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AEROSPACE Forward stocking approach for the aerospace industry

Jun 13, 2019

Expert and effective supply chain management can enhance costs and optimise greater profits for an aerospace company. Where manufacturing companies are always looking for modes to bring down cost and time, this case study reflects the elements of forward stocking, a business strategy that will benefit aerospace manufacturers.

The global aerospace manufacturing industry is growing at a rapid rate with a present worth of more than $838 bn, according to an analysis conducted by the AeroDynamic Advisory and Teal Group Corp; OEMs and sub-tier manufacturers comprise 54% of all activity. Manufacturing for the aerospace sector is a complex process for various reasons. By nature, it is capital intensive, has high technological requirements, and a prolonged gestation period. Adding to these, the aircraft manufacturers face systematic challenges in the supply chain. In this industry, where safety and performance are the overriding concerns and repairs are highly regulated, increasing environmental concerns, costs of raw materials, and stricter government regulations have resulted in companies striving to look for innovative models to stay ahead of the curve.

Saving time

The industry has come a long way trying to overcome the problems that it faced traditionally. Uncertainty in demand and lead-time is one of the major issues in any manufacturing supply chain. When a sensitivity analysis is performed to investigate the effect of various parameters, such as, capacity, inventory carrying cost, lead time, etc., it is found that the inventory carrying cost variations have a direct effect on the inventory turnover ratio. While the OEMs outsource this task in order to keep costs low, procuring components from suppliers in multiple locations becomes a primary concern. Cost reduction initiatives by aircraft OEMs have compelled Tier 1 manufacturers to seek low-cost solutions in geographic locations far from home. However, there is always a risk of delivery backlogs owing to long transit time.

It is highly challenging to do business internationally to get the components from across the globe on time and to provide service when there is an issue. Time has always been a major concern in aircraft manufacturing industry. To gain competitive advantages, manufacturing companies are constantly looking out for ways to cut down costs and save time. There is a need for a strategy to address the challenges of lead time pertaining to inventory along with ensuing risks faced in this business. This is where the role of ‘forward stocking’ model comes into the picture.

Forward stocking as a business strategy

Forward stocking is the method of having mini warehouses geographically close to the end-customers in more remote locations which help companies to meet their service level agreements. While forward stocking has been benefiting players across various industries, few bold suppliers who can expand their capacity in locations closer to customers are able to implement this model in the aerospace industry. Having inventory in locations that are close to the Tier 1 manufacturers will maximise productivity, despite the supplier’s manufacturing plant set up in a different location which usually happens to be a cost competitive location.

It helps businesses to reduce lead time and provide an on-demand service to customers in any part of the world irrespective of the possibility of having a physical manufacturing base in that location. The locations are based in a strategic manner. They store the end components in the warehouse locations which are close to the customers. This allows delivery of the components to the customers more quickly, compared to having them in a centralised plant. Also, delivery executives work in the same time zone as the customer which drastically cuts down on the response time and also makes troubleshooting less complicated. Having trained, knowledgeable staff, who can respond swiftly and professionally, helps maintain a successful partnership.

any part of the world, from order confirmation to delivery for fresh parts and 8-9 months for re-orders. Having ‘forward stocking’ as a strategy eliminates the lead time completely when parts are stocked near the OEM’s manufacturing locations. With this strategy, delivery takes place on the same day of order generation instead of weeks. It helps meet service level requirements and meeting increasingly tight delivery time windows. By shipping consignments in large volume to these “forward” locations from time to time, efficiencies are created and risks reduced while delivery times for customers in a specific geographic area are significantly improved. The model helps to leverage inventory holding costs and decentralise distribution, empowering aerospace manufacturers to expand into lucrative emerging markets. Having suppliers with capacity to deliver at customer location or third-party logistics firms that can provide offshore warehouse facility enhances the efficiency of manufacturers, without maintaining a staff of warehouse management experts. The manufacturers can devote more time and resources to core business objectives, especially R&D.

It is also important to consider the locations that are chosen and the quantities of parts at those locations, as it has a big impact on transportation costs. The supplier takes care of all these factors and keeps the operation seamless while the customer reaps benefit from quick, on-location delivery. With forward stocking, supply chain partners can boost repeat sales for aerospace companies by helping manufacturers maintain proper order fill rates, improve inventory accuracy and offer just-in-time supply.

A leading Indian supplier, with presence in Europe and North America in locations close to top aerospace manufacturers, has added value to the supply chain of its customers by adopting the forward stocking model. At the same time, decentralisation has reduced the gestation period of such components and parts at the supplier’s end, allowing faster returns on investment. This has helped reduce risks for both customer as well as the supplier, opening up paths for growth and sustainability.

Forward stocking not just solves the problems of aerospace manufacturers, it can also be adopted by manufacturers in other sectors that face similar challenges in their supply chain. Ultimately, when inventory procurement and warehouse management has such a deep impact on the manufacturing efficiency of the finished product, a model like this will always create a win-win situation for the manufacturer.

Courtesy:Aequs

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  • Rajeev Kaul

    MD – Aerospace & Group CFO

    Aequs

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