Aerospace OEMs pressure supply-chain partners for more visibility into potential disruptions

With massive order backlogs and growing demand for new airplanes, aerospace OEMs are on the hunt for ways to increase productivity. Improved visibility into their suppliers’ processes should help, but suppliers are concerned about the cost – and the risk of being micromanaged.

Since the financial crisis in 2009, air traffic has been growing at more than twice the rate of the global economy, with demand for air travel through 2030 forecast to double again. Small wonder that Airbus and Boeing, the two major commercial airframe builders, are on track this year to deliver more than twice as many passenger jets as they built in 2000.

That bodes well for commercial aerospace. But John Leahy, who recently retired as chief operating officer for Airbus, said that the rate of expansion is generating major challenges in meeting market demand. As of September 2018, Airbus was sitting on a backlog of nearly 7,400 commercial aircraft, representing about nine years of production at current rates, while Boeing’s backlog was nearly 5,900 aircraft, equivalent to about seven years of production.

No one has a greater appreciation for just how challenging this backlog is than the hundreds of suppliers who provide the components and subsystems needed to assemble modern passenger jets. Many are struggling to keep up, and original equipment manufacturers (OEMs) are likely to increase production rates in 2019, meaning even more pressure on their suppliers.

RED FLAGS

“A very slow, measured increase in output is probably fine, but if you see big jumps, that is going to be a problem,” said Gregory Hayes, chairman and CEO of United Technologies, a tier one supplier that provides engines and other aircraft parts and systems to both Airbus and Boeing.

Kevin Michaels, managing director of AeroDynamic Advisory, a US-based consulting firm, also expressed concerns.

“There are many worries as the commercial aerospace supply chain ramps up to unprecedented production rates,” he said. “For example, will there be enough forging and casting capacity? Can interior suppliers step up?”

Industry observers expect commercial aerospace OEMs to increase production, in part, by demanding more visibility into their suppliers’ production and sourcing plans, hoping to gain more advance warning of possible supply chain disruptions.

While Boeing and Airbus both have made significant progress over the past decade in reducing risk and bringing new products to market faster through closer collaboration with suppliers, many members of the aerospace industry’s supply chains simply aren’t equipped to deliver the insights the OEMs need.

How will suppliers step up to the OEMs’ challenge? Not with legacy computer systems and incremental improvements, said Jean-Brice Dumont, executive vice president of engineering at Airbus Commercial Aircraft.

“We have a very strong market, and the whole supply chain needs to be much more digital to work together to reduce lead times and speed up the entire process of building airplanes,” he said.

A BUSINESS IMPERATIVE

After examining the challenges ahead, Airbus is pursuing an Industry 4.0 strategy for digitalizing its factory floors and linking them to the factories of its suppliers. Big data and analytics, artificial intelligence, augmented reality, autonomous robots and simulation capabilities, among other digital technologies, power this approach to manufacturing. Boeing and Bombardier are on similar paths.

“THE WHOLE SUPPLY CHAIN NEEDS TO BE MUCH MORE DIGITAL [...] TO SPEED UP THE ENTIRE PROCESS OF BUILDING AIRPLANES.”

JEAN-BRICE DUMONT EXECUTIVE VICE PRESIDENT OF ENGINEERING, AIRBUS

“Our customers are demanding greater value at a lower cost, and that is going to be provided by a digitalization strategy,” Boeing Enterprise Architect Josh Schlager said.

It’s easy to understand why the OEMs consider factory-focused digital transformation a business imperative.

The strategy involves embedding smart sensors in factory-floor machines in the OEMs’ factories and those of their suppliers, then linking them into a multi-enterprise network, allowing the OEMs to extract valuable insights into upstream and downstream supply chain processes and issues.

The OEMs hope that adjusting to and learning from near-real-time data on tier one, two and three suppliers will support faster decision-making, provide advance warning of supply chain disruptions and drive greater overall supplier network efficiency. Ultimately, of course, the goal is to do a better job of serving end-use customers with higher quality products at less cost – and, of course, gains against those stubborn backlogs.

For the OEMs to exploit digital transformation’s full potential, however, they will need for their suppliers to share more operational information than ever before, and that could present a challenge. Lower-tier suppliers, already under tremendous pressure from OEMs to reduce their prices, fear those pressures could intensify if their operations become an open book for the OEMs. They also worry about the cost of updated systems and networking, a difficult investment to make when their margins are being squeezed.

“The aerospace industry is not as transparent as we need to be,” said Ivan Madera, CEO of Morf3D, a project-based services company for additive manufacturing. “When that changes, that will be transformative. How do you get to a highly collaborative environment across the supply chain? It has to start with the OEMs.”

RADICAL TRANSFORMATION

Airbus recognizes that the transformation won’t be an easy one.

“We have a very clear vision of where we must go, and it will be a radical transformation,” Dumont said.

Airbus envisions every step of the manufacturing process seamlessly connected, with vendors sharing all of the data needed to eliminate unwelcomed surprises on everything from capacity to quality. “Our goal will be continuous improvement throughout,” he said.

To realize this vision, OEMs expect their suppliers to invest in the digital technologies and highly skilled talent required to build an Industry 4.0 environment.

Airbus is conducting workshops for vendors to ensure they understand their responsibilities.

“Moving from where we are today to where we need to be will require the participation of every one of our suppliers,” Dumont said. “Think of it as an ecosystem involving all participants, unencumbered, who can interface with each other and derive tangible benefits from working together – and it must go hand-in-hand with maintaining the current operational tempo.”

Dumont believes the transformation can be completed within five years.

After validating the power of a fully operational Industry 4.0 strategy on legacy aircraft programs, he said, Airbus expects to reduce the time required to take a new airplane program from launch to the first delivery by as much as 40 percent. As for recurring development costs, Chief Procurement Officer Klaus Richter envisions dramatic gains there too, with savings as great as 50 percent.

Both airframe manufacturers have aggressive digital transformation initiatives. For example, Airbus has implemented an intelligent supply chain and quality “watch tower,” a system of engagement that Airbus is using to improve transparency across functional areas, Richter said.

“OUR CUSTOMERS ARE DEMANDING GREATER VALUE AT A LOWER COST, AND THAT IS GOING TO BE PROVIDED BY A DIGITALIZATION STRATEGY.”

JOSH SCHLAGER BOEING ENTERPRISE ARCHITECT

BEYOND INDUSTRY 4.0

The OEMs recognize that digitalizing their factory operations and supply chains are just one piece in a much larger puzzle. Beyond the factory floor, they face the prospect of tackling a complete digital transformation of the entire aerospace ecosystem, linking both upstream and downstream processes to the Industry 4.0 environment.

For now, however, OEMs and their supply chains are focused on how best to capitalize on digitalization’s potential for delivering production-rate increases in 2019 and beyond, as airlines modernize their fleets and people fly in ever greater numbers.

“We are in the early stages of a revolution across our industry, which will look very different in five years,” Dumont said. “It will be a challenging process, but it’s a journey on which aerospace must embark.”

by Tony Velocci Back to top
by Tony Velocci

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