Addressing Supply Chain Challenges

To keep pace with today’s current build-to-demand model, A&D companies face a series of unique challenges that require a significantly greater level of supply chain agility.

Only when visibility is combined with deep and secure collaboration throughout the supply chain will the industry achieve the elevated performance necessary to commit with confidence to customers, manage its backlogs, and deliver aircraft on time and on budget.

A new era
The A&D industry is entering a new period of value-engineering its supply chains and bringing an increased level of focus to deliver performance improvement. In spite of the turbulent operating environment, supply chain performance was a key success factor for A&D companies globally in 2013. New defense trade cooperation treaties that came into effect in 2012[1] have helped streamline the supply chain and reduced export control administrative burdens. As more of these agreements are put in place, global business interoperability becomes more efficient, creating potential performance gains for the A&D supply chain.

The challenge for the commercial aircraft sector now is to be able to ramp up supply chains to build more planes faster and orchestrate a multitude of components arriving at the same time. The Boeing 747-8, for example[2], has 6 million individual components, manufactured in almost 30 countries by 550 suppliers. Moreover, commercial aircraft assembly is the ultimate just-in-time business case because of the sheer size of the fuselage, wing, and tail assemblies. Obviously, the ability to track multi-tier purchase order creation, advanced shipment notifications, and shipments all the way to their assembly plants is critical, since it reduces the continuity of supply risk and helps organizations achieve targeted production rates.

Collaborative planning and execution
To meet today’s business demands, A&D companies need improved capabilities in a number of areas, including enhanced outsourcing and supplier performance management, and more lean manufacturing programs such as vector-managed inventory. They also need to move toward more centralized procurement, such as buy/sell programs of module acquisition that are often found within a complex Department of Defense environment.

This will naturally lead to improved spare parts management and better control over repairable assemblies and consumables. Reaching this deep into the supply chain will entail a much higher level of information aggregation and analytics to improve operational performance.

Commercial aircraft manufacturers and defense companies are also looking for ways to reduce costs while simultaneously increasing responsiveness. They have reached the conclusion that their trusted, Tier 1 suppliers hold the key to their success as orchestrators within the extended supply chain by eliminating out-of-sequence deliveries to their factories. While these suppliers are reporting strong operating margins, they are often achieving them, in part, by passing along unnecessarily high supply chain execution costs caused by lack of visibility or collaboration.

To improve overall supply chain cost structures, brand owners know that they will need to provide better insight into their demand and sub-tier suppliers’ performance readiness, so that Tier One suppliers and integrators can meet higher production levels in a cost-effective manner.

To meet these new A&D challenges, companies will have to master the following four competencies:

1. Going beyond simple visibility for supply chain predictability
The need for predictive visibility into supply chain performance has become more important than ever as commercial and government customers struggle to meet demand. This means not just knowing about current material shortages, but also future shortages so they can be prevented. Spending more time predicting and less time reacting requires more process automation so the supply chain can manage by exception.

This shift will require:

• A greater level of procurement automation to manage request dates

• More third-party logistics (3PL) monitoring to project late deliveries

• Increased cross-site inventory visibility to detect impending stock-outs

• A continuous risk analysis of disruptions and excess and obsolete liability

• Only by having a shared global view of both consigned and non-consigned inventory will this be possible.

2. Managing secure collaboration within an A&D environment
Connectivity to all trading partners has become a necessity as customers are increasingly requiring more data and deeper levels of integration with their internal systems. This level of integration within an A&D environment requires a much tighter level of information security and is often subject to national standards, such as the U.S. government’s International Traffic in Arms Regulations (ITAR). These rules are a step beyond those of other industries, as information exchange becomes a matter of national security. It means that system-level access and authentication must be rigorous and specific to the individual. Achieving secure collaboration across multi-enterprise supply chain platforms requires extensive identity management and two-factor authentication.

3. Network risk analysis: Mitigating/preventing disruptions
The balance between transparency and security is critical when managing an end-to-end supply chain, especially within the A&D industry. Role-based authentication to a business process has to be controlled to ensure each participant in the supply chain has a defined need to know and access to data required to complete their portion of the business process. The workflow is then controlled by these access permissions, which pave the way for seamless and secure collaboration.

Once the extended supply chain is working collaboratively within a secure framework of data exchange, it allows all participants to work together to prevent disruptions. As trust is built, partners begin to work toward the overall supply objective of meeting end-customer needs. If they see something, they are more likely to say something to prevent supply chain disruptions from occurring in the first place.

4. The Big Data opportunity in A&D
Once the right data is visible, it becomes actionable information. Then, the question of the potential benefit of Big Data arises. Is it possible to spot industry macro trends or understand industry capabilities by simply measuring supply chain performance? Could companies gain insight into increasing market demand and respond sooner, thereby reducing backlogs? Business networks now provide the ability to aggregate market demand information and connect it to a view of supply (e.g., by commodity, by part, or by location) that is useful in determining the ability of an industry, such as A&D, to meet new orders. This is where a portfolio view of aircraft platforms and their dependent supply streams would be immensely helpful.

More, faster, and on time
The A&D industry is transitioning from a steady-state production model to a build-to-demand model that now requires a significantly greater level of supply chain agility. While simple supply chain visibility is needed, it is not sufficient to respond to demand surges like the one commercial aircraft manufacturers are now facing. Visibility on its own is also insufficient to reduce costs locked deep within the end-to-end supply chain structures defense companies are facing. Only when visibility is combined with deep and secure collaboration throughout the supply chain will the A&D industry be able to do more, faster, and on time.

These core competencies will help A&D companies fully harness the potential that’s deep within the supply chain so they can effectively address today’s business demands and stay ahead of the competition.