Aerospace Industry and Supply Chain Management – Page 2

Challenges Affecting Supply Chain Management

Similar to the teenage development path, the aerospace industry is experiencing its growth spurt brewing anticipations for a traumatic phase. This emerges from the uncertainty surrounding decision makers as industrial leaders’ wonder of the future of their supply chains. Particularly, they wonder if the chains will mature and shed the sullen nature, they have tolerated in the past. Although challenges glooming the supply chain arise from globalization and integration efforts in the network, poor management is to blame for imposing inappropriate discipline along the chain. Equally, it is challenging to manage effectively the lengthy supply chain, which also house supply base for multiple industries (Gordon, 2006). Ordinarily, when challenges arise in the supply chains it leads to shrinking profits, trends that further threaten the future of the industry to cope with dynamic environments.

Figure 1

Challenges in the Aerospace Supply Chain (Kinaxis, 2014)
The growth potential of the industry marks good news for operators as they greater generation of revenues. However, it is difficult for the companies if their supply chain management fails to offer solutions to challenges denying them to generate revenue at the same rate. For instance, few organizations can sustain increased customers’ penalties and re-sourcing costs emerging at the fundamentals of the supply chain, thus eating into their margins. The existence of the sluggishness as the companies shift from mass manufacturing to allow production schedules based upon demand-led models lead to increased uncertainty on meeting customer requirements. Accordingly, they lack a complete reflection of the total demand, leaving many organizations treating aftermarket operations and OEMs products as separate channels. The splitting of the supply channel leads to separate planning of orders by manufacturing plants, implying they are excluded from the total demand. This leads to mass overloads manifested through multiple delays in the production schedules (Altekar, 2005).

Most companies operating in the industry fail to generate an accurate forecast of the total demand. This leaves them planning for a single scenario which condemn their activities to single consolidation of the forecasted demand. Inaccurate forecasts make it difficult to respond to rapid changes in the industry. Furthermore, failure to incorporate information residing in systems of their target customers leads to partial knowledge of future demand. Precisely, this affects aftermarket service, where complete knowledge is requisite to meet the maintenance load. When customer requirements are inaccurately followed it results in delayed production schedules owing to repetition of tasks to avoid heavy penalties imposed by clients (Gordon, 2006).

Inadequate inspections and verification overlook capacity with emphasis asserted on the price charged and output quality. This affects the production schedule when the subcontractors and third parties lack the capacity to cope with production schedules. Although suppliers in the chain have knowledge of their assembling rates, few model the broader supply base to incorporate the combined load placed on their manufacturing facilities. Likewise, though few pinpoint suppliers meeting their production capacity, the majority fail to aggregate total requirements from lower tiers. This exposes the supply chains to misunderstanding ensuing from ignoring installed capacity, hence eroding operations consistency (Altekar, 2005).

Applying Enterprise Resource Planning (ERP) alone does not provide enough cushions to solve challenges affecting supply chains. This arises from the existence of false assumptions in the generation of ERPs. Typically, ERPs assist companies predict their future as no entity possesses enough knowledge to progress in their operations at 100% certainty. Such applications, suffer from assumptions in the ERPs designs including fixed production schedules and fixed organization structures. These assumptions drive planners of supply chain management to spread sheet models that rarely incorporate the scope of present challenges. For instance, it takes several weeks to examine the effect of a single change across the chain. When compiling the findings and calculating the impact, results are invariably obsolete as the supply chain quickly adjusts to the prevailing environmental factors. Similarly, application of ERPs leads to plans that often changes at the local level to match the objectives of the manufacturing facilities. This leaves organizations operating in the supply chain adopting the products perceived to contribute to their targets, rather than incorporate the requirements of customers (Altekar, 2005).

The emergence of global drivers such as technological clusters and low cost manufacturing zones alters the structure of the evolving supply chains. OEMs embracing this trend to leverage benefits such as cost minimization and optimizing their manufacturing activities through latest technologies expose their supply chains to over dependence on subcontracting base. While this appears to revive their shrinking revenue margins, it translates to amplify the likelihood of utilizing unapproved sources, arising from the desire to engage low-cost providers. In this respect, OEMs loses the control of their supply chain as the network extends to second tier and third tier subcontractors. Although it is possible to proactively assess the risk inherent in the chain and develop contingency plans, it subjects the production schedules to delays (Sodhi & Tang, 2012). This is exhibited by the delayed deliveries of Boeing 787 model and A380 when Boeing and Airbus lost active control of second tier production channels.

Although regarded impossible to develop contingency plans to solve all challenges arising in the supply chain, having a proactive management team would mitigate the risk exposure. As revealed by multiple delays characterizing Boeing Dreamliner programme, most OEMs lack proactive management teams to oversee risk exposures in their novel production chains. Including the right members with prior experience in similar tiered chains, would help these companies mitigate risks, as well as, generate quick responses to emerging challenges. For example, had Boeing included a team of leadership members with proven expertise in tiered supply chains, such as Toyota supply chain, it could have avoided the troubled delivery of the 787 model (Sodhi & Tang, 2012). This demonstrates an inherent challenge practice where OEMs embraces dramatic shifts from their conventional production methods to complex manufacturing techniques where they lack prior test on the project scale. Such approach denies the company comprehensive identification of all eventualities prior to embarking on complex manufacturing systems.

The practice of embracing performance-based contracts enforced by customers escalates the pressure on other stakeholders operating in the chain. Given the presence of large-scale projects under scrutiny of lengthy multi-year contracts and multiple compliance regulations, timely meeting of customers’ delivery schedules proves difficult. This demands alignment of objectives to optimize the supply chain and foster efficiency by encouraging intimate networks with different tiers. However, few OEMs accomplish this in reality, as inter-organizational relationships never balance the interests of individual stakeholders. This arises from the basis of absent integration and collaboration, denying OEMs a platform to alleviate final rush to manufacture deliverables to customers-set deadlines. Considering the volume of activities required in the production of a single aircraft, failure to identify emerging problems at earlier stages exacerbates the pressure as late correction eats into the production schedules (Behrens, 2010).

Approaches Implemented to Improve Supply Chain Management

The complexity existing in the supply chain network mandates new thinking and application of right management channels to drive improved efficiency. In view of that, many companies have embraced improvement programmes to shave costs amidst the present financial crisis eroding their high margins. For example, the Airbus power8 program provides the company with an opportunity to streamline its supply chain minimize costs and improve its business practice (Behrens, 2010). As OEMs delegate more responsibility to the lower tiers, the direct consequence of this is increasing supply chain risk, harboured in these regions. On the other hand, supply chains exist as a linked web yet with multiple changing relationships. Therefore, rationalizing the supply chain likens to improving the corporate assets to consolidate the existing relationships. Airbus Power8 program gears towards transforming their competitiveness through cash savings, reducing the development cycle, and reshaping the company’s supply base to ensure timely delivery and emphasize quality supplies (House of Commons , 2007).

After learning of little synchronization of the supply chain between top-end stakeholders and lower tier operators, embracing information technologies, generate mutual alignment. Given that most commercial contracts include a penalty clause to avert late deliveries across the chain, adopting improvement programmes bridges disparity existing among role-players in the supply chain. For example, the integrative approach adopted by Alenia Aermacchi in its competence management approach seeks to improve its family of actions, both at the organizational and process levels (Corallo, Lazoi, Margherita, & Scalvenzi, 2010). Furthermore, application of technology solutions yields a central position of strength comprising greater efficiency, savings on cost and material waste. Collaborative Exchange (CX) incorporates this in their simple idea of replicating their improvement program applied in the automotive industry to solve challenges in the aerospace supply chain. Here, the prime focus involves integrating the tangled relationships existing between OEMs, sub-assemblies and tier suppliers. Aerospace Supply Chain Improvement Programme (ASCIP) seeks to automate the supply chain, expedite ordering and ease tracking across the entire channel (Leppan & Manilal, 2005).

With each new relationships emerging in the chain contributing into the network complexity, it is inevitable that most chains are characterized by wasteful and excessive cost disadvantages for most suppliers. In view of that scheduling and timed delivery directly affects the success of the project outcome, coordination is essential to accomplish efficient supply chains. Specifically, emergence of misunderstanding translates to escalating costs and delays, avoidable through business-to-business connectivity. As demonstrated by F-35 programme where a collaborative network linked over 5000 users, business-to-business connectivity through integration tools improves supply partner compliance. The trends demonstrated by most OEMs of opening new facilities in low-cost regions and suppliers seeking to reduce their risks through mass selling to OEMs, connectivity system proves essential to rationalize the supply chains (Aberdeen Group, 2007).

Identical to other industries, change in the aerospace industry is a norm majorly caused by expectations amongst customers to reduce costs and increase delivery flexibility. This leaves the supply chain constantly evolving, a state accelerated by globalization. This has led to the emergence of global supply chains where organizations are seeking partnerships to improve the production at all stages right from the product design to overhaul levels. Similarly, present developments involving manufacturing complex equipment, cost reduction, and cutting on extended production cycles, illustrates an increasing necessity to streamline the manufacturing process. To meet this growing list of the present dynamics in the industry, aerospace companies adopt Lean Manufacturing targets to remove the process silos. Companies desirous of collaborative environment are turning to digitized supply networks, a platform where all partners have the ability to create alternative responses to detect and solve emerging challenges. In light of this, embracing the digital enterprise initiative for Ontario Aerospace industry, offers firm integration to over 200 companies. Adopting the digital application supports the entire supply chain in stages of design, logistics and engaging the customer, transforming individual companies to extended enterprises (Lafromboise & Reyes, 2007; Jones, 2011)).

Improving the Supply Chain Structure

Aircraft manufacture involves an extensive process dependent on various tiers in the assembly platform. Here, delivered components should exactly fit with the product system and defined process of the product assembler. Empirically, the supply chain is organized in a pyramid of tiers comprising first timers who integrate all components from lower tier suppliers to develop complete subsystems, designed to fit with others assembled into the final product by the assembler (Vrijhoef, 2011). This requires optimizing competencies along the multi-enterprise supply chain to deliver visibility throughout the chain. For instance, optimizing competencies through information technology solutions such as the Kinaxis‘ RapidResponse establishes greater visibility in the scheduling decisions and resource allocation. This fosters transparent planning to meet production targets of OEMs and MROs, thus eliminating shortages that often bring the assembly to grinding halt (Behrens, 2010).

Sustaining the need for timely delivery of quality products within the production schedules requires optimizing the management of competences. This is attained by evaluating potential gaps and using technical scenarios to mitigate their impact. The dawn of rapid disruptive changes in the aerospace industry leads to increased complexity affecting company’s competencies both in their internal and external environment. The dawn of manufacturing complex systems demands integrating specialized management of engineering competencies, operating under a distributed platform within the extended supply chain. This requires generating an inter-organizational value network to monitor and movement of resources and bridge competence gaps (Corallo, Lazoi, Margherita, & Scalvenzi, 2010). The focus of this approach in the supply chain requires organizations operating in the chain to identify their core competencies and nurture objectivity in their scheduling decisions. The overall goal of embracing such a system is fostering objectivity in resource allocation and mitigating the emergence of gaps in technological innovation, product development and supply chain process (Corallo, Lazoi, Margherita, & Scalvenzi, 2010).

Incorporating technology in the maintenance of aircraft engines yields lower fixed-schedule components, improved system designs and less maintenance costs. This eases the acquisition of younger fleet, a trend that has caused the decline of the MRO market. Responding to the claim that the aircraft maintenance industry lags the entire supply network, necessitate adopting computer-based support systems to automate their operations. Developing this system approach would involve adopting structured mapping of the chain and automating information management to govern operations. Subsequently, building e-commerce exchange between the MRO provider and customer’s maintenance agency would enhance optimization of inventory management and solve resource-planning challenges leading to late deliveries (MacDonnell & Clegg, 2007).

The realization that after-sale services assist further product lifecycles generates profitable selling points along the evolving supply chain. This requires setting up distinctive service points from the extensive manufacturing chain by optimizing for speed. Since speed and efficiency are requisite in maintenance and repairs, modelling customized configurations would require utilizing process enablers. Applying technology and interactive communication enablers improves the supply chain management by helping to configure real-time inventory tracking, monitoring repairs ad generating consumption reports (Souza, Tan, Othman, & Garg, 2011).

Conclusion and Recommendation

Facing up to the realities of supply chain complexity should involve delivering incremental value by embracing collaboration right from product design to its final delivery. Accomplishing closer collaboration would involve engaging parties from OEMs and their supply chains, especially during design of critical components and adding value at sub-assemblies. While this generates missing visibility in the development cycle, overcoming challenges experienced during sourcing and procuring requires embracing interactive communication channels. This would facilitate proactive management and effective workflow insight in managing deliveries and co-ordinating subcontracting. Surviving the challenge of managing complex supply chains and co-ordinating deliveries require more than technical competence. Generating an integrated environment to arrest challenges arising in the supply chain would involve discarding manual management and embracing information technology solutions. This would deliver better risk management in the multi-enterprise chain, thus benefitting OEMs and their supply chain partners with improved business performance and profitability.

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