Supply Chain Management in Aircraft Industry (Term Paper Sample)

Supply Chain Management in Aircraft Industry
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Supply Chain Management in Aircraft Industry
Introduction
Supply chain management is important in every industry as it ensures the consistent flow in production. In the aircraft industry, the supply chain is different from other industries as it involves the integration of suppliers from different parts of the world. The manufacturer delegate responsibilities to the suppliers who assemble components to make parts that are later assembled to build an aircraft. This paper will consist of an overview and discussion of supply chain management in the aircraft industry and how the planning of production and control of inventory is done in this industry. The paper will also explore how the supply chain in the aircraft industry can be improved. Finally, the paper will provide the recommendations on how the firms in aircraft industry should operate to make its supply chain more reliable.
Overview
The supply chain in the aircraft industry is more complex than in other industries because different parts for building aircraft are produced by different manufacturers who may be located in different countries (Gu, Zhang, and Li, 2015, p.102). In the case of delay in any of the manufacturer suppliers, the whole supply chain is disrupted. This makes it necessary for firms operating in the aircraft industry to have an excellent supply chain management system that ensures that all potential disruptions in the supply chain are addressed appropriately. This can be achieved by using an appropriate model that integrates all the manufacturing suppliers in the aircraft industry.
Although operating more than one business model has been associated with failure, some firms in the aircraft industry such as LAN Airlines in Chile has successfully been able to operate three models. This airline uses premium air-cargo model with full-service international passenger model while at the same time operating a passenger model for domestic flights. However, for such a multimodel to work appropriately, the models must be compatible. There are major assets shared by the three models as well operational resources and capabilities in LAN Airlines (Girotra and Tarzijan, 2012, p.133). It follows that the more similarity between the models, the higher the likelihood that they will generate higher values than when they have nothing in common. It would be almost impossible to operate using many models that have nothing in common.
The business model that a given company chooses should have key processes, resources, profit formula, and customer value proposition. It is crucial for a company to make informed choices before deciding which model to use in their operations. It is indicated that companies make policy choices, asset choices, and governance choices when creating business models. Although it is risky for a business to change its business model, Ryanair airline changed itself into Southwest Airlines of Europe after having almost gone bankrupt in 1990's (Casadesus-Masanell and Ricart, 2011, p. 102). However, most of the prominent firms in the aircraft industry such as Boeing and Airbus have similar models that integrate the roles of various suppliers in the supply chain.
Supply Chain Management in Aircraft Industry
Like in the defense aerospace industry, commercial aircraft industry has been guided by Lean supply management practices. One major way through which aircraft industry has improved in cost reduction is by adopting efficient cost control methods through the adoption of new technologies in the sector. The manufacturers in commercial aircraft industry have been delegating much responsibility to the suppliers. This is particularly common in systems integration and systems design. By delegating many responsibilities to the suppliers, the manufacturers can now concentrate on the processes and assembly technologies. However, this kind of relationship between the manufacturers and suppliers calls for high level of trust between the two parties (Abouhenidi, 2014, p.446). This has helped in developing a close-knit relationship that is based on reciprocal obligations and mutual trust between the parties and thus helping the whole supply chain to unlock value.
The supply chain for aerospace and aviation industry has become more vulnerable, highly complex, and more global than before. Many of the larger aircraft original equipment manufacturers (OEMs) are facing the challenge of producing the wide body aircraft while at the same time updating the existing models. Airlines are required to develop capabilities for them to able to operate the new generation of aircraft. However, due to the risk sharing models that exist in the supply chains of OEMs, it may sometimes get difficult to develop these capabilities. The complexity of the supply chain in the aircraft industry was clearly portrayed when Boeing and Airbus were introducing their B787 and A350XWB respectively. The two companies aimed at sharing the high cost of production with the suppliers while at the same time reduce the time it would take to bring these models to the market. To achieve this, they outsourced major manufacturing and engineering processes to other firms (Gu, Zhang, and Li, 2015, p. 103). This complexity was further boosted by the transformation of former manufacturing plants into autonomous firms as well as by the introduction of carbon fuselages.
The complexity that resulted from the delegation of responsibilities by Airbus and Boeing had negative effects despite the perceived cost reduction. For example, in 2006, Airbus experienced problems in the coordination between the departments dealing with internal engineering and the suppliers during the production of its A380. Likewise, Boeing experienced problems with its B787 due to its non-conforming fasteners. These events had negative effects on its shareholder value due to the slow delivery schedules (Treuner, Hübner, Baur, and Wagner, 2014, p.8). Many customers were compelled by this situation to use the outdated models which consumed a large amount of fuel and which required maintenance checks that were not included in the budget. These are not the only problems in supply chain management in airlines as there are many others caused by different culprits. Some of the major causes of supply chain disruptions in airline operations include quality issues, communication problems, and resources constraints as well as suppliers insolvency among others.
Planning production & inventory control for aircraft
The planning of production and control of inventories in the aircraft industry is complex and utilizes the lean supply management practices. The aircraft manufacturing includes Tier-1 which are the main aircraft manufacturing firms that carry out various tasks including conducting fly tests, final assembly, design, and marketing among other high value-added tasks. Other low value added activities such as the assembly of the aerostructure and part fabrication among other responsibilities are delegated to manufacturing suppliers who comprise Tier-2, Tier-3 among others (Chang, Huang, and Torng, 2013, p. 248). The manufacturing suppliers provide the software and hardware including air on ground (AOG) parts, spare aircraft components, logistics, as well as service and design to their customers (Treuner, Hübner, Baur, and Wagner, 2014, p.7). The aircraft manufacturing suppliers must produce products that satisfy their customers to promote a good relationship with their clients and remain in business.
For aircraft manufacturing suppliers to create a good relationship with the aircraft companies, they plan an efficient production schedule and regulate their production progress. This includes ensuring that the designing, engineering, production of the detail part to the assembly, tooling, as well as the delivery of the products are scheduled appropriately. They also ensure are stable and qualified system of production is established to ensure that the products are in accordance with the specification of the customers. In addition to this, they have to ensure that they produce products at competitive prices while at the same time generating appropriate profit to keep them in business. They also ensure that they remain flexible as the production and market fluctuate and dynamic (Chang, Huang, and Torng, 2013, p. 248). Thie would enable the aircraft manufacturing suppliers to deal with risk and fluctuations.
In 1997, Boeing introduced Lean manufacturing practices. This enabled it to manufacture a one hundred seater aircraft. This approach also enabled the company to manufacture boeing 747 which was in line with 2001 aircraft technology. This approach resulted in highly optimized processes, and production flows and reduced the cost of production. The time for production was also minimized from twenty-four days to eighteen days (Chang, Huang, and Torng, 2013, p.249). The planning of production in aircraft industry aims at producing the right quantity of aircraft at the right time while still not compromising the quality. It also includes reduction of wastage and remaining flexible to accommodate changes in market fluctuations and technology. Therefore, the implementation of Lean practices by Boeing and other aircraft firms has helped to eliminate less useful operations and thereby maximizing profits. This is a very useful approach to aircraft manufacturing suppliers as it enables them to become competitive in the field.
Due to the complexities that are involved in the accounting of aircraft industry, many aircraft firms prefer to use program accounting method. This method is effective in determining the cost of goods sold, sales and purchases. Boeing applies this method in all its programs including satellites, military aircraft, and commercial aircraft. The inventories ...