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MG Rover seeks cut in supply-chain costs
By Tim Burt and John Griffiths
Published: April 2 2002 17:57 | Last Updated: April 2 2002 18:27

MG Rover is launching an aggressive cost-cutting initiative, code-named "Drive", to reduce its purchasing and supply-chain costs by an estimated 20 per cent. The group spends well over £1bn ($1.4bn) a year with UK suppliers of parts and services.

The British carmaker, jettisoned two years ago by *** of Germany, has transferred 200 engineers to the three-year programme with a mandate to extract savings from the supply base.

Their principal brief will be to work with suppliers to review the design and engineering of all components systems supplied. The review will cover both parts for current models and those in development for future MG and Rover models.

"The programme is aimed at designing cost out, not to cut supplier margins - it is an engineering-led initiative," the company said on Tuesday.

However, the initiative is certain to put pressure on suppliers to cut costs. And the pressure is likely to be further increased because future MG and Rover models are to be developed and manufactured jointly with China Brilliance, the Chinese automotive group with which MG Rover signed a strategic alliance last week.

Despite the insistence of Kevin Howe, MG Rover's chief executive, that the alliance represents an "opportunity" for UK suppliers to win much higher-volume business, China's growing strength as a low-cost producer of automotive systems is likely to make it tempting for MG Rover to source more parts there.

Mr Howe said that "we are not going to up sticks and source every component in China". Nevertheless, he acknowledged that "there will be a joint sourcing structure" and that UK suppliers "have got to be competitive".

Giving details of the Drive programme, Mark Smith, purchasing manager, told a seminar of component suppliers that the company needs to be leaner and more flexible.

"The Drive programme will deliver tens of millions of savings by 2003," he said. "And we are also taking costs away from the supply chain."

Similar initiatives have been launched by larger carmakers such as General Motors and Ford. In Europe, Ford is seeking $400m (£282m) of savings from its supply chain this year.

Mr Smith said such initiatives would help MG Rover to break even during this year. He told the seminar that the group had cut its losses last year to less than £200m, compared with £254m in 2000. Garel Rhys, an independent industry analyst at Cardiff University, predicts that the group should lose no more than £30m in the current financial year.
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