Aerospace Industry and Supply Chain Management – Page 1

The uncertainty characterizing growth opportunities in the global economy mandates the aerospace organizations to shift focus towards improving their visibility in the supply chain management. Contrary to serial identity implied by supply chain, the reality in the aerospace today demonstrates a network of relationships geared towards complexity. Complexity arises from the interrelated metrics upon which organizations must strike balance including product quality, first-pass yields, on-time deliveries, manufacturing cost and yields from the invested capital (Tiwari, 2005). Particularly, with the present-day efforts to shift the industry from traditional vertical approaches to multi-stage operations, it is inevitable to avoid multiple challenges emerging in the supply chains. Further, the inclusion of aftermarket operations comprising maintenance, repair and overhaul (MRO) poses greater challenges for the organizations with less visibility and control over their supply chains (Behrens, 2010). Nevertheless, blending supportive climate and collaborative relationships with vital stakeholders would arrest risk exposures; simultaneously overcoming emerging challenges through superior operational transparency, and supply chain visibility.

Challenges attributed to the complexity of supply chain arise from the fact that, organizations cannot manage what they cannot see. This results in risk exposures manifesting themselves through inefficient operations and acceleration of conflicting demands. Recently, the complexity facing supply chains exhibited itself through numerous delays shunting the delivery schedules of Boeing 787 and A380 from Airbus. Particularly, A380 program to deliver the largest commercial aircraft was ridden with production flaws leading to multiple delays that affected its production schedule. This emerged from the challenging structures inherent in the production of aircrafts amidst, requirements to ensure timely and cost minimization. Considering that production of single aircraft entails assembly of thousands of the requisite components obtained from multiple multinational suppliers, preventing late deliveries remains the prime concern in aerospace supply chain management (Behrens, 2010).

Supply Chain Literature

The evolution of the contemporary management of supply chains emerges from rapid changes witnessed in the business practices. Reflecting on the period between late 1980s to1990s, reveals increased re-examination of how firms would add value and minimize their cost exposures. This led to huge rationalization, cost minimization drives, initiatives to improve quality, alongside inventory reduction packages (Bales, Maull, & Radnor, 2004). Although on an evolved platform, current changes occurring in the supply chains of aerospace are the results of the aforementioned initiatives. However, before examining the management of aerospace supply chains, reviewing the preceding contribution to this concept provides an ideal ground to set off. In his definition, Davis (1993) emphasized the structure that supply chains involves a series of activities and required organizations, undertaken in the conversion of inputs to deliver finished products to final users. Although differing in Davis analytical definition, Harland (1996) defines a supply chain as dynamic structures interconnected to form complex, but independent networks linking suppliers, stockists and manufacturing facilities.

Progressively, Overby & Min (2001) described supply chains entails value-creating networks, which inclusively accumulate potential to generate greater value than what the individual partners would create. Although these definitions suggest a different understanding of the context, it generally converges to mean a bundle of activities in a value-creation process. In view that supply chain is regarded an entity, Lalonde & Masters (1994) regards it as a network comprising firms that pass raw materials forward to further creation of finished products to the final user. Drawing on these definitions, aerospace supply chain entails a network comprising independent firms including producers of raw materials and components, assemblers, wholesalers and transportation entities in the aircraft production (Horch, 2009). For that reason, this term paper is based upon Mentzer et al (2001) ultimate coverage of supply chain that include all firms participating in both upstream and downstream production processes. Similarly, the paper rests on the description of supply chain management provided by the Council of Supply Chain Management Professional CSCMP: Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers and customers. In essence, supply chain management integrates supply and demand management within and across companies (Ayers, 2010).

Supply Chain Management (SCM) in Aerospace Industry

In contrast to other manufacturing sectors such as building, Supply chain management seems less advanced in the aerospace industry. Unlike the emergence of prime contracting and framework arrangements to generate supportive SCM in the former, the latter has seen extensive collaboration, leaving the industry dominated by few global organizations (Vrijhoef, 2011). The mass consolidation leaves the companies operating within wide networks characterized by mutual dependency to provide effective management of the supply chains.

Firstly, existence of outsourcing activities is gradually altering the shape of the supply chains. However, while the volume of actors decreases, subcontractor base reveal increasing volume of more manufacturing activities. Given the volume of materials required in the assembly of an aircraft, the sub-contacting base has expanded to incorporate the production of complex sub-assemblies and lower-order components. Since Original Equipment Manufacturers (OEMs) ceased free-issue of materials, subcontractors bear the risk of planning, purchasing and stocking, alongside outsourcing the materials to third parties. This cycle demonstrates how the supply chains are evolving into multi-tiered supply chains, in a network where prime-sub contractors are outsourcing periphery-manufacturing activities to third-tier sub-contractors (Bales, Maull, & Radnor, 2004). This generates complexity in the supply chain exhibited by the difficulty in the Boeing 787 programme where several subcontractors did not procure their required parts, resulting in delayed sub-assembly schedules.

The emerging supply chain structure reveals the need for embracing partnership through an integrated management approach. This would leave parties serving in the sub-contractors base undertakes focus on single supplier issues and discarding purchasing and stocking issues to second and third tier operators. However, the nature of such a supply chain structure translates to complexity, which forces high levels of cooperation to safeguard material traceability and manufacture of superior components. This mandates establishment of initiatives to scrutinize the sub-contracting network for sustaining independence and cooperative relationships. Resulting from such approaches is the need to create single contact points and further intra-organizational manufacture groups between customers and component suppliers. Absence of such backing of the sub-contractors would lead to multiple overlooks of the complex supply network (Bales, Maull, & Radnor, 2004). Therefore, adopting a three-way communication between the OEMS, sub-contractors and material providers allow continuous contract enhancements and improved delivery schedules.

The increasing sub-contracting trend of manufacturing assignments dictates strategic information exchange through active inter-organizational communication channels. The management infrastructure must support the volume of information exchanged along the supply chain. As more players embrace inter-organizational relationships, there emerges inter-connectivity requirement in the system that affects the chain visibility. Equally, the severe competition and accelerated the outsourcing trend calls for embracing innovative solutions to minimize manufacturing costs and reduce lead-time (Rose-Anderssen, Baldwin, Ridgway, Allen, Varga, & Strathern, 2009). Similarly, sustaining transparency in the production network encourages accurate planning and application of optimizing software to ensure stock levels meet individual level agreements. Availing such information to other supply chain operators, offers an invaluable decision-making tool. At this point, OEMs and subcontractors remain aware of uncertainty emerging variation elements in the aerospace supply chain. For instance, the presence of fluctuations in the build-rates, changing engineering designs and issues denying accuracy may lead to forecasted inaccuracy. As companies such as Airbus and Boeing, increase their fragmented manufacturing to low cost plants, they lose control of their bill of materials to multiple enterprise. For that reason, service providers such as Appollo are vital to collect such information, demonstrating enough proof to develop technological management platforms to offer inter-organizational solutions in the form of information transfer (Behrens, 2010).

Facing up with today’s realities leaves the aerospace supply chain constantly evolving to structures that foster in-house competencies and flexibility in the production schedules. This development attributes to the growing realization of strategic advantages in engaging third parties to manage supply chains. Such alteration to the supply chain structure accommodates specialist service providers, leaving the manufacturing base with a broader focus on the production process. However, as third parties diversify their services to offer specialized solutions in the supply chains, it exposes the structure of the supply chain to continual adjustments. This makes strict order-qualifying and continuous monitoring of third parties’ services essential to sustain synergy and complete traceability in the chain (Corallo, Lazoi, Margherita, & Scalvenzi, 2010).

Alike other industries facing the pressure of emerging global drivers, the aerospace market experience accelerating influence by technology transfer and concern for offsetting the manufacturing cost. For example, the emergence of China as a prime destination ensues from its growing aerospace market and low-cost manufacturing zones. This generates a perfect destination for major OEMs desirous of exploiting such opportunities. This is illustrated by European OEMs strategic location, including Boeing Aircraft manufacturing at Shanghai and Airbus wing manufacture in Shenyang (Gu, He, & Zhang, 2014). The development of global supply chains exposes the aerospace industry to diverse intergovernmental policies and varying geopolitical situations. Besides, OEMs must reach out to global management approaches to curb multiple variations including technical expectations and management personnel. Failure to adjust to global standards exposes them to fractious supply chains, with potential to increase their low cost structures they seek by initiating overseas plants (Behrens, 2010).

Nonetheless, expanding operations to the BRIC block exposes the supply chain to further complexity of government-funded programmes aspiring to initiate domestic airframe manufacturers. Perhaps, responding to increasing cost pressure and embracing best practices lures OEMs to joint ventures and global collaboration. While global supply chains benefit the OEMs through clustered competency and low-cost operations, they retain avionics operations and wing designs to safeguard their high-value knowledge. This yields the essence of retaining in-house operations and subcontracting services of lower value addition to third parties operating from competency clusters across the globe. Despite their commitment to secure their interests, joint ventures to plants in China and India, exposes OEMs to aspirations of authorities absorbing their aerospace technologies and manufacturing knowledge. Failure of embracing restricted management of global chains generates the opportunity to hoard intellectual knowledge, thus adversely affecting the supply relationship (Behrens, 2010).

The visible exhibition of globalization in the aerospace supply chain involves outsourcing patterns of most OEMs by seeking engineering solutions and R&D competencies beyond their traditional hot spots. Given the widespread innovations and maturation of broadband infrastructure and digital designs, amplifies the benefits of offshore engineering activities. A Boeing initiative to exploit these possibilities by establishing a Moscow technical centre has grown to expertise centre housing over 2000 engineers. This serves to supplement its ideas engineered in its Europe base, as demonstrated by the centre contribution through structural designs in the 747 model (Behrens, 2010). Other companies including GE, TIMCO and Honeywell have similar trajectories by establishing global engineering centres, to harness the geographical advantages present in such zones. Today, Honeywell operates the Banglore engineering centre, while TIMCO partnership with COOPESA in Costa Rica demonstrate renewed interest to mine better manufacturing capabilities through offshore hot spots (Light, 2013). Although offshoring their engineering operations seem a common scenario, provision of management oversight in their supply chains is a retained domain of their Western power bases.

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