The Aerospace Supply Chain in 10 Years
There’s an interesting paradox that can be attributed to the aerospace industry: despite being responsible for some most advanced military and consumer-based technology the world has ever seen, the supply chain that brings such technology to life is notoriously traditional. Where OEMs in other industries have adopted various software applications to monitor inventory and establish direct lines of contact with suppliers, for example, many aerospace OEMs still opt for legacy systems and processes. In some corners of the industry, you might even see some fax machines still being put to good use.
The reason for this dichotomy is relatively simple once you understand how the aerospace industry has evolved. Around the mid 20th century, where commercial demand dictated OEMs create larger air carriers such as the Boeing 747 (the original “Jumbo Jet”), the aerospace industry adopted a high-cost, low-volume sales model that necessitated a relatively centralized ecosystem. Although it was not uncommon for Boeing, Airbus, Bombardier, or other such manufacturers to directly oversee up to 7,000 suppliers simultaneously, their consolidated product offerings allowed them the bandwidth to do so.
That is quickly changing, and in the next ten years, aerospace professionals may hardly recognize the industry they call home.
Smaller, Faster, More Efficient
The primary driver for this change stems from the rapid growth of the industry in exciting, new, high-potential markets. According to TT Electronics, countries such as Turkey and Thailand will supplant France and the UK as the ninth and tenth largest commercial aerospace markets by 2036. As a result, manufacturers should expect to adapt to fit their demands as well as those of long-established markets such as the U.S. and China – and those demands will be a far cry from the large jumbo jet trends of old.
Recent years have seen in these newer markets an incredible spike in demand for smaller, more fuel-efficient regional aircraft, which has not only forced aerospace OEMs to diversify their product lines and increase output, but has also opened the door for new component suppliers to enter into the fold with innovations of their own. This has moved supply chains away from a centralized system and toward a more intricate Tier 1/Tier 2 model which can run several levels deep. In ten years, expect this trend to become the new normal.
A Pilot Trusts His Crew
In many ways OEMs should see an enormous burden lifted from their shoulders, as their responsibilities should move away from micromanaging thousands of suppliers to only directly communicating with a few hundred Tier 1 suppliers. At the same time, however, this direction also comes with significantly higher risk, as those trusted Tier 1 suppliers will be tasked with ensuring an accurate and consistent flow of inventory on the OEM’s behalf. The aerospace supply chain, more than ever before, will prioritize trust and accountability – and if a disruption occurs on a lower tier, it is on the next highest chain of command to ensure business continuity.
This is a model that presents incredible earnings potential and unprecedented product output, but it’s also one that demands a sound process on each level that accounts for even the most uncommon supply chain disruption. Component obsolescence should of course be covered with an in-place last time buy strategy, but manufacturers should also have procedures in place to survive disruptions that are impossible to predict (warehouse fires, political turmoil, etc.). As the aerospace industry sets to fully embrace a globalized future where inventory may be manufactured and/or warehoused in still-developing countries, such disruptions are inevitable – and some growing pains should be expected as all supply chain participants look to adapt.
A Transparent Future
The key to success throughout all of this is supply chain transparency. Without clear and open lines of communication between all levels of the supply chain, none of the promise of this new model will ever be fully realized. Luckily, new technologies such as blockchain – which promises a secure, decentralized system for sharing information – are maturing at the perfect time to provide this. In ten years, look for information, as well as responsibility, to be universally shared throughout the supply chain network.
The original dreams associated with flight were laced with a kind-of globalization philosophy; airplanes, after all, are what grants us the ability to interact with the world on a scale our ancestors could only imagine. Finally, after more than a century, it looks like the supply chain that creates them might finally reflect that dream, too.