©2004 Rolls-Royce plc The information in this document is the property of Rolls-Royce plc and may not be copied or communicated to a third party, or used for any purpose other than that for which it is supplied without the express written consent of Rolls-Royce plc. This information is given in good faith based upon the latest information available to Rolls-Royce plc, no warranty or representation is given concerning such information, which must not be taken as establishing any contractual or other commitment binding upon Rolls-Royce plc or any of its subsidiary or associated companies. Cost as a Business Driver Cost Estimating Comparative Study The Aerospace Angle Mick Rushe Rolls-Royce

Rolls-Royce plc 2 Background Part of Value Improvement Teams base in Derby,Bristol, Germany & USA Detailed estimating to give Should Costs Main software is CAPPe from T-Systems

Rolls-Royce plc 3 PURCHASING PLANS Parametrics Should Costing LTA Negotiation CVP Supplier Cost Modelling Supplier Development Price Agreement Commodity Strategy Development Price Negotiation Value Improvement Strategy Flow Continuous Improvement Cost Improvement Contract Review Board ECR CVP = Customer Value Process ECR = Engineering Cost Reduction Supplier Development not part of VI

Rolls-Royce plc 4 Customers Commodity buyers Operation buyers Risk and Revenue Sharing Partners Project Executive Advance Propulsion Systems Design Engineering Cost excellence Aero Repair and Overhaul

Rolls-Royce plc 5 Component Electrical harness for Gas Turbine Engine Customer Requirement Current cost model is excel based Developing model in CAPPe

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9 Process Three main elements to cost model Bought out finished (BOF) materials Time generation Charge out rates and margins using RateMarker

Rolls-Royce plc 10 BOF Materials These include:- Connectors Backshells Cable Boots etc Approx 70% of Harness cost Using Sub-tier quotes Next steps engage with sub-tier

Rolls-Royce plc 11 Time Generation Points considered:- Standards Visited all suppliers Design implications Supplier Quality Which established Method of Manufacture populated with times

Rolls-Royce plc 12 Charge out rates and margins using Ratemarker Cost of Money - Purchased Parts and Manufacturing Op Costs Purchase handling fee (burden) Profit Margin Cost Rate Per Hour

Rolls-Royce plc 13 Estimated Recurring Piece Price Price Modelling Map Purchased Parts, Consumables and Material Cost Process Costs Logistics Cost paid by Supplier Margin/Profit Manuf. Cost Batch Lead-Time cost-of-money Tooling Costs & other NRC * SEE FURTHER SLIDES FOR BREAK-DOWN External spend Purchase Burden (if not in Indirect Costs) Cost of Money (due to stock burn-off) Process Related Scrap impact on lost purchases. Work-Center Specific cost rates * Process Operation Times (Cycle Run Times and Set-Up) Operation Scrap cost Operation Finance Costs (cost of money)

Rolls-Royce plc 14 Work-Centre specific Cost Rate Cost Rate Map Direct Labour Cost Rate Indirect Cost Rate Indirect – Shop Labour Indirect – Office Labour Indirect – Buildings & Other costs Recovering Fixed & Variable costsRates applied to Set-Up or Run Operations Work Station (i.e.Equipment) cost rate

Rolls-Royce plc 15 Cost Rate Map - elements Basic Pay (per hour) – work-centre skill level specific. Fringe costs (Holiday, Sick Pay & Training costs - as lost time to business) Shift premium Allowances Co. National Insurance contributions (Gov. / State Taxes) Pension Contributions Operator Quantity – normal operation (Work-Centre specific, can be 1). Direct Labour Cost Rate

Rolls-Royce plc 16 Cost Rate Map - elements Indirect Cost Rate Office Indirect Resources (rest of business) - Non specific to area or Work-Centre (e.g. S.G&A) Shop Indirect & Tech Support resources Shop Indirect Labour Office Indirect Labour Buildings – Indirect Other Indirect Operating Business Budgets (not Labour) including: Admin.; Marketing; Travel; Training; Insurance; Telephone & postage; Non- specific Transportation; Consultancy; etc. Equipment Costs including: Office Equipment; I.T.; Shop Equipment Misc.; Stores Equipment (if not recovered via separate purchasing overhead).

Rolls-Royce plc 17 Cost Rate Map - elements Work Station (i.e.Equipment) cost rate Variable Cost Rate p.Hr Shop-Floor Cost Rate p.Hr Cost of Money – shown as a rate p.Hr. Capital Depreciation & Maintenance Costs p. Hr

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Rolls-Royce plc 20 Should costing of sample harness to be presented at Seminar