semple.

Ian Robertson strides around his office at Rover's Longbridge works with the air and indeed the look of a modern evangelist. In a sense, he is one. As group purchasing director for the car group, he is pushing through a new deal with Rover's component suppliers, called RG2000.

The aim is a simple, if revolutionary one for the British car industry. Robertson believes that by working more closely with suppliers, Rover will make better cars more cheaply and get new models out more quickly. But it is not just outside suppliers who are getting the treatment. Rover has set about revolutionising the way it manages projects from initial design through to manufacture. It is transforming the way its own departments relate to one another.

Robertson, 13 years a Rover man, has worked in all departments, including four vital years in engineering, which he reckons told him a lot more about a supplier's business than any textbook. With the zeal of the convert, he explains: "Look at the way costs and product quality are decided in bringing out a new car. You spend very little money at the early stage of a project's development, compared with later on; but what you do at that stage is absolutely critical to the much heavier tooling and production costs, and the quality and desirability of the car."

A little extra spent at this stage on research, management and budgeting at the beginning of a project can save fortunes, though how much is a closely guarded secret.

Rover had until the mid- to late-'80s lost sight of the vital importance of good project management at the design stage. Research and design engineers didn't regard it as part of their job to get involved in costs and budgets. The board would receive budget forecasts: "Wherever you see 'forecast', cross it out and put in 'gamble'," says Robertson. The complacency came to a head with the Maestro and Montego projects launched in 1983-84. The cars took five years to come to the market and sucked up enormous resources: "There were so many modifications required when we got to the volume manufacturing stage, piling in over each other", Robertson shudders, "that money for new projects was drained."

In a complete turn-around, engineers are now being turned into managers and given responsibility for costs. This is anathema to engineers in most UK companies, according to Mike Gallery, Rover team leader for chassis engineering, forward programmes, but he welcomes the change: "If we are going to make money out of making motor cars, we have got to manage money from as early as we can. It's part of the job."

Rover's engineer/managers are also gaining wider experience of the project chain - for example, production staff have moved up to concept engineering, to give that department a better understanding of the cost consequences of its ideas. Every aspect of the project is identified and costed, from as early a stage as possible: "We'll keep on regressing towards the start of the process until we find we're wasting our time," says Gallery, "but we're a long way from reaching that point."

Managers from key functions, such as purchasing, engineering and increasingly suppliers, meet much more frequently than before. Every time a new idea comes up on detailed design, or for production, the effect on cost is evaluated. This total quality approach seems like common-sense to the Rover team now; but it simply wasn't happening before.

The Rover 200 series, introduced in 1989, saw the first real effort at effective project management, and the group's expertise is growing continually. "We are building up a much more detailed understanding of cost, from concept rather than finished design," Robertson maintains. This allows the company to take decisions earlier, and more accurately, about whether or not projects are worth pursuing through to production.

The internal changes would have little value, however, unless major component suppliers can be brought in at ground level, and make a contribution, based on trust, towards continuous improvement and driving down costs. That is the essence of RG2000. "We are saying to them: 'We want you to help.' But they must be able to take the long view, in order to invest," says Robertson. Suppliers have been quick to pick up the challenge, allowing Rover to reduce its in-house engineering staff levels. "We are running far more projects now, with far fewer people. But we will always retain design authority in safety-critical components, partly for liability reasons."

This is all a far cry from what suppliers in the motor industry have been used to. "The traditional relationship was adversarial, and based on mistrust," Robertson says. "The manufacturer did the design and issued short-term contracts to components suppliers, treating them as jobbing shops. If they could help along the way, fine, but it wasn't necessary. The car-maker missed out on suppliers' wealth of expertise. This doesn't just happen in the UK; it's very much a European issue. All car makers are moving in a similar direction, but Rover is probably ahead of its European rivals," he claims.

The radicalism of RG2000 contrasts sharply with the approach of Ford's long-admired Q100 business specification, which lays out detailed agreements in terms of specific targets, pass and failure rates against which suppliers can measure their performance. RG2000 adds a more philosophical element, calling for partnership in research, and a commitment to constant improvement. Where the classic European contract says: "We want you to build this, how much will it cost?" RG2000 says, "We want to build a nice new car, would you like to come and help us." In RG2000, Rover audits every aspect of a supplier's business, including its strategic management skills and "attitudes to employees and to the philosophy of total quality". However, the RG2000 measurements are often much less precise than component suppliers are used to. In judging attitude, for example, Rover is much more interested in evidence of commitments for the future.

RG2000, like Q100, demands a completely open book relationship on costs and profits. In return, suppliers get a commitment, which they must take on trust, that Rover will ensure they can make profits. These may not be as high as some would like, but the profits will grow as Rover grows, Robertson argues. Suppliers should also be able to budget for the future more accurately.

Rover's demands are growing and Robertson is keen on suppliers locating near Rover factories, to aid just-in-time logistics. Valeo (clutches), TRW (steering gears) and Unipart (exhausts) have so far all obliged, by moving manufacturing or assembly sites closer to Longbridge.

Some suppliers have refused to accept RG2000, Robertson says: "They maybe see the City as their customer, rather than the people they are supplying to. If so, they are maximising their profits at the expense of their customers and their own long-term survival. We think that this recession isn't like the others. The change is final, and the difference is that Japan has arrived."

RG2000 comes from Japan, and shows the way the whole European motor industry will develop its relationship with suppliers, Robertson says. With profits being squeezed and the costs of new model programmes rising, the European and American-owned manufacturers are all relying more heavily on their suppliers in the development of new models.

The Japanese companies' relations with their suppliers are close, not least because many of them are wholly or part-owned. But efficient project management has certainly proved a powerful success. "The Japanese companies used to make cars which were not too desirable. Then in the mid-'80s, some very exciting cars started arriving, and the pace of change is getting even faster. This business is a bit like fashion, it's all about bringing new products to the market place."

Robertson has accompanied his RG2000 launch with dire warnings of what will happen to the components industry if it does not respond to the new ways coming from Japan, and points to the US experience. Suppliers' failure to adopt to the total quality culture has cost the US components industry 400,000 jobs, excluding job losses through efficiency measures. In Britain, firms could see their traditional customers decline if Nissan, Honda and Toyota expand using the Japanese suppliers.

Rover is regarded with suspicion by some components companies. They dislike the company's close links with Honda, with its already-strong links with suppliers in Japan, and there are nagging doubts about Rover's long-term survival. But few would argue with the logic of the way Rover is trying to manage its way back to strength.

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