Supply chain is a crucial part of any business involved in sales of some kind. Aircraft manufacturing is no different to that. Without supply chain a business is simply unable to operate. Airbus and Boeing are the leading aircraft manufacturers in the aviation along with Boeing. Industry demand has led aircraft orders to increase and so both Airbus and Boeing plans to increase production. The question is if the supplier can keep up.
In this paper I will analyse the supply chain of aerospace that affect both manufactures and how the increase in demand of airlines has affected the supply chain. I will do so by highlighting the key suppliers and how their reactions effect the entire supply chain. It will also focus on the importance of the SCM in a business for efficient daily operations.
Fuel cost in every industry has seen a rise, especially in aviation. The increase in passengers in passenger travel has demanded more fuel efficient aircrafts. This has resulted in airlines changing -their future strategies towards manufacturing and design. In Europe Ryanair uses the most recent and fuel efficient aircrafts on the market, B737-800. Their strategy is to keep aircrafts for a maximum of 5 years before selling them on and ordering replacement, more advanced and efficient models directly from Boeing, the manufacturer. Ryanair’s whole model is based off this as well as their forward thinking in 2001. Many airlines across the world from North America to Europe to Asia are seeking more efficient models and seeking to buy them straight off the manufacturers. The two largest manufacturers of the world, Boeing and Airbus, will have to adapt their supply change to fulfil on all orders received from customer airlines and others.
Boeing was the leader in when it came to long range travel. With the 747 out of date they wanted to reinvent the definition of travel. At this time, they introduced the B787 ‘Dreamliner’. This aircraft aimed to provide a new meaning of value. The new release of the B787 changed the way image of long range travel but also the future of how they were built.
Value Chain Network
Airbus has a globally established a value chain analysis in the aviation industry that requires completing the needs of customers. They have managed to excel at this in all their years. The production network is a combination of several factors:
There are many supplier categories involved in the production the aircraft.
The first business involved in this are the original equipment manufacturers. These companies are in the final stage of the network before they get delivered to the customer. This process involves designing, developing and assembling of the aircraft. OEM’s are responsible for the delivery of the aircraft and so must also do all checks and testing. The largest OEM’s are Airbus and Boeing which are the OEM’s I will be using as examples throughout the essay.
Secondly come the tier 1 suppliers. This supplier is responsible to directly supply to the OEM. They are risk sharing partners of the OEMs. First tier suppliers are also responsible for assembly of engines, avionics, toilets, cabin interior, etc. An examples of such are Rolls Royce for the engines.
Tier 2 suppliers provides complex product required by tier 1 supplier. They are often produced in-house or they could have used multiple other providers to produce these components.
Tier 3 supplier are mostly small companies that indirectly provide parts for OEM and are much more specialised and have complex process to be created.
This type of supply chain is also known as vertical collaboration (Coyle et al. 2013 , p116-117). Other than the immediate supplier there are others, such as institutes of academia, government institutes and researcher etc. that all have a direct with OEMs. Between aircrafts manufactures, OEMs, they might have slightly different supply chain but they mostly have the same concept.
Technical services are also external
Above in figure 1.1 it shows how the value chain for the A350XWB development programme. The industry is continuously looking for better aircrafts and so the pressure on OEMs increases as they have developed more aircraft programs. These programmes become much stricter and cost can run up massively. A strategy they have started using is outsourcing.
Airbus has been trying to cope with the demand by outsourcing. Not only have they been trying to outsource their production but also the design of components. This area is a key player in the supply chain management of the business. This is well explained through the analysis of Boeing v Airbus in outsourcing.
Manufacturers have always outsourced non critical parts and airbus is no stranger to that. Airbus has always been in direct competition with Boeing. Whoever makes the first move, the second will follow. Outsourcing has been one of those things. Boeing decided to outsource 90% of it 787 Dreamliner project. This was a 40% increase from what they were previously outsourcing. Airbus decided that for their next project to increase to 50% which was a 20% increase from previous projects. Boeing might have helped Airbus unintentionally. With 90% of its project outsourced, they proved that by attempting to reduce their financial risk through outsourcing it increased the risk of project failure and risk management (Nakamoto, 2008)
As Boeing took the initial step to outsource, Airbus could only watch as their production system was unable to respond with the value in dollar decreasing. Inevitably, Airbus was eager to follow this strategy. Although if they were to follow they would have to adopt a better strategy and be able to justify it for the long run. If anything there is a lesson to be learned from Boeing that there is a limit to outsourcing to suppliers. Due to the nature of the industry, outsourcing in such complex and sophisticated projects could have a detrimental impact on the company’s reputation. Airbus had promised the market cost saving though outsourcing (Nakamoto, 2008).
Airbus decided to look into outsourcing as a way to save cost for its parent group. They have a number of questions to asks themselves before agreeing to it. The first is, is it strategic in the long run? Most companies’ relationship is based on experience and trust. Once they decide to switch suppliers and it backfires they won’t be able to return resulting in a huge loss to in quality, cost, delivery time and much more.
As airbus is a major company, outsourcing will result in the loss of jobs within their internal employees. Therefor OEMs will usually follow a supplier selection process. Such process consists of the following:
Identification – Simply listing all potential suppliers. As they are a leading company within the industry they would have access any database required e.g. Thomas Register of American Manufacturers.
Shortlisting– Gathering all required information on selected suppliers. The questions asked in this stage are usually around price, dependability, experience, recommendations etc. (Infoentrepreneurs, 2016)
Selection – This stage you would ask for quotations. These suppliers are able to handle the order they receive.
Scorecards – Used to monitor quality and performance.
(John J. Coyle, 2013)
In this instance Airbus decided to go ahead with it as the potential benefits were greater then not going ahead with it. They chose to way it against expansion in new markets such as China, Russia and India. These are the same areas that Airbus decided to outsource to.
Example Boeing’s Supply chain
By using Boeing, we will properly identify their supply chain network. Boeing supply chain practises have can be categorised in three sections or topics.
Just in time orders. Boeing have decided that they will produce aircrafts on order. New products have the tendency to take a bit more time than usual. As a result, the lead time is any from a year to 20 months. In their 787 Dreamline programme they had agreed to start selling in late December and received their first order in early 2004. Due to the programme their first order would be arriving at about four to five years’ time. As Boeing operate from the US they have 3 assembly line and one manufacturing line. Other parts are outsources as explained previously. With Boeing only taking aircrafts on order it encourages their 2nd and 3rd tiers to operate as efficiently as possible with first tier supplier. One way of accomplishing such is by practically working next to each other. Maybe not in the same town but perhaps still in the same town.
Customer – Boeing receives many order and they would almost never be private. Nearly all of these would be split between airlines and leasing companies. Leasing companies will easily order just as much as a major airline. SMBC and Avalon are in the top five leasing companies in the world so you can imagine how many they would order. This is also in relation with their network as they will operate for customers. Not all airlines will purchase straight form the OEM but many will. As you can imagine aircraft are expensive. So the smaller airlines would go for either second hand or through leasing. Ryanair for example buy all aircraft new but will in time sell which they have done.
Suppliers come in three different ways with Boeing: engines, avionics and aerostructures.
Current challenges faced in aerospace
Both Airbus and Boeing had development programmes for their latest generation of aircraft. These are the A350XWB and the B787 Dreamliner. Both Boeing and Airbus had an estimated figure to deliver 1600 aircrafts. However, the both OEM have come to a halt due to their suppliers. As both have a fair amount of sourcing within their company it is very much possible that they will receive a delay. One of the cases that has caused them a delay is from a first tier supplier. Their engine manufacturers have identified a fault in the engines they have deliver to the OEM. This has caused a massive standstill in production as well as the OEMs had to stock ‘inventory’. As both airlines are received more orders then they have assembly lines it is unusual for them to hold stock. (Skift, 2018)
Airlines are no strangers to delays. For obvious reason they would not delay on purpose but when did have a delay it was for different reasons. Most of these delays they would have had was on the design or attempting different techniques during assembly. Now, however, with the industry booming it has challenged the suppliers. When they outsource and receive more orders the challenge for suppliers is on. Suppliers might have had the resources to cope with demand at the time when received the contract and could have handled some more but I believe both the OEM and supplier were not prepared for this type of demand. (Forbes, 2018)
Rolls Royce, Pratt
Approaches to Aviation Safety Management
Benefits and Drawbacks of the Predictive, Proactive and Reactive Approaches to Aviation Safety Management
Safety management in aviation is not a new 21st century topic. In the past aviation safety improvement was characterized by a fly-crash-fix-fly approach. We found fly airplanes that have the occasional unfortunate crash and we would investigate the cause(s) to prevent it from happening again. Sometimes the causes would be weather related or mechanical failures, but more often the main cause would be human error usually “the pilot”. Essentially, the prevailing philosophy was once determined to be the pilot; therefore, other pilots were simply encouraged to not make the same mistakes that happened before. Safety management should not be viewed as simply a means to an end or a blind adherence to industry standards, but rather as a company and industry wide commitment to the best practices and continuous improvement of everything safety related. In an effective safety management system, the focus is shifted from a reactive to proactive method of managing risk. The prevailing view of risk should be professional and realistic, focusing on eliminating or maintaining optimum levels of acceptable risk using past incidents, professional’s perspectives and insights. The aviation industry has in the past been comfortable maintaining a reactive position to safety regarding occurrences as isolated accidents, and consistently taking actions only when something happens. The introduction of safety management systems is shifting the focus from enforcement centered to a more proactive approach which can establish the perception that safety is simply the best and the most effective and most profitable way to do business.
The Benefits and Drawbacks of the Reactive, Proactive and Predictive Approaches to Aviation Safety Management.
Safety means different things to different people in relation to their circumstances. The Merriam Webster online dictionary defines safety as the “condition of being safe from undergoing or causing loss, injury or hurt” (Merriam Webster Online Dictionary, 2017). The International Civil Aviation Authority defines safety as “the state in which the risk of harm to persons or of property damage is reduced to, and maintained at or below and acceptable level through a continuous process of hazard identification and risk management” (ICAO, 2006).
Aviation safety management is described as a planned, documented and verifiable method of managing hazards and associated risks (Bottomley, 1999). It is a strategic process that identifies and addresses safety issues. It includes the important organizational structures, accountabilities, policies and procedures. (ICAO, 2009). ICAO has required its member states to develop and implement SMS programs to improve safety and the FAA is encouraging aviation service providers to develop an SMS. Of course, the overarching goal is to improve safety while the experts of ICAO believe that deployment of an SMS is the best means of achieving that goal. The transformation of the aviation industry from what it was to what it is at this present time is as a result of continuous investment in aviation safety. These efforts made by the aviation community as safety have been the highest priority for the aviation industry over the past 100 years. Developments in technology, training and risk management have resulted in commendable improvements.
The Aviation Safety Management concept represents the transition from a reactive culture to a proactive culture. Globally, the accident rate will never be zero because human error will always be a component of nearly every operational activity. However, the accident rate can be reduced by implementing proactive and predictive methods into the organizations management system. The safety management concept shows a progression from a reactive culture driven by investigating the most recent smoking hole to a proactive environment of identifying and resolving operational hazards associated with significant changes in the operation before they are implemented.
Approaches to Aviation Safety Management
ICAO identified three approaches to Aviation Safety Management as follows:
The Reactive Approach
The term ‘Reactive’ means being responsive to something. The reactive approach entails action after an accident has taken place to either minimize its effects or to take advantage of the event. It involves responding to accidents as they occur. This was how the early aviation system did risk management because they did not have enough experience and technological knowledge. The reactive approach to aviation safety management is often equated with the well known “fly-crash-fix-fly” adage. There is an accident or incident and we use investigative tools to try to determine what the contributory factors that caused the problem. ICAO uses the term to include “incident analysis, determination of contributory factors and findings as to risk”. This approach involves the analyses of outcomes or events. Incidents and accidents are clear. Correcting the deficiencies found using standard reactive measures should reduce and manage errors that led to a particular incident.
This approach is used in new SMS programs that do not have the requisite safety data to practice proactive or predictive safety management.
Benefits of the Reactive Approach
Accident investigation is an important reactive component of the aviation safety management system. Accident investigation contributes to the continuous improvement of the aviation safety system by providing the root causes of accidents and incidents. Finally, lessons are learned from analysis of events.
Information received from the reactive approach can support decisions regarding the development of corrective actions and corresponding allocation of resources and may identify necessary improvements to the aviation system.
Most investigation exercise also uncovers hazards or threats. An effective investigation process includes the identification and discrimination of the immediate, underlying and root causes of an aircraft accident as well as the active and latent errors leading to an accident.
This approach through analysis of data from numerous accidents has aided in the identification of recurring patterns or risk factors that are not always apparent when individual accidents are investigated.
It provides the motivation and opportunity to identify and collect safety data.
Drawbacks of the Reactive Approach
According to the NTSB, due to the complex nature of accident investigations, providing timely accident reports has been challenging. Thus, it can be said that the reactive approach is time consuming.
This approach requires a lot of resources for its successful completion. It is a result of the resource constraints that the NTSB has developed the accident launch criteria to determine which accidents to investigate (largely related to the number of fatalities or other risk factors).
Modern safety theory would suggest that relying on correcting deficiencies found through incident investigation as a means to reduce error is somewhat restrictive (Weigmam