Supply Chain Integration Challenges in Commercial Aerospace

The need to travel is one of mankind’s most enduring traits, but it has only been in the last 100 years that flight has enabled him to traverse great distances in very little time. Add to this the fact that aviation is increasingly affordable and you have all the ingredients for an industry that connects economies, countries, cities and more importantly people. Its demand is evident in the industries statistics, with air traffic historically doubling every 15 years. With growing GDP, increasing wealth, greater liberalization, and more capable eco-efficient aircraft, air traffic is forecast to double again in the next 15 years, with the world’s aircraft fleet also forecast to double over the next 20 years. Aviation will continue to contribute to nations’ economies delivering both GDP and jobs, directly and indirectly, through tourism for example, where half of all tourists use aviation to get to their holiday destinations. In the future, new technologies will simplify and enhance the passenger experience, and will offer manufacturers opportunities to improve their products as well as their design and manufacturing capabilities.

Airlines in today’s ultracompetitive industry continuously look to reduce costs while also squeezing every possible bit of revenue out of their most valuable assets, the aircraft. Revenue generation is increased by (1) increasing the percentage of seats sold (load factor), (2) increasing the “yield” by creating seats and services that passengers are willing to pay more for, (3) operating as many flights per day as possible within the given route structure, (4) and by physically adding more seats to the aircraft. In efforts to improve load factor and yield, airlines work to create a “brand” (distinguishing elements that are valued by their customers), to entice new customers and increase the loyalty of current customers. The ability to “turn” aircraft quickly from one flight to the next can allow the aircraft to complete more revenue generating flights per day. And, of course adding more seats can clearly create more revenue, but has to be artfully balanced with maintaining passenger comfort within the fixed space of an aircraft interior. So, how does an airline maximize each of these potential revenue enhancing elements? The advent of a thoughtful new range of innovative interior products, can actually help enable all four elements.

Jet engines are a high-tech, big business with sales of over $50 billion per year. The business requires enormous investments in closely held technology. It is a much different kind of endeavor than any other of today’s more common high-tech business that stresses speed to market. Aircraft engines require a very long time commitment since products may take a couple of decades to become profitable, but then continue to generate revenue for many years. Indeed, most of the net revenue is generated by selling parts for and servicing engines produced and sold decades earlier.

The jet engine business is a highly competitive one, dominated by three major companies who have competed for market share using technology and business acumen since the 1950s. The nature of the business has evolved considerably from those heady days at the dawn of the jet age. One significant aspect is the increased importance of the supply chain. In the early days, engine companies manufactured the vast majority of an engine in-house, over 80 %. Now the percentages are reversed, with 80 % of an engine produced by risk-sharing partners and suppliers. This increased dependence on the supply chain has changed both business and technology aspects of the enterprise. It is a complex chain indeed, with many partners and suppliers working with competing engine manufacturers. For both the manufacturers and suppliers, this broadening of relationships has served to hedge financial risk and provide opportunities to inject new ideas and innovation into products.

This article examines to which extent the two global aircraft manufacturers Airbus and Boeing have employed open innovation, and how it has impacted on their performance outcomes. This paper provides the theoretical concept of open innovation and an outline of major relevant trends for the aviation sector to underpin the appraisal of the industry. The following chapter introduces the methodology selected for researching the companies’ strategies. The findings related to open innovation in the two companies are presented, enabling conclusions to be made regarding the employment of this strategic tool and its effectiveness.

Emerging technologies such as 3D Printing or Additive Manufacturing (AM) and especially Selective Laser Melting (SLM) provide great potential for solving the dilemma between scale and scope, i.e. manufacturing products at mass production costs with a maximum fit to customer needs or functional requirements. Because of the technology’s intrinsic advantages such as one-piece-flow capability and almost infinite freedom of design, Additive Manufacturing was recently described as “the manufacturing technology that will change the world”. Due to the complex nature of production systems, the technological potential of AM and particularly SLM can only be realized by a holistic comprehension of the complete value creation chain, especially the interdependency between products and production processes. Therefore, this chapter aims to give an overview on recent research in machine concepts and component design, which experts of the Cluster of Excellence “Integrative production technology for high wage countries” carried out.

The aircraft industry has seen continuous growth over the past 20 years and is forecast to more than double over the next 20 years, representing a market of more than 30,000 new aircraft. The airline industry has become a very competitive market with new entrants challenging incumbents. The aspect of differentiation has become very important and airlines focus strongly on this when defining new aircraft fleets. While aircraft manufacturers are concerned about increasing production rates to meet future aircraft demand, the customization aspect has to be well considered to not become a tripping stone for aircraft deliveries. Already at aircraft design, the customization features must be taken into account to protect against later surprises and to avoid unnecessary supply chain risks. Comparing two major Airbus aircraft models, the A380 and the A350XWB, will give some insights on how customization has been addressed.

Reducing the complexity in supply chain management is the central challenge for the aerospace industry and key to increase production rates and simultaneously improve the margins. A central influencing factor is the demand management along the supply chain. There is big potential in challenging the current quality and availability of demand information towards the suppliers, to improve long term forecasts and to enable efficient investments in infrastructure. Furthermore, medium and short term forecast stability is important to ensure economical utilization of production resources and to prevent missing parts respectively.

This paper focuses on the challenge of implementing an integrated End-to-end Demand Management approach in the aerospace supply chain. In the first part, we provide an overview of these challenges and propose solutions for improving long term demand based on previously known customer configurations. The second part is focusing on the practical implementation of the proposed solutions and industry examples. Based on a case study on disaggregating demand for larger suppliers, we show why the right ordering and logistics solution selection is important. Finally, we provide a short overview of how the aerospace industry can learn and benefit from best practices in the automotive industry.

We propose three solutions to enable true End-to-end Demand Management. First, the implementation of a hybrid demand forecasting. Second, improving transparency within the supply chain. Third, the selection and adherence to optimal ordering strategies.

The aircraft as well as the automotive industry have changed tremendously in recent years. This has mainly an impact on sales market globalization, increasing product individualization and product development process standardization. Strongly differentiating production sites are forming a global network, stronger product differentiation and transferring added values to suppliers. A new trend is the additional focus on design, development expertise and production coordination. Both industries have high quality standards, efficiency, individualization and innovative technology in common, raising the question: what are the chances to learn from each other’s production and supply chain processes?

Figure 1 provides an overview of the main differences between the two products and their production.

The differences between Aircraft and Automobil can also result in various similarities such as product individualization for customers causing significant alterations, the aim to reduce delivery time and to streamline production and logistics processes by using a large number of nonvariables, assembly group and site modularization, improving factory utilization and a transition to a flexible production line, supply chain control as well as production process digitization in early stages of the product development and throughout production. Both industries are challenged by similar trends.

McKinsey’s prior work on the future of manufacturing discusses five broad trends that together are shaping the industries that make up the global manufacturing sector, ranging from automotive to textiles. These five trends are (i) demand growth, (ii) supply costs, (iii) business risk, (iv) technology and innovation, and (v) policy and regulation. Commercial aerospace, a roughly $300 billion global industry, is also affected by these five trends. Taken together, the trends presage a gradual shift of the global aerospace manufacturing footprint toward the Asia-Pacific region. The shift will serve rapidly growing local demand and respond to local government action that seeks to exploit a cyclical upturn in demand to attract investment in local manufacturing. Supply chains are already expanding in the region as Western incumbents build up capacity; as one or two new OEMs emerge from this region, particularly from China, local supply chains are likely to become deeper in capability as well. Given the long time investment (5–7 years) to build up capacity, the ‘nationally important’ status of the industry, and the risks that incumbents face in intellectual property, quality certification, and collaboration in both product development and manufacturing, these shifts in the aerospace footprint may continue to lag the footprint shifts of automotive and other manufacturing industries. But the shift to Asia-Pacific, already accelerating in the past decade, could speed up even more under two or three scenarios related to increased competition, pressure on profit margins, and expansion of digital capabilities in the aerospace value chain.

At a first glance, comparing automotive and aviation industry is difficult since, for example, the number of car seats produced per day matches the number of aircraft seats produced per year. However, by investing some efforts to further analyze commonalities, many areas can be found where the industries can benefit from each other.

When it comes to operational processes and global footprints, the automotive industry is, and will most probably remain ahead, thus being a role model for the aviation industry. On the other hand, aviation always had a strong focus on light weight design which has gained more importance in the automotive industry in recent years.

The case study in this article describes how RECARO Aircraft Seating combined their proprietary knowledge from the aviation industry with knowledge transfer from the automotive industry to become a leading aviation supplier and a reliable partner to their airline customers and the OEMs.

In order to achieve this, RECARO has identified six success factors: product development philosophy and innovation, product architecture, project management, global supply chain, a holistic “lean” approach as well as an extended enterprise to cope with future challenges. The contribution of each of these factors is introduced in the case study.

This article concerns the importance of vertical integrated structures, employing the VSMPO-AVISMA Corporation as an example of a vertically integrated company that also forms part of a vertically integrated structure in the aircraft industry, to which it supplies semi-finished titanium products. In order to gain basic insight into the meaning of a vertically integrated company, value chain concept, which underpins the principles on which vertical integration is fundamentally based, must be appreciated. The value chain concept defines the links between the various parts of a manufacturer’s operations in a systematic way, which enables it to identify how to improve overall efficiency, and hence to create value for the customer. If the value it creates is greater than the cost of conducting its activities, the business is profitable.

Airbus wants to take measures to avoid any disruption causes in downstream aircraft assembly processes at its 11 production sites and four assembly lines. An increasing product design complexity, a global logistics network and aggressive ramp-up of new aircraft programs require an end-to-end strategy.

As part of a continuous effort to improve its quality processes and to mitigate disruption at production plants and final assembly lines, Airbus has decided to boost competitiveness by introducing end-to-end Quality Gates as a key element of the Quality Management System. This enables to ensure the maturity of deliverables all along Airbus’ business processes, supporting industrial serial flow at all production and assembly steps.

From design to delivery: every time an internal or external supplier delivers a design, part, component or a complete aircraft, the customer will naturally check whether all specifications are met. If not, actions are taken by the supplier.

Aircraft manufacturers are always facing a trade-off between value of variety and cost of complexity. They must balance their customers’ needs for aircrafts tailored to their precise needs, against the costs associated with the complexity of customization. Yet it is possible to gain both objectives.

Both complexity and costs can be reduced with a better understanding of customization. This does not mean eliminating individual features. Airlines always will need a high level of customization to remain competitive; product variations always will exist.

Instead, it means managing the choices of where and when to customize more effectively, and thus choosing which costs to regard as investments. The entire value chain—including suppliers, tier-x levels, and final assembly can be structured to allow for inherent variability. Parts, components, and process level can be segmented into three streams of activity: “basic and stable”, “variable but predictable”, and “random and emergent”. These business streams can be tailored to the different needs of each customer.

This type of segmentation avoids the “one size fits all” approach that many aircraft manufacturers find themselves adapting to. After adopting that approach, one recent commercial aircraft client, for example, showed up to 30 % operating costs reduction along the supply chain. By dividing the value chain into three parts, the manufacturer ends up with a far more coherent whole system.

Digitalization is nothing less than a “question of survival” according to the German Chancellor Angela Merkel. For the aerospace industry, it is a huge opportunity, but it is also a vehicle for newer, more agile companies to leap ahead of existing market leaders, to realize their advantage and become Digital Enterprises today.

Technology is changing our lives. The way we travel, buy things, and interact with the world around us is different. Crowd sourced design, systems-driven product development, 3D printing, intelligent automation, advanced robotics and lifecycle analytics provide the technical foundation for a radical change to manufacturing industries. Some people even talk already about a fourth industrial revolution that will disrupt manufacturing as much as the digital camera did for 35 mm film.

Industries with the longest lead times and most complex products have the most to gain. History has shown that established market leaders are often the last to move and may be the most susceptible to agile competition—this is especially true in the digital world. A properly managed digital transformation should be at the top of the list for any manufacturer looking to be competitive in a highly sophisticated and demand driven world of 2020 and beyond (Fig. 1).

The aero-engine business has developed a business model quite distinct from that of the aircraft manufacturers. This chapter explains the fundamentals of this business, emphasizing how the differences in usage between aircraft structures and aero-engines lead to two quite distinct business models. The importance of life-time in-service support to airlines is explained, as are the different service structures offered to operators. The innovation which enables Rolls-Royce to offer class-leading products and services is also described. It compares the aircraft and engine business models—and illustrates how the two models can operate together, using the newly developed A330neo aircraft and Trent 7000 engine as examples. Finally, we look into the future to further innovation in the business, highlighting technical developments which will reduce fuel burn and operating cost for airlines, and new service structures being developed to ensure engines can be supported in service through the different phases of their operating life.

Material services are of fundamental importance in commercial aviation. While airlines acquire an aircraft as an input factor for their network operations only once, they will need spare parts over the full operational life cycle of an aircraft for decades—to keep it flying as seamlessly as possible with a minimum of interruptions caused by missing parts. Accordingly, the availability of the right spare part—to immediately replace the defective part at the right place—at the airport or maintenance base where the aircraft is waiting to go back into operation is crucial. Material services companies have the ambition to serve both material suppliers and airline customers with an efficient value adding global network and integrated performance based services, efficiently connecting both ends of the market. In order to reduce the significant transaction costs in this highly complex value chain, innovative airlines, as well as Maintenance, Repair and Overhaul (MRO) organisations, seek integrated material solutions, where a strategic partner organizes the full material value chain towards suppliers and provides a comprehensive part number range to the airline customers. In a consolidating market, leading material integrators—like Satair Group—will continue to grow and integrate the customer platform, the supplier interface, the value chain processes, and the digitalization-driven data management systems realizing functional and global economies of scale, scope, and density in combination with significant transaction cost reductions. New market segments such as used parts and additive manufacturing/3D printing will contribute to more opportunities along the material value chain. The strategies of the market players in combination with the market and innovation trends will reinforce each other, leading to a high integrative market dynamic for the years to come.

What if an aircraft part could tell you when it needs to be repaired or replaced? With continuous data collection, monitoring and application of advanced analytics, it can. Predictive maintenance in aviation offers the promise of increased reliability along with bolstered operational and supply chain efficiencies. The integration of Cloud-based analytics with industrial machinery has driven the advent of a new “Industrial Internet”—and with it, opportunities for huge productivity gains. Industrial machines equipped with a growing number of electronic sensors can see, hear and feel a lot more than ever before—and deliver enormous amounts of data to be analyzed. Sophisticated algorithms then provide insights that allow us to operate machines—fleets of engines, airplanes, and network entire systems like airlines and airports—in entirely new, more efficient ways. To realize the value in predictive maintenance and achieve business outcomes that matter, machines, data, insights and people need to be brought together.

The German Aerospace Industries Association BDLI is the voice of the country’s aerospace sector. Working closely with its members and drawing on their expertise, BDLI studies the long-term development of the industry. The chapter outlines the association’s assessment of the current debates on the most salient issues with a particular focus on the supply chain. Hence the ongoing strategic re-orientation of the German supply chain with regard to OEM industrialization and internationalization strategies presents one important aspect. This materializes with regard to the cabin interiors sector which is quite important for the German aerospace industry in a Vision Cabin/Cargo. Furthermore the text dwells into the dispute of digitalization and using a German term “Industrie 4.0” showing the specificity of the implementation of appropriate IT-solutions in this high-tech, safety dominated, low volume sector. Such issues are expected to shape the future of the industry. Based on a number of examples, market forecasts and studies, this chapter aims to highlight the most important developments and trends that may impact companies in the sector and advocates an active approach to shape its future which is laid down in the current aerospace technology roadmap.