Commentary | Viewpoint

Managing the Aerospace Supply Chain

Tags: Supply Chain Management, Military Logistics, Last Mile Delivery

Thierry Tosi is vice president and general manager, of Rockwell Collins Service Solutions, 319-295-3547.

Today’s aftermarket aerospace and defense supply chain requirements are changing how companies secure the critical spare parts needed to improve customer service, enhance product uptime and profitability, and increase customer loyalty and retention. It’s nothing short of a global logistical transformation.

Budget cuts are helping fuel the transformation, with the need to maintain existing military aircraft for longer periods of time. Also fueling the change is an increase in commercial aircraft orders and deliveries throughout the world to meet demand for travel and defense. This appetite can be seen in both developed and developing countries. The number of passenger aircraft is expected to more than double between now and 2032.

All of these aircraft need aftermarket parts. The global commercial aircraft market for aftermarket parts and logistics reached nearly $23 billion in 2013 and continues to climb. The constant demand for aftermarket parts to keep planes flying, and the desire to reduce or maintain costs, creates additional pressure to enhance the efficiency of supply chains for parts. Airlines want and need it all: service, speed, global reach, a central point of contact, and management of spare parts inventory.

Elevating Supply Chain Management

Consequently, aerospace organizations are elevating supply chain management to the status of research, development, and production. What does this all mean? Increasingly, it means that one size does not fit all. They are following two different paths to meet tight delivery windows and move regular and emergency aftermarket parts cost-effectively.

One method involves situating service/supply centers close to where customers are located, known as proximity service/supply. This customer often has tailored requirements and desires short turnaround guarantees. Such local arrangements are common with suppliers in countries like Brazil and China.

The other aftermarket parts system involves the establishment of regional and well-connected centers located strategically around the world. There, pools of unit spare parts and exchange units can be stored and then sent to customers when needed. With this system customers don’t necessarily care where the parts are based, just as long as they arrive on time and meet customer service obligations. Aftermarket parts supply is trending toward a more integrated approach, but proximity-based services continue to exist. Over the next decade 40 percent of the aftermarket parts supply will be proximity-based service centers, and the other 60 percent will be integrated regional centers with pools of parts.

Outsourcing to MRO Suppliers

In a related trend, more aerospace and defense companies are outsourcing their aftermarket parts to Maintenance, Repair, and Operations (MRO) suppliers. These suppliers use networks of proximity-based and integrated regional centers to service their customers. In addition, more aerospace and defense customers are only buying the parts they need when they need them. This increasingly involves buying used parts that have been overhauled and recertified. Many airlines find this especially advantageous for aircraft that will be phased out in a few years and don’t necessarily need a brand new part. This just-in-time inventory system isn’t new, but its use by the aerospace and defense sectors has been less common until lately.

Some in the industry are even working under exchange or rental arrangements with aftermarket parts suppliers. This enables them to always exchange a part for a replacement or to obtain a needed part under a five-year rental contract. This is termed “Power by the Hour” as customers pay a flat hourly rate to ensure complete service, support, and replacement parts – even if a part has to be hand-delivered. Engine producers long have provided this model and it’s being applied to other types of equipment. It’s plain that the aerospace, avionics, and defense aftermarket parts business is undergoing a major makeover in repair and logistics management.

In a large sense, it’s a new system for a mature business.