Managing the Aviation and Defense Supply Chain
Effective management of the supply chain over the last decade has helped several leading corporations gain market share, reduce costs and deliver more value to their shareholders. However, the aviation and defense industry has lagged its peers in adopting supply chain management practices. If one digs deeper, they will find several reasons that have driven the slow adaptation of supply chain management in the industry.
By its sheer nature, the aviation and defense supply chain is extremely complex, especially from an aftermarket standpoint. Most aircraft have a short production cycle but have a very long service cycle; sometimes as long as 30 years. This creates a service supply chain with significant requirements for maintenance and spare parts. Most parts are expensive; demand/failure of parts and the failure location are extremely hard to predict; and customer service is absolutely critical. Many people have experienced delays when an aircraft cannot take off due to an aircraft component requiring replacement or overhaul. In addition, at every step of the supply chain there are requirements for traceability and compliance. In several instances a repairable component removed from a particular aircraft may require reinstallation on the same aircraft after repairs. To manage all these complexities, a wellthought supply chain strategy is required along with good process discipline and systems that support the strategy and processes.
Organizations operating in the aviation and defense aftermarket should do a thorough study of what is required to support their supply chain management requirements. Once the requirements are identified, depending on the level of effort and resources required, organizations can either choose to build a supply chain management infrastructure in-house or partner with a supply chain services provider. For both scenarios, outlined here are the key processes and the recommended strategic, tactical and operational best practices that should be considered when an organization is ready to implement best-in-class supply chain management infrastructure.
Data Tracking
Capturing an accurate picture of demand and other data elements is extremely important for effective management of the aftermarket supply chain. In the aviation aftermarket world, maintenance processes or field failures generally create demand and the supply chain operates in a reactive mode toward those events. Due to the immediate urgency of fixing problems and nonexistent or complicated data entry processes in the field, many times these demands go unregistered. With technologies like bar coding, wireless and RFID, effective solutions can be implemented to track ground-level data in the supply chain. For example, easy-to-operate bar code scanners can be deployed in a maintenance base parts room to track part issues, returns, receipts, shipments, etc. Also, these scanners can be used as a tool to track information like aircraft tail numbers, work order information, part serial number, etc. These scanners can transmit the activity data to the corporate enterprise systems either through docking stations with Internet connectivity or wireless networks in real time. This allows the enterprise systems to run through inventory algorithms and automatically replenish inventories at maintenance bases once they fall to reorder levels. Also, it provides the central procurement, quality and maintenance teams with most accurate usage and traceability information. As RFID matures further it offers another solution for tracking field data on an automated and more efficient basis.
Forecasting
After studying several other industry supply chains, it becomes clear that the aviation aftermarket supply chain is one of the most difficult ones to forecast. A vast majority of parts with long supercession chains and extremely sporadic demand cannot be easily forecasted through historical data, yet can contribute to a service challenge when failure occurs. Companies in the aviation aftermarket should utilize forecasting models that augment forecasts based on historical data with forward-looking causal factors. Projected flight hours, number of aircraft takeoffs and landings, operating conditions, schedule changes, seasonal patterns, special events, etc., are all factors that can be used to improve forecast accuracy for spares at an operator. For a maintenance, repair and overhaul provider, the number of projected planes requiring maintenance, bill of material information, historical scrap information, mean time between failure and failure rates are useful causal factors. Given the fact that aviation and defense aftermarket supply chains are usually multi-tiered, it is also essential that forecasts be developed for all sites in all tiers. This helps to better incorporate local factors and requirements and tends to significantly improve the forecasting accuracy for the overall supply chain. Also, companies should implement collaborative technology that provides the ability for lower tiers in the supply chain to provide field intelligence in the forecasting process.
Inventory Management
Effective inventory management is essential to the productivity of the aviation aftermarket supply chain. Given that service and aircraft uptime are the key drivers, it is essential that part requirements be fulfilled in an expedited manner. Usually, this requires an extensive site and inventory network. At the same time, a large percentage of aircraft assets are very expensive and stocking these assets at all possible sites can result in huge amounts of slow-moving inventories in the supply chain. To optimize the assets in the supply chain, it is critical that companies utilize techniques like service optimization and inventory pooling. Service optimization inventory management requires maximizing availability on faster moving parts so maximum demand events are fulfilled. Slower moving expensive parts may not be stocked at all sites in the network. These parts may be stocked centrally or regionally within a defined distance and are shipped to the participating sites as necessary. This technique, called inventory pooling, can help to significantly reduce total asset dollars in the supply chain. Inventory pooling also can be implemented at the industry level where multiple airlines can draw upon the same set of assets. The probability of the same slowmoving part being required by all the participants in the pool is extremely low. These techniques have been proven to enhance service levels and response times while reducing the inventory assets.
Supplier Order Management
Supplier order management involves placing supplier orders, receiving confirmations and measuring supplier performance over time with the objective of improving total supply chain performance. Once the forecasts and inventory requirements are firm, data elements such as lead times, supplier capacity, quantity discounts, and historical supplier performance should be used to determine the appropriate suppliers and order quantities. After purchase orders are established with the suppliers, it is important that suppliers provide information such as order acknowledgements and order exceptions such as promise date changes and part number changes. Once the shipments have been made, suppliers should provide advance ship notifications. These data elements are very useful when it comes to execution and can help companies reduce bottlenecks in the supply chain. Also, if accumulated over time, these pieces of data can be used in a meaningful way to measure supplier performance. Aviation aftermarket is an industry where supplier lead times are frequently long and lead time has a direct impact on inventory investment. Measuring supplier performance can help manage lead times more effectively, thereby improving overall supply chain efficiency.
Warehousing
The basic warehouse requirement in any industry is to support speedy and efficient flow of product in and out. However, in the aviation aftermarket, real-time product identification, tracking and maintaining accurate asset visibility are extremely important warehouse requirements.
The warehouse management systems should be able to differentiate between different types of inventories (new, serviceable, overhauled) and track them at the serial number and lot number level. Also, it is absolutely essential that product be tracked from the supplier to the receiving dock to stocking and shipping. Tracking the product at all steps in the supply chain allows for speedy fulfillment of aircraft-on-ground (AOG) orders where wait time is extremely limited. Similarly, product tracking helps to provide internal and external customers with accurate promise date information. Bar coding provides a simple solution that can be easily implemented to track supply chain movements. RFID is already being used by leading companies to track product flows within the warehouse and will eventually provide complete product tracking capabilities.
Customer Order Fulfillment
In addition to the internal supply chain, if companies link with suppliers for product availability, this provides the capability to improve customer order fulfillment. In almost all industries, companies usually have multiple order channels, i.e., orders can be created via phone, fax, email, Web, in person or directly into systems. However, it is absolutely essential that all demands converge in a central system in real time. The system should select the optimum fulfillment location in the supply chain for the order and initiate processing. In case of internal unavailability, the system should check availability in a prioritized manner at all nodes in the supply chain including primary and secondary suppliers as well as broker markets and dismantling opportunities, and place orders for direct fulfillment. In case of critical AOG demands in the aviation aftermarket, this provides for a speedy and efficient fulfillment mechanism.
Reverse Logistics
Warranty and repair processing is a key part of the aviation supply chain. Due to the relatively high costs of repairable components, there is a significant flow in the repairable supply chain. It is critical to have recovery processes and systems that can track the original cores and channel them to the identified repair stations. Once the repair processes are complete, these parts should be introduced back into the supply chain and in some cases channeled to the original aircrafts. Core recovery processes can be established by working in conjunction with carriers and logistics providers. Through event messaging, triggers can be sent to the central systems as the core is picked and when it is delivered to the repair stations. Once the repairs are complete, another event message is sent to the system indicating the in-transit status of the part.
Systems and Technology
There are multiple systems and technologies that can support the aviation aftermarket supply chain processes. However, it is essential that these systems enable process implementation, measurement and continuous improvement and are flexible enough to support new processes. Also, these systems should be well-integrated, accessible using the Internet, facilitate real-time transaction processing and should be easy to integrate with systems at business partners.
Conclusions
For an organization, understanding its supply chain management requirements is the first key step. Once the requirements are clear, the next step is deciding whether to build a supply chain infrastructure in-house or partner with a supply chain services provider. The processes highlighted in this paper, as well as the strategic, tactical and operational best practices above, can then be utilized to implement a successful supply chain management solution. Commitment of senior management, forging a strong relationship with the service provider, a phased implementation approach, ensuring active participation from global business process owners, defining and managing project scope and development of operating metrics are the other key ingredients required for a successful implementation.
