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Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
Aerospace supplier programme
Aerospace supplier programme
Towards successful bid management and profitable work package execution IBM ®
Keywords: Aerospace industry, Supply chain, Suppliers
The aerospace industry has seen significant change over the last decade through rationalisation of all the major original equipment manufacturers (OEMs) which is at present impacting all elements of the supply chain and their need to maintain or grow market share and deliver profitable services. This feature looks at the history of how the aerospace industry interacts with the supply chain and how market forces have produced new business drivers for suppliers around the world. The major challenges faced during this evolutionary period are examined and trends for the future are reported, together with the role of technological tools to meet the demands of the 21st century.
Aerospace supply chain scenarios
Traditional supply chain model
In the past, major aerospace OEMs have retained a high proportion of the design and manufacturing process in house, especially in the area of structures, leaving only engines and avionics to the specialists. The requirement for suppliers was to build closely defined small assemblies and components. There was little design interaction as majority of the intellectual property was vested in the OEM. This model works well when there is a strong market for aircraft, and when the demand for air travel and the margins that can be achieved by carriers are high. Aircraft are ordered for civil or military use at the concept design stage, with the intention of outright purchase by governments, airlines or financial leasing companies providing a high level of certainty and security.
Typically, the OEM will work with a large number of suppliers, sourcing and defining a wide range of components and services. The role of each tier of suppliers is clear in this model. There is little risk for them and there is a simple structure running down from the OEM to the smallest supplier through a range of intermediates providing even larger and more complex parts to the OEM. Collaboration through the supply chain is relatively simple with design intent only passing down through the tiers in majority of cases. As long as each participating company can receive data and they can reliably respond to design change from the OEM this is the extent of the collaboration required and there is little requirement to return modified data back to the supplier chain.
Life cycles and development cycles, which can be over 20 years, makes change a slow process in the aerospace industry, but this traditional model is rapidly becoming obsolete, forced by a competitive market, especially in the civil sector. The most successful airlines are the newcomers with a standardised product, who avoid doing anything not related to their core business.
The current supply chain model
The market is demanding more efficient aircraft at a more reasonable cost, forcing OEMs to reassess their whole business to deliver new aircraft to meet these challenges. This has resulted in the rebalancing of core competencies between the OEM and the supply chain to better deliver the products on time and on budget. OEMs are focusing on a greater understanding of customer's requirements, maintenance of their brand, and on how to become system integrators. As a result, the relationship between OEM and supplier is at present much more complex. The advent of low cost air travel and deregulation are factors which have had a significant impact on the structure of the aerospace industry and consequently on the supply chain. Demands by carriers not to own any assets and looking at a “fly by the hour” method of operation creates a completely different business model for aircraft manufacturers involving a development process that focuses on reliability and serviceability for profit rather than the traditional model of considering the profit from aircraft sales and the profit from the sale of spares as two discrete and separate events.
Fly by the hour for aircraft use, power by the hour for engine use and also the trend towards outsourcing of service and maintenance requirements has changed the cost structure for aircraft from a unit cost at time of purchase to a whole life cost structure, which considers the maintenance intervals, reliability, ease of servicing and cost of replacement parts. One major engine manufacturer is in the process of changing their business model to power by the hour, where they will continue to own the engine and all the support equipment, while another major military OEM will supply a complete weapon system while retaining ownership of the aircraft, hangers and maintenance equipment to provide a total care package. “Prices are decreasing so larger companies are keeping MRO (maintenance repair and overhaul) in house,” said Dr- Ing.Rolf-J. Ahlers, CEO, ASG Luftfahrttechnik und Sensorik GmbH.
All these factors alter the decision making process in aircraft design. Parts which may have been designed with best quality and long life in mind might now be redesigned with a limited life as they have become part of a planned maintenance programme. Conversely, parts that were earlier designed to be replaced frequently can be changed to give them more longer service life. Some airlines have currently passed the competence for maintenance and maintenance costs to specialist companies to enable them to concentrate on their core business.
This trend causes uncertainty for the OEM and hence greater risk, making it necessary to look at ways to share the costs for the lengthy development programmes inherent in aerospace projects. The rapidly changing nature of demand for aircraft has also put pressure on development times, they need to be much shorter. In addition, the aircraft themselves are becoming far more technologically complex and sophisticated in their design. Requirements for noise reduction, lower fuel consumption, more cabin space, more complex control systems, and in flight entertainment all adds to the design overhead and the reliability issues. Airlines are demanding more customisation so that they can use the benefits of differentiation to give them competitive advantage. The cost of implications of these changes are something which the OEMs are finding increasingly difficult to manage.
With the traditional model described above, it would be necessary to have a huge growth in the size and diversity of design teams at the OEM, yet cope with the uncertainty of a capricious market. Boeing has aggressive plans to make significant reductions in the cost and development times for new aircraft and derivatives. Airbus aims to increase return on capital employed by 12 per cent and achieve real reductions in aircraft costs of 10-25 per cent according to Aircraft European Contractors Manufacturers Association (AECMA).
Part of the solution has been to push the size and complexity of aerostructures and systems further down the supply chain and to increase the reuse of common parts, especially with derivative aircraft. The Joint Strike Fighter (JSF) programme has over 70 per cent of the parts and services outsourced and the aim is for 70-80 per cent commonality between the three variations of the aircraft. This relieves the pressure on the OEM, and demands a higher skill level from the supplier. The nature of these moves blurs the distinction between OEM, Tier 1, Tier 2 and Tier 3 suppliers. An OEM can now be working on a part of the aircraft subcontracted from what might earlier have been a Tier 1 supplier, and groups of Tier 3 suppliers can collaborate to perform the type of service carried out by those in Tiers 2 and 1. Traditional distinctions have at present lost their meaning resulting in a much more diverse structure which demands sharing of information at all levels. Cross ownership and consolidation of aerospace multinationals is common, which illustrates the depth and complexity of these relationships.
In Europe, the model of collaboration for major parts of the aerostructure is long established. Well documented programmes have shown how this can be achieved working in geographically separate locations yet involving parts where the interface between these key structures is crucial. To enable this to be successfully achieved, sharing of design data needs to be seamless, as with insufficient or immature information it is impossible to make a qualified decision. An interface between design systems is inadequate for this purpose. At this level of collaboration commonality at the attribute level between the systems is the only effective way of working to minimise errors in communicating design intent. In the aerospace industry this already exists. CATIA accounts for around 90 per cent of the design systems used in aerospace, making it the system of choice for OEMs and suppliers alike.
The United States market is going through a similar evolution. Protected by a strong military aircraft sector and with around 50 per cent of worldwide aerospace industry turnover, this new way of operating is becoming the status quo, together with the concept of risk sharing which is currently on both sides of the Atlantic. Risk sharing makes it imperative that costs are controlled accurately, suppliers must at present not only contribute more fully to the design process, but they must share in the economic risks associated with the aircraft development. The rewards come when the aircraft are delivered, but in the meantime they have to bear the costs associated with the development. The Boeing 7E7 programme will lead the way for Boeing by having a much greater level of risk sharing than previous programmes for this company.
Returning to the model of full design content emanating from the OEM is unsustainable. Even for reusable military applications, the whole life cost model is likely to become prevalent. There is a trend even in unmanned vehicles towards serviceability and extending the life cycle of these products. Continued deregulation and consolidation of carriers will increase purchasing power and put more pressure on the manufacturers for productivity improvements. Airlines have a precise figure for flying hours which they expect to achieve with an engine or aircraft over a given period of time and they are asking manufacturers for cost guarantees. With it, it is easy to arrive at individual costs for each component to achieve the desired reliability goal.
According to AECMA, demand for air travel is anticipated to show a yearly rise. As aircraft systems become more sophisticated, the skills necessary to participate in this market will increase, creating a barrier for new entrants. The trend is more towards retaining integration at the OEM. Major systems are generally subcontracted and only the integration and final assembly are likely to be completed by the OEM. Existing suppliers who develop their skills in line with new requirements will be best placed to take advantage of these trends, which provide them with opportunities and challenges. Technology exists to ease the transition, and its early adoption will ensure future prosperity for companies which make the right choices.
Referring to CATIA, Charla Wise, Vice President of Engineering, Lockheed Martin Aeronautics Co. said, “It will allow our engineers to simulate every aspect of aircraft design, support and manufacture before tools and parts are actually created. By improving designs early in the development stage, we can significantly reduce cycle times and costs while achieving unparalleled levels of quality.”
Challenges for the supply chain
Supplier reduction programmes
Europe alone has around 80,000 aerospace suppliers of which 20,000 are small and medium sized enterprises (SMEs) according to AECMA figures. The move to push more complex aerostructures and systems down the supply chain will necessarily mean that OEMs will work directly with fewer of them. Some have already reduced suppliers by 50 per cent and are still targeting further reductions.
This process simplifies the administration for the OEM and makes it unnecessary to negotiate multiple contracts and monitor their progress, eliminating a whole raft of administrative tasks. Responsibility for an audit trail and change management falls to the contractors being used, requiring them to take on tasks that are carried out by the OEM earlier. From the point of view of the supplier, to avoid being a victim of the reduction process they need to be able to offer the OEM a more complete service, working collaboratively in design at a higher skill level and mapping the OEMs audit requirements and change processes.
Islands of automation do not produce any added value to the collaboration. There has been an exponential explosion in the amount of data being transferred, so integration rather than interfacing is the most productive solution. With a non-integrated solution, the complete process will sink to the level of the most inefficient interface. The ability to look at the whole enterprise rather than individual requirements, sharing information internally and with partners, training to provide the right technological capability and systems to manage supply chains are key factors in remaining a preferred supplier.
Year on year efficiency improvements
Aerospace OEMs are demanding cost and efficiency reductions each year. A supplier may be contractually committed to deliver performance improvements of 5 per cent or more per year. In addition to the challenge of risk sharing, this puts demands on the quality of information available and the skills available in house. If costs for earlier programmes are not accurately known, it will be impossible to predict for new work packages.
Not only is it necessary to have close control of subcontracted parts and services in the context of the collaboration within the supply chain, but in house costs must be controlled and measured. With correct and reliable information it is possible to predict future costs and where efficiencies can be achieved with better processes and technology. Some suppliers are moving to a maintenance, repair and overhaul (MRO) model and are looking for ways of leveraging this opportunity. Costs are at present whole life costs, so efficiency improvements are not simply price cuts, they take the form of better engineered components, which may have a longer service life, or easier assembly or maintenance features. Whole lifecycle costs are vastly improved with the correct technology, this will have a big sway in the awarding of contracts.
All these improvements require better self-knowledge by the supplier and closer collaboration with the OEM. Achieving this level of control requires Product Lifecycle Management (PLM) solutions. Processes can be electronically captured and analysed. Transparency in the electronic system highlights errors and inefficiencies, which would have gone unquestioned earlier. Once they have been identified, they can be optimised to streamline repetitive tasks.
Global sourcing and competition
Suppliers no longer have the luxury of a captive home market. The USA accounts for around 50 per cent of the global aerospace industry turnover, but Europe is already showing a 25 billion euro trade surplus with the USA for aerospace, according to AECMA figures for 2000. Measured against a deficit in most other industry sectors this shows the importance of the aerospace industry to Europe, and the growth in their efforts for competing globally. Asia is also emerging as a major contributor to aircraft programmes, especially for aero structures. Their low cost base and at present their growing skill base enables them to compete on quality as well as cost, impacting on the US stronghold.
Many suppliers have been working with local OEMs in long-term relationships. Tier 3 suppliers of milled parts and forgings are being faced with having to move to a solid modelling environment to maintain their position as preferred supplier by using CATIA. The advent of CATIA Version 5 has simplified this process, reducing the skill level required, and providing simpler system management in a Windows rather than UNIX environment. In addition, because of the increasing adoption of CATIA by the universities and educational establishments, suppliers are finding it easier to hire trained staff for their CAD systems, making investment in CATIA easier for SMEs.
Web-based bidding for business and easier communications and transport at present make it possible to source parts globally. The response for the supplier should be to make it easier for the customer to do business with them. This involves accurate and fully informed offers, providing information about the lifecycle costs and showing how the project will be monitored, controlled and delivered. Taking advantage of web-enabled bidding processes allows clusters of companies and individual companies to bid not only to their local market, but also to customers around the world, increasing their potential business, rather than suffering from the effects of global competition.
“Deploying common methods and processes based on a common set of tools across the whole entity is a major driver to harmonise the development process in Airbus. This will reduce development time and costs significantly from the very beginning of the project. Another key advantage of the migration to CATIA V5 is that the solution is standard to the aerospace and supply industry and provides digital mock-up functions that meet our rigorous demands,” said Rolf-Stefan Scheible, Vice-President of Airbus Concurrent Engineering (ACE).
Partnering for increasingly complex work packages
With a consolidation process underway, it is clear that small suppliers will not have the ability to compete on their own, except in very niche areas. The increasing complexity of the demands filtering down the supply chain, which require integration of design as well as the monitoring of processes, will create a barrier for some SMEs. To overcome the hurdle of higher technological demands, suppliers will need to collaborate with one another in virtual companies to provide a service where each is able to contribute their particular specialisation. “To meet future trends, SMEs can co-operate with other companies and they can be technology driven, using in house knowledge to provide leading edge systems which will command higher added value from their customers,” said Dr-Ing. Rolf-J. Ahlers.
Clusters of SMEs can share the bid process to provide a complete service to the OEMs and first Tier suppliers consisting of design and manufacture of larger work packages than they could have earlier achieved or been considered to supply. For each cluster member the concept of collaborating to gain market share needs to be part of their core strategy. Fronted by one member of the group, they can co-ordinate their efforts to provide an efficient solution and maintain their position in the supplier chain, overcoming barriers to higher technology and gaining economies in production, design, marketing and component reuse. Virtual teams will be able to manage their intellectual property through contractual terms. With experience they can be reused without starting again with team creation.
To make these clusters work and to satisfy the demands of the customer, it will be necessary to have a close, foolproof integration of business systems as well as methods of sharing design data. The success of the cluster as an entity depends on its weakest link, so ensuring traceability and visibility of processes at all the member companies is essential, requiring PLM software which is web-enabled to provide a community workspace where companies at different locations can securely access information. Here they can identify and track work packages as well as maintain an audit trail to ensure the use of best practices and codes of conduct, for example where sensitive information may need to be transmitted between the partners. Conventional and paper based systems will not have the capability to respond quickly or accurately for fast paced and changing development and manufacturing processes, leading to wasted effort and an increase in non-value added activities which need to be eliminated to meet the cost reduction targets set in the industry. Similarly, design integrity must be maintained, and delays in interpreting and implementing changes are unacceptable, making it a requirement for participating companies to use the industry standard CAD system. Companies which collaborate horizontally in this way will benefit by becoming technological leaders in their field and protect themselves from being deselected as suppliers.
“We work on European and national collaborative projects with a cluster of companies to bring in new types of technology in a stronger and tighter collaboration, keeping intellectual capital in house and using the strengths of participants in a virtual company,” said Dr-Ing. Rolf-J. Ahlers.
Working with the extended aero enterprise
The role of OEMs, Tier 1, Tier 2 and Tier 3 suppliers has become far more complex. Vertical collaboration between each level has currently been complemented by horizontal collaboration, with supplier levels swapping on different projects. For example, an aircraft manufacturer could be an OEM on one programme, or a partner on a second, while on a third they may be a subcontractor. Being mobile and aware of this, variable structure is essential in understanding the consolidation and partnering that is part of the aerospace industry in the 21st century. Web-enabled PLM technology is an important new trend which gives access to SMEs, enabling the sharing and reuse of common components to provide modularity in aircraft design coupled with secure collaboration through firewalls.
“We achieve modularity between the different types of actuator systems we manufacture, reusing tooling to produce the same type of housing out of carbon reinforced plastic,” said Dr-Ing. Rolf-J. Ahlers.
The ability to play different roles according to the project requires a thorough knowledge of customer's requirements, capabilities and business partnerships, enabling suppliers to anticipate where they can fit into a complex chain, and where they can expect new bid requests to come from. In order to shorten time scales, suppliers need to have a much clearer understanding of what information is required, when it is needed and what needs to be supplied back to the OEM. All these work packages have to interact with one another.
Suppliers who can demonstrate their capability in integrated data sharing, while maintaining security and confidentiality between different programmes will be able to fit into this structure at multiple levels, increasing their opportunities for new business and enhancing their status as preferred partners.
Compliance with the customer toolset and audit requirements
As the nature of the supply chain changes, OEMs need assurance that major structures will fit together. Many different companies will be working on elements of each one and at the interface between them, so it is essential that information shared is current, and that design changes are communicated in an accurate and timely manner. With thousands of parts in an aircraft the complexity of this task is huge. Configured digital mock-up facilities enable simulation of assemblies, but if this information cannot be accessed in the same way both vertically down the supplier chain from the OEM and horizontally between collaborating suppliers there is a risk of errors in the development cycle. For airlines the important factors are low guaranteed maintenance and no unplanned failures, while suppliers need well established processes in their own companies and their capabilities need to be optimised around them to make them profitable in their own right.
Many of the parts also have a key safety function, so it is not only necessary to ensure that the design is current, but also to have an audit trail for the component to enable its history to be traced and quality issues during manufacture monitored and rectified. Compliance with external standards is important, six Sigma has been implemented widely, while there is increased subscription to AS9100 which provides a standard for control of digital data to ensure automation of best practice.
Heterogeneous programme environment
With regard to design content, CATIA represents the dominant force for design and development, and with Version 5 provides additional flexibility and affordability for SMEs. The reality for them is that they are likely to be working with a range of customers, and if some of these come from outside the aerospace industry it is likely that they will be using other point solution design systems. For sophisticated industries the supplier will have similar requirements to the aerospace industry, in that design data will need to be shared in an effective manner. The open architecture of Version 5 enables the exchange of data with other systems, and can avoid the need to have multiple systems to suit individual customers.
The scenario of multiple CAD systems is undesirable, as not only is it costly to install, but training and maintenance issues make their use inefficient. Taking a clear view on how efficiently systems benefit the company as a whole is a major step forward in understanding the complete business process. Examining how all the systems interact and communicate with one another will provide greater understanding of where economies can be made in cost centres.
The aim here is a simple one, to raise the bid to order ratio. Success here is crucial to the supplier, but only if the projects can be executed profitably. The first step is an understanding of how the industry works, and the trends for change.
Clustering with companies with complementary technology will open up opportunities by allowing suppliers to operate further up the supply chain, while an understanding of how work packages are shared out amongst the prime contractors, and the relationships between them will enable suppliers to find the best source of work for their particular specialisation, thereby increasing exposure to bid requests.
To manage bids successfully, the supplier needs to comply with the customer's requirements regarding costs, information supplied and demonstrable audit and process control systems. OEMs are demanding year on year cost reduction, so suppliers must have the confidence to make a fixed price bid with these reductions in place. Knowledge of performance levels on earlier projects is vital to the bid process. The level of analysis needs to be very accurate, and easily available if the amount of work in preparing the bid is not to be overwhelming. Cutting the overheads is important to achieve accurate results and the minimum time to offer. Shorter development cycles and delivery times will all have an impact on this. For cluster collaboration this process is even more difficult, as much of the information is out of the direct control of the supplier fronting the bid. “The bid must answer the customer's specification, detailing the research and development capabilities for new technology and the ability to provide cost effective production in house of that new technology,” said Dr-Ing. Rolf-J. Ahlers.
With the advent of digital aircraft design, the growth of e-business and web based tools, suppliers from around the globe who have invested in web-enabled technology will have an opportunity to compete. To bid successfully, suppliers need software tools in place which will enable them to quickly access historic data, to extrapolate cost savings and performance improvements for new projects. With this information readily available and, in the case of cluster bids, easily accessible for partner companies, costs can be predicted with a degree of certainty, resulting in competitive pricing and profitability. These same business systems will provide the necessary assurances to the customer that design change and audit trails can be managed to their satisfaction and will allow well planned offers to be created within a tight time constraints.
Early technology adoption
The aerospace industry has embraced digital technology at the highest levels, in design with solid models, digital mock-up, design change controls, audit trail management, quality and safety trails, back office administration and in the bid process itself. The advent of the web and web technology has transformed aircraft manufacture into a global industry, while market forces have pushed cost and time pressures down to the lowest levels of the supply chain.
Companies wishing to compete in this market face some tough challenges, but if they already have niche skills they can build on these by facing the reality of what is happening in the industry. Rapid response with accurate information, cross-business collaboration earlier in the design cycle, and forming of virtual enterprises against a backdrop of cost and supplier reduction programmes cannot be achieved without the right capabilities. Waiting to be asked to implement new technology is a dangerous policy, as competitors would have seized already the benefits which a common design environment and PLM could bring.
Governments around the world are encouraging e-business, with programmes to encourage early adoption and support networks for SMEs to help them get real advantages from sharing technology. A common experience for early adopters is the reduction of manufacturing times by 25 per cent and the completion of 33 per cent more work with the same resources.
“The financial benefits of CATIA Version 5 have been realised in programming. We've reduced modelling time by over 25 per cent and actual programming time by an additional 15-20 per cent,” said Roger Hagger, General Manager, Cam-Tech Inc., Arlington, Texas, USA.
IBM is actively supporting these programmes and with CATIA Version 5 technology they make sharing of design data easier, more flexible and accessible, while a range of PLM products offers a solution to companies irrespective of their size. To achieve shortened development times, OEMs need to minimise the unknown through knowledge reuse both in product structures and systems and in process reuse, taking out uncertainty from the development programme. Technology makes this possible with the right processes, culture and resources to support it.
Solution to the supply chain challenges
Collaboration and closer integration right across the supply chain will ensure continued participation in the aerospace industry. Lean operation and control of business processes will provide a lever to resist the effects of year on year efficiency improvements while retention of intellectual capital within the SME will provide added value to the customer and help to maintain margins and global positioning. Innovative processes enabled by emerging technology and supported by the correct infrastructure will provide the means to communicate within the industry and the tools to respond quickly and accurately to the pressures of cost and time. By being in the vanguard of change, suppliers will grow their position in their field of expertise.
Contributors and sourcesCharla Wise, Vice-President of Engineering, Lockheed Martin Aeronautics Co.Rolf-Stefan Scheible, Vice-President, Airbus Concurrent Engineering (ACE).Dr-Ing. Rolf-J. Ahlers, CEO, ASG Luftfahrttechnik und Sensorik GmbH.Roger Hagger, General Manager, Cam-Tech Inc., Arlington, Texas, USA.Duncan Matheson, Solution Management Leader, IIS/Business Development Product Lifecycle Management, IBM United KingdomDr-Ing Christian Fiedler, Solutions Manager IBM ServiceAfterSales Aerospace and Defence, IBM Deutschland GmbHEric Zurschmiede, PLM Solutions Architect, IBM PLM Integrated Industry Solution, IBM USA Inc.Rob Park, Americas Aerospace Supply Chain Leader, IBM USA Inc.Harry Barlow, Americas PLM Market Manager for Aerospace and Defense, IBM USA Inc.AECMA (Aircraft European Contractors Manufacturers Association) http://www.aecma.org/Department of Trade and Industry, Web site: http://www.dti.gov.uk/sectors_aerospace.htmlIBM PLM Solutions