NATS Paper 2
Supply Chain Management
3 Year Strategy, Targets and Deliverables
A definitive Supply Chain Management Strategy is now in place and is linked to the ’21
Targets are established and a comprehensive set of Key Performance Indicators are in
place to measure performance.
The development of the Supply Chain function commenced at the beginning of the
financial year starting 1st April 2004 with the creation of the Supply Chain Excellence
programme. With this in mind, the baselines for each of the Key Performance Indicators
listed below are from the full year ending 31st March 2005 and the targets are to be
achieved over a three year timeframe, with completion due at the end of the financial
year ending 31st March 2007. It should be noted that the financial targets for Operating
expenditure (OPEX) and Capital expenditure (CAPEX) are already factored into the
In addition to these Key Performance Indicators, a benchmarking exercise has
commenced and is being managed through independent consultants. The first
assessment has already been completed with the Supply Chain Management function
benchmarked against 20 other companies. This exercise will be repeated in June 2006
prior to the CAA audit planned for August 2006.
Targets have been established against three specific areas -
1. Supplier Relationship Management
2. Spend and Savings on OPEX and CAPEX
3. Supply Chain Management Operating Costs
1) Supplier Relationship Management
The target is to deploy the new Supplier Relationship Management model across 20
strategic suppliers to NATS by 31st March 2007.
This process defines a number of supplier management techniques designed to
maximise the benefits of working with key suppliers
These techniques can be summarised under the following headings:
1. Closer management of suppliers through the use of Supplier Relationship
2. Performance assessment of the supply chain using 360 degree performance
3. Supplier performance enhanced through the development of continuous
4. Management of supply chain risk through the use of risk assessment and
The programme is designed to increase NATS overall capability to deliver:
1. Capital programmes on time and to budget;
2. Innovation from the wider supply markets;
3. Sustainable savings.
Number of suppliers on programme at 1st April 2004 =0
Target number of suppliers by 31st March 2007 =20
Interim target number of suppliers by 31st March 2006 =7
2) Cost Savings on OPEX and CAPEX
The target is to reduce OPEX spend by an average of 10% over the period 2004/05,
The operating costs targeted are NATS top level budgets where the spend is external to
the company. A specific list of these budgets has been identified, and these make up the
baseline figure. This figure is the full year cost against these budgets.
A number of spend areas have been purposefully excluded as these are deemed to be
not addressable by Supply Chain Management within this reporting period (e.g. CAA
costs, Insurance, rent and rates).
Baseline full year budget cost for year ending March 2005 = £71m
Baseline multiplied over three years =£213m
Target saving of 10% against three year programme =£21.3m
The target is to reduce CAPEX spend by 10% over the period 2004/05, 2005/06,
The measurement of spend against CAPEX is more complicated than OPEX due to a
number of reasons. Firstly, many of the programmes span a number of years, and whilst
spend is occurring in specific years, the contractual agreement with the supplier may
have been established in a previous year. Secondly, project timescales and more
importantly project scope often change, and it is therefore difficult to establish a fixed
baseline at the start of a year.
With these issues in mind, it is not felt that these programmes can be measured against
a fixed baseline from 2004/05. Therefore the decision has been taken to measure
CAPEX over the life of each individual project.
A list of projects in scope has been established, where savings have already been made
during 2004/05, or where contracts are still to be negotiated during 2005/06 and
2006/07. The intention is to measure actual contract spend against original budget / first
tender cost. The process will also take account of any scope changes either up or down
such that an accurate savings figure can be reported.
It is also intended to record cost avoidance on specific projects, as this is an area of
activity which Supply Chain Management instigate, and which would not be visible under
normal cost saving reporting.
Total LTIP spend in scope for period 2004/05, 2005/06, 2006/07 = £232m
Target saving of 10% against three year total = £23.2m
3) SCM Operating Costs
The Supply Chain Management team currently consists of 30 staff. The intention here is
to increase the competence level of the Supply Chain team, whilst reducing overall costs
by 15% by the end of full year ending 31st March 2007. This measure starts from April
2004 and covers all headcount and operational costs, and will be tracked against a fixed
baseline which is the budget cost for full year ending 31st March 2005, excluding re-
Baseline cost for full year ending 31st March 2005 = £2590k
Target cost for full year ending 31st March 2007 = £2201k
Internal reporting to the NATS Executive and Board will commence July 2005 detailing
the full year figures for year ending March 2005 and the first quarter ending June 2005.
Subsequent reports will then be issued quarterly.
An external report will be published in July 2005 detailing the results for the full year
ending March 2005. Subsequent external reports will then be published annually.