Aerospace Supply Chain: The supply chain is an essential component of any company that sells something. Manufacturing aeroplanes is no different. A business cannot function without its supply chain. Along with Boeing, Airbus and Boeing are the leading aircraft manufacturers in the aviation industry.
As a result of increased industry demand, both Airbus and Boeing intend to increase production. The question is whether the supplier will be able to keep up.
This paper will examine the aerospace supply chain, which affects both manufacturers and airlines, and how the increased demand has impacted the supply chain.
I’ll do so by focusing on the most critical suppliers and how their responses affect the entire supply chain. It will also emphasize the importance of SCM in a company’s day-to-day operations.
Fuel prices have risen across the board, particularly in aviation. Increased passenger traffic necessitates the use of more fuel-efficient aircraft. As a result, airlines are altering their future manufacturing and design strategies. In Europe, Ryanair operates the B737-800, one of the most modern and fuel-efficient aircraft on the market. They plan to keep planes for a maximum of five years before selling them and ordering newer, more advanced, and efficient models directly from Boeing.
This is the foundation of Ryanair’s entire business model, as well as its foresight in 2001. Many airlines worldwide, from North America to Europe to Asia, are looking for more efficient models to buy directly from the manufacturers. The world’s two largest manufacturers, Boeing and Airbus, will have to adapt their supply chains to meet all orders from airlines and other customers.
Primary Specifics of Supply Chain in the Aerospace Industry
Over the last decade, effective supply chain management has aided several leading corporations in gaining market share, lowering costs, and delivering more value to their shareholders.
Aerospace has lagged behind its peers in adopting supply chain management practices. If one digs deeper, one will discover several factors contributing to the industry’s slow adoption of supply chain management.
The aerospace chain is inherently complex, particularly in terms of aftermarket support. The majority of aircraft have a short production cycle but a very long service cycle, which can last up to 30 years. This results in a service supply chain with significant maintenance, repair, overhaul (MRO) and spare parts requirements.
Most parts are expensive; demand/failure of components and the loss location are arduous to predict, and customer service is crucial. Many people have experienced delays when an aircraft cannot take off due to a component that needs to be replaced or overhauled. In addition, there are traceability and compliance requirements at every stage of the supply chain.
In some cases, a repairable component removed from an aircraft must be reinstalled on the same plane after repairs. A well-thought-out supply chain strategy and good process discipline and systems supporting the design and processes are required to manage these complexities.
Boeing is an American aircraft maker company that has been in the news recently due to two accidents with its new aircraft, 737 MAX. This new aircraft has been banned worldwide.
But it is not that Boeing planes are not of good quality. Boeing is one of the best airline companies in the world and Aerospace. Boeing is currently making some software improvements to the 737 MAX, after which the model will be reintroduced.
When it came to long-distance travel, Boeing was the undisputed leader. They wanted to reinvent the definition of travel after the 747 became obsolete. They introduced the B787 ‘Dreamliner’ at this time. The goal of this plane was to give value a whole new meaning. The new B787 not only changed the image of long-distance travel, but it also changed the future of how they were built.
Value Chain Network Of Aerospace
Airbus has a globally established value chain analysis that requires customers’ needs to be met in the aviation industry. They have consistently performed well in this area throughout their careers. Several factors combine to form the production network:
- And more
There are numerous types of suppliers involved in the aircraft’s production.
The original equipment manufacturers are the first to get involved. Before they are delivered to the customer, these businesses are in the final stages of the network. The aircraft’s design, development, and assembly are all part of this process.
OEMs are responsible for the aircraft’s delivery and perform all inspections and testing. Airbus and Boeing are the two largest OEMs, and they are the OEMs I will use as examples throughout the essay.
The tier 1 suppliers are next. This vendor is in charge of directly supplying the OEM. They are the OEMs’ risk-sharing partners. First-tier suppliers assemble engines, avionics, toilets, cabin interiors, and other components. Rolls Royce, for example, is a manufacturer of machines.
Tier 2 suppliers provide the more complex products that tier 1 suppliers require. They are frequently produced in-house, but they could have used a variety of other vendors to do so.
Tier 3 suppliers are typically small businesses that indirectly provide parts to OEMs. They are far more specialized and require complex processes to be developed.
Vertical collaboration is another name for this type of supply chain. Other than the immediate supplier, others have direct contact with OEMs, such as academic institutes, government institutes, and researchers. OEMs and aircraft manufacturers may have slightly different supply chains, but the basic concept is different.
External technical services are also available.
Because the industry is always looking for better planes, OEMs are under more pressure to develop more aircraft programs. These programs become much more stringent, and the costs can skyrocket. Outsourcing is one strategy they’ve begun to employ.
Airbus has been outsourcing to meet the demand. They’ve been attempting to outsource not only production but also component design. This department is crucial to the company’s supply chain management. The analysis of Boeing vs Airbus in outsourcing explains this well.
Manufacturers have always outsourced Non-critical parts, and Airbus is no exception. Airbus has always had a head-to-head rivalry with Boeing. Whoever makes the first move will be followed by the second. One of those things has been outsourcing. Boeing decided to contract out 90% of the 787 Dreamliner project.
This was a 40 per cent increase over the previous level of outsourcing. Airbus decided that they would increase to 50% for their next project, a 20% increase over previous projects. Boeing may have unintentionally aided Airbus. They proved that by attempting to reduce their financial risk by outsourcing, they increased the risk of project failure and risk management.
Airbus could only watch as Boeing took the first step toward outsourcing and their production system was unable to respond as the value of the dollar fell. Airbus, of course, was eager to adopt this strategy. They would have to adopt a better plan and be able to justify it in the long run if they were to follow. If there’s one thing Boeing has taught us, it’s that outsourcing to suppliers has its limits.
Outsourcing in such complex and sophisticated projects could have a negative impact on the company’s reputation due to the nature of the industry. Airbus had promised cost savings to the market through outsourcing (Nakamoto, 2008).
Airbus decided to look into outsourcing as a way for its parent company to save money. Before agreeing to it, they must ask themselves a series of questions. The first is, is it long-term strategic? The majority of business relationships are built on trust and experience.
They won’t be able to return if they switch suppliers and it backfires, resulting in a significant loss in quality, cost, delivery time, and other factors.
Because Airbus is a large corporation, outsourcing will result in job losses among its internal employees. As a result, OEMs will typically use a supplier selection process. The following is an example of such a procedure:
Identification entails simply making a list of all possible suppliers. They would have access to any database required because they are a leading company in the industry, such as the Thomas Register of American Manufacturers.
Shortlisting entails gathering all necessary information about potential suppliers. The questions that are typically asked at this stage revolve around price, dependability, experience, and recommendations, among other things.
Selection – At this point, you would request quotes. These vendors are capable of fulfilling the order.
Scorecards – These are used to keep track of quality and performance.
In this case, Airbus decided to go ahead with it because the potential benefits outweighed the disadvantages. They decided against expanding into new markets like China, Russia, and India. These are the same areas to which Airbus has chosen to outsource.
Example Boeing Supply Chain
By using Boeing, we will adequately identify their supply chain network. Boeing’s supply chain practices can be divided into three categories or topics.
Only in chronological order. Boeing has decided to produce aircraft on a demand basis. New products tend to take a little longer than usual to develop. As a result, the lead time can range anywhere from a year to twenty months. They agreed to begin selling in late December as part of their 787 Dreamline program, and they received their first order in early 2004.
Their first order would arrive in four to five years due to the program. Boeing has three assembly lines and one manufacturing line because they are based in the United States. As previously stated, other parts are outsourced. Because Boeing only takes orders for aircraft, their 2nd and 3rd tier suppliers are encouraged to work as efficiently as possible with the first tier supplier. Working practically next to each other is one way to achieve this. Perhaps not in the same town, but possibly in the same area.
Customer – Boeing receives many orders, which are rarely private. Airlines and leasing companies would split nearly all of these. Leasing companies can easily order the same number of aircraft as a major airline. You can imagine how many SMBC and Avalon would call because they are among the top five leading companies in the world.
This also has to do with their network, as they will be serving customers. However, not all airlines will buy directly from the manufacturer, many wills. As you might expect, planes are costly. As a result, smaller airlines would opt for used or leased aircraft. Ryanair, for example, buys all of its aircraft new but eventually sells them, as they have done.
Boeing uses three types of suppliers: engines, avionics, and aerostructures.
Current Challenges Faced in Aerospace
Airbus and Boeing both had development programs for their most recent aircraft generation. The A350XWB and the B787 Dreamliner are the two aircraft in question. Both Boeing and Airbus estimated that 1600 planes would be delivered. However, due to their suppliers, both OEMs have come to a halt. Because both companies do a lot of sourcing, they’ll likely be delayed.
A first-tier supplier is one of the cases that has caused them to be late. Their engine suppliers discovered a flaw in the engines they delivered to the OEM. This has resulted in a massive halt in production, as OEMs have been forced to stock ‘inventory.’ It is unusual for both airlines to hold stock because they receive more orders than they have assembly lines. (2018, Skift)
Delays are nothing new for airlines. They would not intentionally delay for apparent reasons, but it was for a variety of reasons when they did. They would have spent most of their time delaying the design or experimenting with different techniques during assembly. However, now that the industry is booming, it poses a challenge to the suppliers.
The challenge for suppliers increases when they outsource and receive more orders. Suppliers may have had the resources to deal with demand when the contract was awarded and could have handled more, but I believe both the OEM and the supplier were unprepared for this level of need. (Source: Forbes, 2018)
Engine problems are plaguing Rolls Royce, Pratt & Whitney, and CFM International. It hasn’t had much of an impact on Boeing, but it has on Airbus. In Hamburg and Toulouse, Airbus had to park 100 A320NEOs on the tarmac. (2018, Skift)
There are personnel constraints in addition to material constraints. Both OEMs expect to deliver five more aircraft per month compared to last year. Both the supply chain and the production rate have serious issues that must be resolved before the end of 2019, as they were planning to increase the production rate even more.
Despite introducing innovation in aircraft through lower fuel, software, material, and engine costs, some companies have made the manufacturing process more complicated. Even the innovation has created more issues further up the supply chain.
Some areas could be improved as a result of the analysis. The following are some considerations for OEMs.
Demand Management of Aerospace
OEMs must strike a balance that is equitable to both customers and suppliers. Although it is understandable that the market is expanding and demand for new aircraft is increasing, both suppliers and OEMs must reach a point where they cannot accept any more orders.
The forecasting method should be used here so that they can have a better idea of what to expect and can inform all relevant parties ahead of time. Demand management is designed to keep things like this from happening. Manufacturers have some clout because they can say how many will be available for purchase, when they will be available, and how many will be available. It is the manufacturer’s responsibility to forecast this.
CRM Of Aerospace
Management of customer relationships. The goal is to position customers so that the company’s profitability improves while the customer relationship improves.
Success Factor for Supply Chain Management in the Aerospace Industry
The aerospace supply chain is in the process of transitioning from a responsive to an agile configuration. We can identify the following critical success factors for strengthening supplier management and establishing an active supply chain configuration in the aerospace industry.
- Improve OEM-supplier flow management at all stages of the product/system life cycle by:
Improved reporting processes and end-to-end responsibilities are helping to professionalize interfaces.
Defining and enforcing strict and shared rules (e.g., in development phases, shared and stable design rules, and unmistakable quality and test procedure definitions)
reducing supply chain volatility through more robust planning.
- Develop Supplier Portfolio by: Using shared assessment criteria and early communication of bottlenecks, establishing transparent and reliable risk and performance evaluation.
Synchronizing data flow through appropriate IT solutions
Establishing a clear vision of the target portfolio of suppliers.
- Improve Supply Chain Design by:
Concentrating on crucial suppliers with the necessary skills.
Evaluating the supplier network’s sturdiness
We are utilizing best practices and supplier expertise across the entire network.
- Develop Strategic Supplier by:
Establishing a high level of trustworthy collaboration (risk-sharing partnerships, joint improvement programs, an open book policy, on-site representatives, etc.)
Co-locating critical teams to transfer knowledge and increase supplier capabilities
- Pay special attention to supply chain management/purchasing staff education, preparation, and training, because well-trained and open-minded personnel in this area are just as essential as strategies and tools. The success of an innovative customer-oriented aerospace industry organization depends on the SCM team.
With its advanced technology, the aerospace industry is a significant contributor to economic development and a strategically important sector for a variety of reasons. Capacity, maturity level, and other factors related to supply chain management (SCM) in the aerospace industry are of primary importance for its functionality and future development and the flight safety and reliability of aviation equipment.
For aircraft safety, all aircraft-related parts must be certified by aviation authorities and must have complete traceability back to their source. In combination with high investment costs, these high standards for part production and approval and other quality regulations for suppliers produce an overall highly oligopolistic – and, for critical parts, even monopolistic – market structure for the supply of aircraft parts and services.
Future challenges will require active change management to survive changing conditions and install efficiently functioning aerospace supply chain networks. Understanding an organization’s supply chain management requirements is the first step.
The next step is to decide whether to build a supply chain infrastructure in-house or partner (s) with a supply chain product/service provider once the requirements are precise. The aerospace industry’s SCM and quality management systems and the reflection of strategic, tactical, and operational best practices can then be used to implement a successful supply chain management solution within the organization’s framework.
OEMs can adjust their supply chains based on their development programs. In most cases, the differences are minor and limited to specific areas. Manufacturing relies heavily on supply chain management. It has the potential to make or break you.
A company can do very well if it has proper supply chain management. It’s still possible to make mistakes in some areas, but there’s usually enough time to correct them. As we can see from the examples given, Boeing made a mistake with outsourcing at some point but could fix it promptly without incurring high costs.