Collaboration key to managing supply shocks

Neil McManus is a Partner and Aerospace & Defence sector specialist at Vendigital. He recently shared his insights with ADS Advance .

Although ‘Surfing the edge of chaos’ is not a concept, it is seemingly a reality in the aerospace and defence supply chain. At a time when the industry is recovering rapidly and showing signs of strain, OEMs and Tier One manufacturers know that they must get better at managing shocks – but where should they start and what can they do?

There can be little doubt that the aerospace industry is feeling the pressure, mainly due to a surge in demand for new aircraft and engines, which has been ongoing since the COVID-19 pandemic. Despite making efforts to improve productivity and increase capacity, many manufacturers in the sector have been hampered by a series of shocks including supply chain disruptions, labour shortages and issues with product reliability.

Major events, such as the ongoing war in Ukraine and Boeing’s well documented challenges, have introduced yet more demand-side pressure and global supply chains have been scrambling to respond. In some cases, multiple shocks have hit at once, just when a manufacturer is approaching its ‘capacity wall’, adding to the pressure they are facing.

Those companies that are resilient to the chaotic demand signals experienced by the aerospace and defence industry will be successful in the long run.

Key to this is a clear appreciation of the end-to-end supply chain and being able to identify risks, constraints, mitigations and cost variables. Having a ‘plan for every part’ (PFEP) provides the necessary detail to understand the supply chain and coupling it with a dynamic model or ‘digital twin’ of the extended supply chain enables optimisation, highlighting bottlenecks or pinch-points and evaluating the effectiveness of planned mitigations.

A common, yet simplistic, mitigation to supply chain risk is the introduction of safety stock or buffers, often demanded by customers further downstream in the manufacturing process. Whilst easy to impose, this puts further pressure on suppliers who are already attempting to scale to base demand and are working near to capacity, not to mention the financial strain of additional working capital requirements.

The PFEP approach addresses the same issue in an intelligent manner, providing actionable insight to establish appropriate stock holding policies based upon individual part risk and value profiles. Dynamic modelling of the supply chain allows for holistic supply chain risk to evaluated and the appropriate resilience actions deployed in a smart manner.

Manufacturers can boost their operational resilience by investing in data visibility and adopting a more collaborative approach to supply chain management. By understanding their procurement practice in detail, they can develop robust sourcing strategies for each critical part or raw material based on factors such as supply chain complexity, price volatility and level of demand. This data-led approach will ensure they are ready to react to shocks more effectively when they, undoubtedly, arise.