BUILD RESILIENT SUPPLY CHAINS
Supply chain management is a complex business, and A&D supply chains are especially tricky due to the sheer complexity of the products they produce. Airbus states that it has approximately 8,000 direct and 18,000 indirect suppliers. This is an increasingly fragile ecosystem, subject to global shocks. For example, a large amount of titanium, a rare material which is essential in aircraft manufacture, is sourced from Russia, and a significant amount of the world’s neon, which is essential in semiconductor fabrication, comes from Ukraine. Both supplies seemed fairly assured just a few years ago. This growing demand for raw materials, both within A&D, and other industries, has created something of a power struggle. For example, the April 2023 acquisition of Aubert & Duval by Airbus and Safran, in order to secure preferential access to essential raw materials.
And suppliers themselves aren’t always able to withstand shocks – many went under during the pandemic when orders stopped, leaving some buyers surprised that they could no longer buy what they needed when things reopened. The current high inflation impacts borrowing, which may make suppliers less able to pay back loans or borrow to cope with short term cashflow issues. The most efficient and capable industrial processes are useless without the necessary inputs. A&D therefore need to build the processes to make these supply chains resilient, to ensure they have the supplies they need, when they need them. To do so, they should consider the following.
The industry has a long tail of small but important suppliers, which are at risk in the face of shocks. Many have tight cashflow and could go under if they face major disruption. Sadly, you can’t save them all, but you can understand the risks and react accordingly.
This requires a realistic crisis management strategy. Understanding where you have problems means doing the hard work of visiting suppliers. This may be part of a continuous auditing process, part of onboarding, or a specific intervention following a shock. For example, in the post pandemic reopening, we found ourselves working with a client to audit their entire 200 company supply chain in just a couple of weeks, to assess readiness to scale.
Either way, it means sending experts to suppliers’ sites to understand their situation, and gather info. These must be people who can spot problems or risks that would not show up in a call or data analysis, such as lower than reported stock, incorrect storage, lack of skills, crumbling machinery, or workers who have not been paid.
Having understood the problems and risks, you can identify a remediation or recovery plan. That may include upgrades, training, new processes, data collection and reporting. It may mean agreeing shorter payment terms to ensure they can pay their own suppliers - increased resilience usually comes at a cost. You must also ensure your supplier implements it, using an appropriate mix of carrots (committed orders, investment) and sticks (threats to take business elsewhere).
Having understood the problems and risks, you can identify a remediation or recovery plan.”
Some risks lead to problems that are highly specific. A broken machine will delay orders. If the supplier is slow to act, the solution may literally be to send your auditor back to oversee the ordering of replacement parts and repair.
Other risks may be more structural. If suppliers become reluctant to sell you aluminium – eg. because of a slowdown in global supply – you may need a change your approach, such as moving your commitment from six months to five years, or bidding higher to secure priority, or adding new suppliers, taking into account, of course, the long lead times and processes required to qualify new sources. That requires a careful analysis of your needs. If you make a commitment and the supplier goes bust, or you change to a non-aluminium design, you lose out. But if you do nothing, you may not have the materials to make your product.Responses will be specific to the situation, but these can only be made if you have oversight of the problem.
Another risk is that key suppliers might not want to work with you anymore. This may be because they have a higher bidder or longer-term commitment elsewhere. For aluminium and batteries, for example, aerospace competes with automotive, which has higher production volumes and can tempt suppliers with higher volume orders.Furthermore, suppliers with a choice may be put off working with aerospace and defense because of the complexity of regulations, the reputational risk (for example, if a plane using their product goes wrong mid-flight) or because they see these industries as murky or, in defense’s case, controversial.
Aerospace and defense should recognize and plan for this. There are no easy solutions. For immediate needs, they may consider long-term commitments to suppliers in the hope of jumping the queue. Though this comes with its own risks: if a better alternative comes along or demand for planes drops, they may be left with a large supply of material or components that they can’t use. Whilst most suppliers will put money first, long-term trusted relationships count for a lot, and decrease the risk of them abandoning you for a shiny new customer. Build trust by regularly engaging with suppliers through effective communication and collaboration - regularly share information, updates, and forecasts in order to join up your efforts and further engender trust. Support them, where possible, to become more efficient and secure. This may include sharing improved processes and systems, and providing training for your suppliers to make use of them. Building loyalty may encourage suppliers to prioritize you in challenging times.
In a world where problems constantly arise, you need supply chain flexibility. That may mean being global and local - building suppliers in new parts of the world, including a mix of reshoring and near shoring. Expect new challenges. You may, for example, need to accept pricier, lower volume suppliers that are close to home, where there is a need to be more responsive to changes and bottlenecks, or where parts may be needed at short notice, with lower cost suppliers further away for longer term bulk orders. Meanwhile, you may need to pivot away from some countries you have previously relied upon. We have seen this recently with many companies that used to do business in Russia.
Build suppliers in new parts of the world, including a mix of reshoring and near shoring.
A&D will need to onboard new suppliers over the coming years, in areas from batteries and hydrogen to chips and software. They will also need to replace old ones - even with the best laid plans, suppliers fail. These new suppliers will have multiple customers and may not be set up to serve A&D. They will need some handholding. Companies will need to identify those with the technical capabilities to deliver, then work closely to explain the specific rules and constraints of aerospace and defense – the design, the tests it must undergo, and the data needed to get regulator approval. A&D companies will need to take time to provide the suppliers with all the information and advice they need to do a good job – including specifications, measurement approaches, tolerances, data standards and so on.
A good model is the Advanced Product Quality Planning (APQP) framework, a set of processes widely used in automotive for designing and communicating specifications to all stakeholders. Capgemini is sufficiently impressed by this approach that we have developed a set of methodologies built on it to support aerospace customers with onboarding and managing suppliers. This must all be kept as simple as possible. A&D are complex and highly regulated. This is often reflected in the procurement experience - which can be slow and arduous for suppliers. Obviously, this is not what you want when trying to attract (and onboard) new partners who are used to working with far less ‘red tape’. Thought should be given to your suppliers’ ‘user experience’ whilst, of course, ensuring your technical and safety criteria are met.
A&D could benefit from standardizing the processes it uses for onboarding and integrating suppliers at an industry level. A good example is the wind turbine industry, which has APQP4Wind. This was first published in 2017, and “aims to revolutionize the global wind industry supply chain, by promoting quality assurance and collaboration between the wind customer and supplier”.
Supply chains are complicated and even reliable suppliers get things wrong. A key part of supplier resilience is having quick and efficient processes to resolve day-to-day problems, which can create bottlenecks and quickly add up to a large costs of business. Issues like rejecting defective goods.
Intricate processes (like high rate flow lines and just in time manufacturing) require a highly reactive organization, with clear procedures for whenever a failure occurs. This may entail a dedicated team that can respond immediately to quickly solve the problem, or escalate it if not - shortening the time from problem to solution.Often companies handle this at a local level, but a central team with a dedicated company-wide platform is usually more efficient. When there is an issue at any level, it is flagged in the system, and resolved by dedicated experts. This may include processing the issue, reordering, resolving payments, and closing it. This also allows centralized data to be gathered, so recurring issues can be detected, and solutions shared globally.
The key to getting this right is having people with technical knowledge, change management skills, and the soft skills to get suppliers to listen and act. This requires a combination of approaches - a central team managing the global relationship, and networks of local experts with ease of access to supplier premises. This, for example, is especially important for defense suppliers, in which site access is often not granted to foreign nationals.
A key part of supplier resilience is having quick and efficient processes to resolve day-to-day problems, which can create bottlenecks and quickly add up to a large costs of business.”
In an ideal environment, a resilient supply chain would provide visibility of stock levels and events, backed by AI that provides real-time optimization, the best possible solution to complex scheduling problems, and actionable information - for example, lead times, potential bottlenecks and demand forecasting. Indeed Capgemini has insight on how to build such a system.But such a system is only as good as the data going in. Individual supplier resilience data, gathered directly from supplier forms and from audits, is a vital source, as discussed above. This can be augmented by real-time data for improved inventory management, eg. RFID tracking tied to components, or IoT sensors.
That can then be fed into Business Intelligence (BI) tools, risk models and expert analysis to build up full situational awareness across the supply chain – a moderate risk at one supplier may be manageable, but if that risk is replicated across all suppliers of that product, that may be a red flag that needs addressing.Being able to map or visualize all points of the supply chain in some degree of detail is essential, and will increase transparency. Ultimately, this digitization will help you work towards a high-fidelity, real time digital twin of the supply chain. A digital twin is a virtual model designed to accurately reflect a physical object or process. The twin itself is not the goal - but its capabilities are - such a twin (or a connected series of twins) could help to provide a situational awareness picture in which all important information about your supply chain can be visualized, and planned for.
Better understanding means better outcomes; allowing you to better identify and closely monitor risky areas, and ultimately be in a position to effectively respond to supply chain shocks.As we cover in more detail in How greater intelligence could supercharge supply chains, achieving organizational supply chain transformation will be multifaceted. It will entail changes in technology, governance, capabilities, extended ecosystems, collaboration, and economic models for organizations. It will also require data-sharing and collaborative platforms to break siloes and provide end-to-end visibility and traceability.
Organizations are committing to greater sustainability of products and services as a central strategic imperative. However, such ambitions cannot be achieved without a strong focus on supply-chain sustainability - large aerospace companies rely on suppliers for up to 80% of the finished product.In A&D, sustainability is a hugely important trend in its own right, but also contributes to resilience in a few ways. For example, climate-related disruptions (and their associated challenges, like conflict over resources or potential changes in migration patterns) may threaten regional security, and, by extension, parts of the supply chain.
There are also potential reputational risks in the context of a world that is working towards net zero emissions by 2050. This is particularly true in an industry like aerospace, which is seen as a polluter. Buyers (and society as a whole, including governments) are becoming more conscious of sustainability - and it will be increasingly important to demonstrate that steps are being taken across the business (including the supply chain) to reduce carbon emissions. Future legislation (eg. carbon taxation) may even punish companies with heavy tariffs that don’t make these changes fast enough.So, what can be done now? The first thing to decarbonize A&D is to focus on the supply chain - since the widespread deployment of lower carbon fuels like sustainable aviation fuel (SAF) and hydrogen are still some years away. To be truly green, aviation therefore needs to audit its supply chain emissions (known as upstream Scope 3 emissions), select sustainable suppliers, and support/incentivize suppliers to go greener.Manufacturers must explain to their suppliers and procurement teams that sustainability is critical. The basis of this is proper emissions accounting. However, such accounting is hard because there are lots of suppliers and they are a mixed group, from major global companies, to specialist SMEs with no knowledge of how to track emissions. Some may be three or four steps down the supply chain. And there is no industry agreed approach to emissions accounting, so even when suppliers do track emissions, there is no guarantee their approach will work for you.
The big picture need is for the industry to come together and agree what platform and standards they will use. An industry-led project in automotive, Catena-X, provides a good model for sharing data across a supply chain. Aerospace needs its own such initiatives.Unlike tier 1 companies, smaller tier 3 or tier 4 suppliers may not yet have in-house resources to monitor and optimise their GHG emissions. So, shorter term, there is a need to do something that can help your ecosystem. Setting clear and reasonable rules for what suppliers should report, how they should report it, and providing a cloud-based platform for them to report into is a good start. Setting consistent policies for data collection and formats in your own organization is also a wise move if it has not already been done. Removing suppliers is not preferable, for many reasons.
If suppliers are unable to meet your requirements, a variety of solutions could help, from software that can translate supplier data formats into your system’s format, to deploying sensors at supplier sites, to workshops and training. If real-world data is not available, the International Aerospace Environmental Group (IAEG) has an easy-to-use Excel-based Scope 3 emissions calculator, which enables initial assessments.
