Introduction
According to trade publication, Inbound Logistics, “supply chain improvements, and specialized service providers, keep the aerospace industry flying high.” Its true. Aerospace logistics is part and parcel of this business and plays a critical part in establishing reliability and credibility for the aerospace industry. It is that reliability and assurance of smooth functioning that customers repose their faith in the industry, and that is what keeps it going. For this, the logistics providers are as accountable and responsible as the MROs, manufacturers and the airline operators themselves. In fact, all key components of the aerospace business have to work in unison like well-oiled machinery, continually, and more so make adjustments to adapt to the ‘new normal’.
Data released (image below) by Airbus’ Global Market Forecast, picturises a full- blown account of the Covid-19’s impact on the travel industry.
Some key highlights pre/post Pandemic years (Airbus Market Survey)
- 13% of 2019 fleet were New Generation aircraft, with a demand for 39,000 aircraft over the next 20 years
- 2021-2040 period of demand for aircraft shows 76% is in the small aircraft category
- Demand for large aircrafts originates in the Middle East and APAC regions for long-haul operations, mainly. In fact, in the Middle East 1/3 of the total demand for aircraft are for the large category
- 39,000 deliveries for New Generation aircraft means 25% lower carbon footprint. This comes from the use of composites and lighter material for aircraft manufacturing
- About 870 new freighter aircraft will be required over the next two decades, driving aerospace companies to reconfigure their supply chains to handle demand.
The aerospace industry has to at once deal with drastic southward trend in passenger travel numbers (a drop in air passenger numbers to -2700mio in 2020), government restrictions, border closures and the resultant economic downturn. Negative impact on the health of the industry across the globe has been unprecedented. A quick and fundamental rethink was required for the survival and revival of the industry, post Covid -19.
“It’s a paradox: The airline industry is suffering, but there have never been so many orders for new aircraft,” says Joël Glusman, president and CEO of The Aerospace Logistics Alliance (TALA), a Miami-based cooperative that provides supply chain management, freight forwarding, and customs clearance services to aerospace companies.
This order backlog (especially from Middle Eastern carriers) is putting huge pressure not only on aircraft manufacturers to get planes quickly off the production lines, but be able to do so efficiently and profitably. This means making lighter fuel-efficient aircraft made of material that are sourced from diverse places and suppliers. All this required carefully planned schedule of costly incoming parts timed to keep inventories low.
On the other hand, as an outcome of Covid 19, aircraft manufacturers also saw cancellations and / or postponement of orders, and have been stranded with ‘white tail fleets’, and activities around them cover the entire spectrum of MRO and supply chain businesses.
For example, Lufthansa underwent a comprehensive restructuration of its fleet, with plans to reduce its fleet by 100 aircrafts throughout the crisis (from 760), starting by the least fuel- efficient planes. Justified.
Aircraft deliveries projection in such cases may not look so encouraging over the next three to four years, according to analysts. A drop from an expected 5,000 to 6,000 units before the crisis to a more realistic 3,000 to 4,000 aircrafts may be expected.
Elevated Status of the Logistics & Supply Chain Business
According to research done by Technavio, the aviation MRO logistics market is pegged to grow by USD 3.75 billion for the period 2020-2024 – with improving CAGR of over 4% during the forecast period. Furthermore, increase in passenger traffic, (you can put it down to a burgeoning and affluent middle class who prefer air travel and the pent-up demand for travel for tourism to boost the aviation sector).
The demand once again post pandemic for air travel means planes have to be kept flying, and naturally need to be serviced. This means airlines and airline manufactures have to manage replacement of parts from across the globe. Here, managing logistics is left to the experts, from across geographies. Thus, one sees the rising importance of logistics and supply chain management to a heightened status in the aerospace sector than ever before. Hiring of third -party logistics (3PL) providers to manage inbound materials movement, efficient & effective flow and storage of goods and services, and information and data collection and communication thereof – each step of the way needs to be minutely planned and executed. It’s all about how resources are acquired, stored, handled, and moved along the supply chain – with precision. It involves tightly knit transaction, distribution and communication channels integrated for quick and efficient service delivery.
Ushering in changes for post pandemic recovery
This may be an opportune time for the whole of the Aerospace industry, down to the supply chain and logistics activities must opt for and invest in digitalization initiatives (IoT, AI, Analytics, and Virtual Reality). With more time on hand now.
Streamlining movement, and continuously synchronizing the manufacturing process comes best with the latest in digitisation and the growing need and adopting cutting edge technology to integrate every part of the business.
Moving aircraft parts is challenging and tracking and being accountable is an art. Aircraft components range from (mainly) parcel-size, and can be gigantic like an engine or a wing. These parts apart from being very costly and requiring specialized handling, storage and conveyance, are transported by and large as air freight. Time is of essence, as we know.
The most important consideration yet, is meeting delivery deadlines, and the delivery window for supply chain and logistics providers seem to be narrowing all the time. “In the past, meeting delivery schedules was easy because companies held one month’s supply of buffer stock close to the plant,” says Goedhart. “Today, however, the increased production tempo results in less stock held at the plant or with vendors. Aerospace companies are more frequently requesting that their 3PLs manage vendor relationships and inbound logistics.”
Lessons learnt for Logistics and Supply chain managers include operating while anticipating increased risk for disruption that accompanies global sourcing. Moreover, aerospace companies choose a handful of suppliers / providers who have minute understanding of the industry’s specialized needs and can handle the scope. There is yet another challenge.
Improved Inventory Management
Northrop Grumman aerospace use a ‘material Acquisition Pull System’, that works well with the aerospace giant. They provide suppliers with a minimum and maximum level for inventory, and the suppliers have the option to deliver as per their convenience, as long as they work within those set parameters.
“The pull system has been a huge success,” says Wink Williams, director of goods movement for Northrop Grumman Aerospace Systems. “We don’t have to worry about big inventory fluctuations, and buyers no longer need to issue change orders with new dates.”
“We’re seeing an increase in the number of urgent shipments for aircraft on ground (AOG),” says Morten Jensen, corporate market director, aerospace and defence, for Geodis, a global logistics provider headquartered in Clichy, France. “Because manufacturers are trying to reduce inventories and enable just-in-time delivery, the number of urgent shipments is up.”
However, speedy parts procurement can prove to be a challenge for manufacturers, with suppliers located in diverse locations.
Smart Tracking methods are growing sophisticated and as a result of which – more granular, with multiple data points, and all this is made possible by leveraging technology. Airlines companies want information on their finger-tips in terms of project details, purchase order number and search by reference. Parts are also growing more specialized, so much so, that they cannot be used across airlines. This throws up a challenge in the area of inventory management.
On the receiving end are logistics providers, “In the past, standardized solutions were the norm,” says Geodis’ Jensen. “Today, aerospace companies require tailored solutions. No two companies are alike”.
Aerospace companies want the same visibility across their Tier One, Tier Two and Tier Three suppliers for items like for example, order status. This is becoming a possibility with digitisation right through the entire gamut of activities.
A lot more is expected of logistics providers with better digitisation and integration all these trends and demands are challenging the aerospace supply chain at every turn—from pre-production all the way through to after-sale service. That’s elevating the role of logistics as an enabler.
Supply Chain and Logistics for Defence sector
Security concerns arising out of geopolitical manoeuvres have intensified defence spending by governments around the globe where such expenditures increasing by 3 to 4% (primarily in the U.S., China, and India) and reaching an estimated total of $1.9 trillion. Therefore, defence aerospace and its allied activities including logistics and supply chain growth from the defence sector will remain robust.
As aircraft companies struggle to keep up with demand, adapt to changes in the industry, and compete for a bigger share of the market, aerospace logistics and supply chain management will only become more complex, but gain in importance due to the criticality of their service offerings.
Breaking New Ground with New Suppliers
Post Covid 19 situation was further compounded with a post-Brexit UK. This could mean renegotiations of trade agreements. Much uncertainty doing business then, for aerospace procurement teams from countries both within and outside of the European Union, like all other businesses. Long term planning may be nebulous to arrive at.
Emerging Technologies and Modernization
The aerospace industry keeps adjusting to imbibe modern advances such as standardization, artificial intelligence, and automation, especially as the potential consequences of failure can be extremely damaging. Therefore, most aerospace growth will continue to centre on technological innovation. However, aerospace companies would do well to invest in their human capital as well, particularly by providing training in key emerging technologies — starting with smart automation, machine learning, blockchain, and additive manufacturing (3D printing).
Industry 4.0 (Smart Factories)
Adapting to Industry 4.0 capabilities (Smart Factories) will deliver benefits across key aspects that will help entities cope with post-crisis recovery. A fine example of a Smart Factory design is Deloitte’s cloud-based application called “Smart Factory Fabric”. Spirit AeroSystems in September 2019, a large aero-structures manufacturer, has been an early adopter: the app documents and tracks every part of the 767 forward fuselage assembly process, allow dynamic production schedules based on advanced algorithms and automated material movement.
Smart Factory technologies ensure:
- superior connectivity, where assets are outfitted with smart-sensors throughout the whole value chain and connected to business information systems, all tightly integrated
- This further leads to transparency, real-time data visualization about processes and operations throughout the chain of activity,dynamic planning practicesallow production schedules and process simulation, in order to better adapt to demand fluctuations (e.g., changes in aircraft model, customization)
- Ushers in predictive maintenance or timely detection of process flaws and timely corrective action- saves time and money and cuts down wastage
- Efficiency, with strongly increased automation capabilities
- Agility, as simulation with the use of VR and AR capabilities are expected to improve dynamic decision making
Conclusion
With government financial aid being rolled out in most countries, investments for significant and far-reaching changes such as structural transformation, gaining digital prowess, and an entirely new working pattern is seen trickling down to the third-party logistics players. Such opportunities should not be restricted to just large aircraft manufacturers and Tier 1 suppliers, and avoid hiccups that may show up along the way without lower tier or smaller suppliers also being inducted in the 4.0 transformation. This will also introduce sustainable competitiveness in the field.
Some beneficiaries of the 4.0 revolution belong to GIFAS (French aerospace industry association) launched a three-year programme (effective 2019) for 300 medium-sized companies. Two important pilot projects on-going are at Mecaprotec Industries, specialising in surface treatments against corrosion and deterioration, and Gillis Aerospace, in the business of manufacturing aerospace fasteners, respectively. Their focus has been on trimming automation and robotics improvement for parts loading and unloading. Lower – tier suppliers should very much be part of the programme so that they too become competitive by performing better during the 4.0 investments roll out.
This is an example for all such aerospace entities to imbibe.
