Aerospace Sector

Industry Productivity and Competitiveness via Logistics and SCM

As competition becomes more global, innovation is moving from a firm-to-firm level to a supply chain versus supply chain perspective. In order to better respond to increased customer needs, Canadian Aerospace firms must develop supply chain agility in a JIT and mass customisation mode.

Supply chain agility is an operational strategy focused on inducing velocity and flexibility in the supply chain. A supply chain is the process of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer.

The Aerospace sector has traditionally incorporated SixSigma measurement processes which are concentrated on product quality and not JIT lean manufacturing. SixSigma is a term used generally to indicate that a process is well controlled, i.e. tolerance limits are ±6 sigma (3.4 defects per million events) from the centerline in a control chart. However, although SixSigma continues to be a major driver, JIT lean manufacturing has lately integrated the set of key drivers for the industry as well. This enables Aerospace industries to increase their level of mass customization and decrease delivery times, while maintaining a high level of quality.

The next figure shows KPI identified by Aerospace firms, as well as the average for the manufacturing sector.

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On-time delivery, a logistics and SCM JIT measure, is the most used KPI in the North American (NA) Aerospace and defence sector. The other two most important KPIs for the Aerospace/Defence sector are manufacturing cycle time and inventory turns. The largest difference between this sector and the Industry average is for manufacturing cycle times, where 56 percent of firms in the Aerospace/Defence sector identified this indicator as being in their top three (compared to only 37 percent in average for the whole industry)⁵.

Measurement of logistics and SCM KPI is an essential part of the agile supply chain concept. It is estimated that 37 percent of  North American firms that have put in place logistics and SCM KPI corporate wide measurement achieved a decrease of at least 15 percent in shipment delays compared to only 7 percent of firms that did not measure those KPI consistently. NA firms that measured logistics and SCM KPI also outperformed their industry counterparts on document issues, a key component of Smart Border solutions in JIT, by a ratio of 3.5 times¹.

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In order to take advantage of logistics and SCM KPI measurement, supply chain managers must also take into factor their sector specific focus into their strategy. As an example, the Automotive sector focuses on JIT and continuous flow of product and information under the Lean principles. Retail and Consumer product goods (CPG) sectors concentrate on total delivered cost and in-store stock-outs ratios. The Pharmaceutical sector is pushing for item level traceability and supply chain visibility for governmental requirements and product recall issues, while the Aerospace sector emphasises total supply chain quality ratios such as Six Sigma processes and standards.

The following figure shows the top factors driving a company to implement a Lean Strategy.

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The two key factors driving NA Aerospace/Defence firms to implement a Lean Strategy are related to logistics processes.

A first difference between the NA Manufacturing industry average and the Aerospace/defence sector appears here.

Although pressure to improve operational performance and shorter order cycle times were the top two drivers for the Aerospace sector, the largest difference between it and the Manufacturing  industry in general was for the increase product quality driver, which a lot more firms in the Aerospace sector reported as being a top driver. This reflects the idea that the Aerospace sector is a lot more based on SixSigma processes than the industry as an average. However, although this is the case, the Aerospace sector also gives a lot of importance to JIT lean manufacturing, as is demonstrated by its top two drivers.

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Looking now at the top three strategic actions undertaken to implement a JIT Lean strategy, the top three strategic actions identified by  the NA Aerospace/Defence sector were reducing non value added manufacturing and supply chain costs, improving manufacturing and supply chain flexibility and reducing inventory and assets. Of particular interest here is the fact that 88 percent of firms in the Aerospace/defence sector identified reducing non value added manufacturing and supply chain costs (compared to an average of only 64 percent for the whole industry)⁵. The focus on reducing logistics and SCM costs is thus more important in Aerospace than in other sectors.

The next figure shows the extent to which JIT Lean manufacturing techniques are used in the Aerospace/Defence sector.

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Although 94 percent of firms in the NA Aerospace/Defence sector have either planned or engaged in JIT Lean in manufacturing (compared to only 70 percent on average for the whole Manufacturing industry), only 35 percent have developed extensive SCM and logistics processes with their supply chain partners⁵.

The following figure shows, for Canada, the percentage of firms that applied innovative processes, and of those innovative processes, what percentage was logistics related⁷.

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As this figure shows, the Aerospace sector has the largest percentage, amongst the selected sectors and the average of the industry, of innovative plants in manufacturing methods. However, in terms of logistics innovation they are average and in terms of logistics innovation in innovative plants they are below average. This indicates that logistics innovation has not yet taken full flight in this sector and that innovation in manufacturing methods is still very important. This may be explained by the focus on Six Sigma quality control versus JIT lean mass customisation focus for other Manufacturing sectors in Canada. This trend may change in the near future. Large customers, such as the U.S. Department of Defence and final assemblers, are initiating logistics and SCM traceability mandates, such as Radio Frequency Identification (RFID) through their respective supply chain. This could impact dramatically the level of investment in logistics innovation and in productivity opportunity for the Canadian Aerospace sector.