Disruptions Abound: Case Study of the Aerospace Supply Chain
Disruptions abound no matter the supply chain. Aerospace has been particularly hard hit. Boeing’s issues have plagued them the entire year. From critical quality issues to the never-ending machinist strike, Boeing’s supply chain has become a complete mess. Before the quality debacle, Boeing was producing 52 airplanes per month and ramping up all its suppliers for expected demand increases. Regulators are only allowing Boeing to produce 38 planes per month currently, severely impacting down-the-line suppliers. Adding misery into the mix, the machinist strike has thrown a wrench into the already dire situation.
If that wasn’t enough, Airbus is also plagued with supply chain issues. Because they aren’t as severe as Boeing’s issues, they are not widely discussed. However, they have suffered persistent specific supply chain issues, mainly in engines, aerostructures and cabin equipment. According to Guillaume Faury, CEO of Airbus, in the Financial Times, the availability of jet engines from both Pratt & Whitney and CFM International, the joint venture of GE Aerospace and Safran, was “pacing the speed of production”.
Consumers are starting to get impacted as flight routes are starting to shrink due to supply chain issues. For example, British Airways canceled its Gatwick to New York route temporarily. Of course, suppliers are suffering. How can the aerospace supply chain best survive?
Demand Volatility: Case Studies in Industrial Equipment & Complex Manufacturers
In working across several types of industrial equipment and other manufacturers, volatility is at a high point. Typically, the orders are larger in size for equipment and engineer-to-order (ETO) and configure-to-order (CTO) manufacturing are prevalent, supplemented by aftermarket, spares, and other higher margin segments. These companies see large orders get pushed out by months (and even years) with a swipe of a keystroke while also receiving expedite requests at the last minute. As there is typically long lead time materials, engineered modules, and multiple manufacturing steps such as fabrication, machine shop, welding, paint, outside processing, and assembly, volatility is not your friend.
Since machinery and other high value products are more likely to be financed, high interest rates creates volatility of demand. Customers change the dates for new facilities, push out expenditures, are dependent on suppliers’ timing (and so push out/ pull in as needed), adjust timing based on inspections and regulatory agencies, get backlogged in engineering, adjust timing based on debt levels and financing capabilities and more. These changes completely disrupt the end-to-end supply chain! How can the supply chain best survive?
Could Strategic Inventory & Proactive Planning Save Your Supply Chain?
These examples of both demand and supply volatility are commonplace in the supply chain. Aerospace clients no matter the tier are struggling to go from full ramp up mode prior to the quality issues to in a holding pattern with the supply chain issues. Industrial equipment manufacturers are getting whiplash with significant delays after expediting to keep schedules intact and vice-versa. So, what are successful clients doing?
In speaking at Adhesive & Sealant Council’s Executive Leadership Conference recently about the mega trends in supply chain, of course, heightened supply chain risk and supply chain disruptions were on the list. After speaking, a CEO came up to talk with me about how strategic inventory led to success. It is never black or white when it comes to inventory. In fact, just-in-time (JIT) is not supposed to be a literal topic of receiving inventory just in time. Instead, JIT allows for strategic inventory purchases for critical materials, heightened risk scenarios (such as during hurricane season – refer to our recent article on that topic) etc. The CEO said that his company purchased additional inventory during the pandemic, and it led to his company being able to serve customers when the competition couldn’t, and growth followed.
Similarly, when working with an aerospace client, the company was able to sustain high levels of customer service when their competition couldn’t keep up with the demand. In this case, although they had strategic inventory of a few critical components, it wasn’t inventory that saved the day. It was having excess capacity AND talent so that they could ramp up production rapidly to produce inventory to meet changing conditions. Planning saved the supply chain!
Proactive planning will also save your supply chain. For example, at an industrial manufacturer supporting the ramp up of warehouses during the pandemic struggled to keep up with customer demand. Although they had multiple facilities, it wasn’t easy to reallocate production among the facilities due to the freight costs tied to incoming materials as well as outbound shipments and preparations required to ramp up particular skills in fabrication, weld, or paint rapidly. They did a fabulous job of jumping through hoops to serve customers, but they had to sacrifice operational efficiency to change the schedule multiple times per shift due to changing customer needs and people calling out (not showing up for work). Thus, output suffered.
We worked with the strategic planning and customer teams to get a better picture of what was needed to serve customers quicker in the process for critical components (as it was an engineered product), and we also explained the importance of receiving rapid notification of changes so that the best way to address them could be performed upfront. For example, if we found out a customer had an urgent need for a partial order, we could evaluate whether to move to a nearby facility with enough time to coordinate with the supply chain successfully.
From a scheduling perspective, we flipped the equation from reactive to proactive collaboratively. There were no easy wins in a highly configured product with rapidly changing conditions in both demand and supply. Thus, we worked with I.T to roll out upgraded functionality, worked with the schedulers to stabilize, upgrade, and standardize the process, worked with engineering leaders to prioritize designs, worked with operations leaders to provide input to the production schedule and how to optimize labor requirements (produce more with the same number of people), and worked with Sales to update system dates instead of calling to production hourly with changes.
Even with these changes, the task remained huge for the production schedulers as they also were responsible for inventory and paperwork coordination. Thus, we worked with the team to automate the 80/20 of the base schedule so that the schedulers could focus on the exceptions and bottlenecks to serve customers while increasing output (and thereby sales revenue) and increasing efficiencies (and therefore margins).
In addition, we set up connect meetings with demand teams operations teams, planning teams, and executives as the start to rolling out a SIOP (Sales Inventory Operations Planning) process. With as many moving parts, it was vital to keep not just demand and supply aligned, but also Sales, Project Management, Operations, and Supply Chain aligned. It provided vehicles to prioritize, address bottlenecks, and most importantly, look forward at long-term production and capacity plans (created with data available from their ERP, CRM and sales quoting systems). By viewing long-term capacity, the Executive team determined where to expand facilities, how to reallocate capacity among their facilities, and how to maximize profitability as situations arose with multiple potential solutions. To learn more about how to roll out the process, read our book, SIOP: Creating Predictable Revenue and EBITDA Growth.
In these examples, strategic inventory and proactive planning were the key to success. In today’s world, there is also a huge emphasis on reducing inventory to free up cash flow. Strategic inventory and right sizing inventory go hand-in-hand. Reduce what is unnecessary to serving customers successfully and executing your demand plan and increase inventory and/or capacity to cover for vulnerabilities, volatility and critical risks. No matter the situation, proactive planning allows you to support sales growth, increases profitability, and accelerates working capital. What’s not to like!
If you are interested in reading more on this topic:
Medical Supply Chain Optimization: The Solution to Non-Stop Disruptions