Whos going to boss the supply chain now? By Paul Beaumont, WCI

Like a developing teenager the aerospace and defence industry is poised for another growth spurt. Industry leaders are nervously anticipating this traumatic phase and wondering whether or not their supply chains will develop towards adulthood or retain the sullen, uncooperative behaviour they have been forced to tolerate in the recent past. The trouble is, many supply chains are behaving badly simply because theyve been allowed to get out of control by people who have been unable to impose the appropriate disciplines. Supply chain planning expert, Paul Beaumont, explains that help is at hand for beleaguered parents who can now bring their troublesome charges under control and finally boss the supply chain.

The aerospace industry is notoriously cyclical. The good news is that it is widely agreed that the market is entering a growth phase. However, whilst revenues will increase in this climate, its much harder to ensure that profitability will increase at the same rate. CEOs and COOs must be confident in answering the following key questions:

1. Does my extended supply chain have the capacity to meet the increased demand for new & existing products?
2. Where will the pinch points occur?
3. When they do occur, how long will it take and how much will it cost to remove them?

If these questions cant be answered then profitability will suffer. Increased customer penalties, excess freight, re-sourcing costs and overtime up & down the supply chain will all eat into margins.

The issues
The answer should be simple understand likely demand and then line up the supply chain to meet it. However, four key failures make this a tough call for many Aerospace companies:

No picture of total demand
Many businesses rightly treat Aftermarket and OEM product sales as separate channels, with a 50/50 split in volumes being common. However, this does cause a significant problem as most manufacturing plants and suppliers in the supply chain will produce parts that service both channels. It is common for forecast and orders from these channels to be planned separately which means they are not integrated into the picture of total demand on a plant, leading to overloads and consequent delays in servicing customers.

Inability to forecast accurately
Everyone knows that forecasts are either very lucky or wrong. Nevertheless, many businesses plan for only one scenario based upon a single consolidated forecast of demand and then find themselves unable to respond when something different happens. They also fail to make use of the information residing in their customers systems and the knowledge of their customers. This is especially true in the Aftermarket, where repair and overhaul bases should have a clear view of the forward maintenance load and the likely call on repaired and replacement components.

No view of capacity across a deep, wide supply base
Although companies may know that they can assemble products at a given rate, few can model the combined load that multiple product lines place on their manufacturing facilities. Even fewer are able to pinpoint suppliers that are at or close to capacity. Almost none are able to aggregate their requirements at lower tiers to understand their call on scarce materials and constrained technologies. The relationship with suppliers focuses on price and quality, ignoring their installed capacity and their capability to operate consistently at or near this level.

Inadequate tools & processes
ERP alone is not enough to solve our planning problems. This is because ERP applications frequently make three false assumptions: firstly that it always takes a fixed amount of time to make a product; secondly that capacity is not a constraint; and finally that the organisation structure and product sourcing are fixed. These weaknesses have driven planners to resort to spreadsheets that model the real situation to work out how to plan their part of the supply chain. However, in this environment it takes weeks to evaluate a single change in forecast across the supply chain, let alone model alternative scenarios. When the result is finally calculated it is invariably obsolete because demand has moved on again. Furthermore, once the plan has been agreed it is often changed at a local level to suit plant budget objectives and targets or worse, cells simply make the products that contribute most budgeted hours to their performance rather than what the customer actually wants!

In summary, there isnt an accurate enough picture of demand; organisations dont have a good enough understanding of supply constraints and the industry lacks the processes and systems in place to make informed decisions. No wonder executives are dragged into focusing on short term expediting to satisfy existing customer orders, and dont get the time to look at the longer term and put the capacity in place to meet demand. No wonder they are thoroughly stuck in a vicious circle of poor planning and poor delivery. As a result their unresponsive supply chains behave like sullen teenagers; staying up late into the night to finish yesterdays homework, being too tired to get up in the morning to do todays assignment and certainly never planning ahead! All this time theyre asking for more cash to tie them over until they can stand on their own two feet.

This unsatisfactory situation begs the following key question:

How can we plan our extended supply chains to maximise profitability and customer service during the upturn?

Successful planning aligns supply to meet increasing demand - satisfying customers whilst protecting profitability. The key ingredients are:

• A clear view of demand, and the capability to model alternative planning scenarios
• A deep understanding of installed capacity across the extended supply chain, based on strong relationships with key suppliers
• Tools and systems that deliver an integrated planning model of the whole supply chain
• A balanced planning framework that encompasses strategic, tactical and operational horizons where the right people are empowered to take appropriate decisions, outputting a single plan that is achievable for the whole business

To explore further:

A clear view of demand and the capability to model alternative planning scenarios

Businesses must plan Aftermarket, development and original equipment manufacturer (OEM) load in a single process, because common facilities are used to make components for all three. This might seem obvious, but it means aligning the business onto a single planning drumbeat so that demand changes can be seen and evaluated in one hit. Planning for alternative scenarios is particularly important in an upturn and right now air-framers are asking their suppliers how they will cope with a significant uplift. Generating these scenarios and being able to put mitigation plans in place that can be implemented quickly will enable companies to capture a larger share of the growing market.

A deep understanding of the supply chains installed capacity based on strong relationships with key suppliers
A business needs to know its own production constraints, its suppliers constraints and their suppliers constraints! Many lower tier A&D sector companies supply multiple customers, all requiring the same resources, so that when the sector experiences growth, it is magnified at lower tiers. Where necessary, contracts should be in place that guarantee a customers call on scarce resources, and these constraints should be respected in the planning process. Often as much as 70% of product value is bought in, so bringing key suppliers into the planning process provides visibility of their constraints and results in a much more robust plan.

A balanced planning framework that integrates strategic, tactical and operational horizons

Its all about balance. A business needs strategic planning looking out 2-5 years to ensure that the business is right-sized to meet demand. It also needs Master Scheduling looking out 0-2 years to create a feasible, capacity constrained production plan that will satisfy customer requirements. Finally, tactical planning in every cell and assembly line across the supply chain is required to ensure that cell leaders allocate labour and machine capacity to meet the plan.

The key point here is to integrate the processes into a consistent framework. Each process should work to achieve the plan, not re-plan. To ensure that everyone is aligned a balanced set of measures is also required. This should be weighted to reward operations for achieving customer requirements as well as recovering their overheads.

Supporting tools and systems that deliver an integrated planning model of the whole supply chain

Advanced planning systems (APS) build on the ERP foundation and are able to plan multiple demand scenarios through alternative models of the supply chain. Capacities, including suppliers, are respected, ensuring that a feasible plan is made. The newer generation of APS tools are lower cost and genuinely web-enabled. This means that suppliers and customers can log in and collaborate to create a joint single plan.

There is an urgent need to act to ensure that increasing customer demand can be satisfied profitably. The initiatives businesses need to implement in order to review and improve planning performance are:

• Supplier capacity and capability studies that identify and overcome key supply base constraints
• Strategic, tactical and operational planning process change implementing sales & operations planning in the boardroom, through robust master scheduling right down to cell-level capacity planning
• Implementing advanced planning systems that make sense of core ERP data to produce a single feasible plan that is right for the whole supply chain

CEOs and COOs can be assured that taking these steps will bring their supply chains through the troubled teenage years to mature adulthood. They will be able to balance the demands upon them and have the tools to make the right decisions about what they do. What could be more satisfying than finally seeing your charges behaving responsibly and independently, and most important of all, paying their rent!

Paul Beaumont is Principal, Aerospace and Defence for WCI. The firm is a consulting led, process and technology company who build and manage Connected Enterprises for leading organisations.