Trends and Challenges in Aerospace Offsets (1999) / Chapter Skim
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Dual-Use Supplier Management and Strategic International Sourcing in Aircraft Manufacturing
Dual-Use Supplier Management and Strategic International Sourcing in Aircraft Manufacturing
Pages 167-196
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From page 167... ...
aircraft manufacturers have evolved rapidly during the 1990s in an environment of reduced military procurement and a worldwide slump in commercial aircraft sales. The result has been an ongoing restructuring within the aircraft industry supplier base, with significant implications for customer-supplier relationships and, potentially, national security.
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From page 168... ...
For example, to name a few techniques GAMC has adopted, they have implemented an intensive statistical process control program throughout the firm; developed and begun using a supplier rating and certification system; restructured the entire company into integrated, multifunctional product-process development teams; participated in early supplier involvement programs of their primary customers; involved their suppliers in similar efforts; entered into teaming and long-term risk-revenue sharing partnerships with customers and suppliers. The aircraft industry differs substantially from the automobile industry.
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From page 169... ...
Until the 1980s, GAMC for many decades had been a prime contractor producing complete military aircraft as well as major structural assemblies for commercial aircraft. After the Vietnam War, however, defense prime contract work fell, and the company moved into integrating large structural assemblies for
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From page 170... ...
GAMC is also of interest for study as a first-tier supplier to the major aircraft final assemblers (the "air framers". GAMC's strategy has been to place itself immediately below the major airframers in the supply chain and to increase its own responsibility for integrating major structural aircraft assemblies and managing subcontractors for these top-tier firms.
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From page 171... ...
Like its customers, GAMC is delegating increased responsibilities to its own suppliers for design, quality control, risk sharing, and supplier management. This reflects an apparent trend in the aircraft industry more generally, following the lead of the Japanese automobile industry, toward turning historically loosely tiered and arms-length subcontracting relationships into more tightly tiered, more closely controlled structures.
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From page 172... ...
Nevertheless, GAMC does represent a reasonable microcosm of the aircraft industry as a whole. It therefore provides considerable insight into the implications of major differences with the automobile industry as well as into some of the major issues and tensions confronting supplier management in the U.S.
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From page 173... ...
They could be integrated with GAMC's design teams and share risks for major aircraft sections. When selecting subcontractors, GAMC managers used the SRS and SPIP for guidance, but also considered broader strategic partnering or marketing goals and the supplier's capability for greater responsibilities in design, risk sharing, and lower-tier supplier management.
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From page 174... ...
A small California supplier does heat treat processing in the same facility for GAMC' s military and commercial programs alike. Other single suppliers provide film adhesives, glass and other "pre-preg" fabrics, graphite composites, and primers for use on several different programs on both sides of the business.
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From page 176... ...
A second indication that an integrated, dual-use approach to supplier management is not unique to the IPPD philosophy is that GAMC also used the integrated approach previously under two otherwise very different organizational structures. First, during the peak of the defense build-up in the 1980s, GAMC had separate divisions for military aircraft, for commercial aircraft, and (much smaller)
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From page 177... ...
DUAL-USE SUPPLIER MANAGEME - AND INTERNATIONAL SOURCING 177 50% o ,~ 40% Ct i `. 30% / v I ' t \ oh to 20% Cat a' 10% 0% y\~\ \ A_ ~ / `- it_ _ v to cat to A O no of to to A Prime Contractors - in- ~ Only Subcontractors _ ~ no.
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From page 178... ...
This despite the rest of the organization going from substantially separate military and commercial operations to integrated, dual-use functional organizations. To the materiel people, the transition was transparent because they had already been operating a system common to both sides of the business.
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From page 179... ...
179 ~ Cal CO ~ U)
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From page 180... ...
By using a single set of suppliers for both military and commercial programs, learning and supplier development on one side of the business can more readily be applied to the other. For example, GAMC worked closely with the dual-use suppliers mentioned above, their aluminum supplier, and the small California-based heat treatment process supplier to reduce distortions in heat-treated aluminum parts.
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From page 181... ...
Structure and control imposed by MilQ-approved system: "good practice" for commercial programs, both in-house and externally financial information helpful in value engineering and target pricing movement in "cooperative supplier relations" to more information exchange PROS AND CONS OF INTEGRATED SUPPLIER MANAGEMENT Based on GAMC' s experience, then, there appear to be several advantages of dual-use integrated approach to supplier management, as summarized in Table 2. The first is flexibility with respect to organizational form.
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From page 182... ...
Unpublished data from the MIT Lean Aerospace Initiative Supplier Systems and Relationships Survey of nearly 80 business units from the U.S. aircraft industry's top manufacturers, for example, show that 53 percent of surveyed business units regularly receive proprietary financial information from their major suppliers.
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From page 183... ...
GAMC has also, in turn, a life-of-product revenue sharing agreement with one of its Japanese COM-Z strategic source subcontractors, discussed below. Such long-term contractual relations are increasingly common in the U.S., both within and outside the aircraft industry, and have been the norm in Japan for several decades (Helper, 1991; McMillian, 1990; Nishiguchi, 1994~.
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From page 184... ...
INTERNATIONAL STRATEGIC SOURCING A second area of tension between commercial and defense programs in GAMC's supplier management has to do with the globalization of aircraft markets and the aerospace industry supply base. Indeed, the single major difference between GAMC's supplier management approach on the two sides of the business is in what GAMC calls international "strategic sourcing," efforts to increase its use of foreign suppliers.
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From page 185... ...
The more they sell us, the more we sell them." Indeed, fully 25 percent of the value of Boeing's new 777 is from Pacific Rim sources, the highest fraction of AsiaPacific components of any previous widebody (International Herald Tribune, February 23, 1994~. Boeing's five major Japanese partners alone have a 20 percent risk sharing stake (Boeing Company, 1990~.
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From page 186... ...
EXAMPLE STRATEGIC SOURCES: PACIFIC RIM SUPPLIES Under pressure from its largest customer to expand its use of foreign suppliers, in 1986 GAMC contacted five leading Japanese aerospace groups, seeking bids for work on a structural subassembly GAMC had been doing in-house for its major commercial customer. These assemblies account for approximately 25 percent of the overall weight and 15-20 percent of the cost of GAMC's delivered structures.
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From page 187... ...
Leveraging GAMC's established relationship with this Japanese subcontractor was attractive to the second commercial customer because Japan was a potentially large market for the COM-Z, its new transpacific aircraft. Indeed, the international risk and revenue sharing team for the COM-Z includes suppliers throughout the United States, Europe, and several Pacific Rim countries.
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From page 188... ...
In short, considerable effort and cost goes into supplier development in support of GAMC's international strategic sourcing. All of this effort is geared toward commercial programs.
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From page 189... ...
But GAMC has no "political sourcing" supplier development program, and managers were, understandably, reluctant to discuss how important such issues are in supplier selection or any specific examples. NEW ROLES AND RESPONSIBILITIES IN SUPPLIER CHAIN MANAGEMENT The movement at GAMC toward strategic sourcing, and more generally toward the IPPD philosophy in working with suppliers, has changed the nature of supplier management and materiel and procurement operations at the company.
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From page 190... ...
aircraft industry will take many years, in light of the long product life cycles. For example, GAMC has been supplying structures on one program since the 1960s.
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From page 191... ...
GAMC materiel and supplier management personnel also oversaw and coordinated teaching, monitoring, and evaluating suppliers, and as the quote above suggests, even managed in-house morale and union tensions as the company moved to outsource internationally. These added responsibilities also require an expanded set of skills in the materiel functions.
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From page 192... ...
As a result, personnel engaged in materiel functions at GAMC as a fraction of overall employment increased between 1989 and 1995. As Figure 10 shows, although the approximately 400 people performing material functions at GAMC before consolidation with its new owners (including subcontract management, supplier development and technical support, inventory control, purchasing, administration, procurement quality, receiving, warehousing, shipping, and off-site personnel)
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From page 193... ...
subcontractors like GAMC, through their technology sharing and supplier development practices, helping to create their own overseas competitors? For example, one of GAMC's customer's newest commercial programs in cludes one of GAMC's original Pacific Rim strategic sources but not GAMC, despite the company' s long history with that customer.
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From page 194... ...
Nevertheless, with its emphasis on the whole lean paradigm, GAMC does provide the opportunity to begin to explore the hypothesis that the methods derived from studying the automobile industry will also pay off in the aircraft industry. Because the central focus of this case has been limited to supplier management and international sourcing, it has not explored the broader lean paradigm at GAMC.
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From page 195... ...
Yet even at the top tier there is risk together with the potential returns in combining foreign offsets with the strongly developmental practices suggested by lean mantras of collaborative supplier management. It is clear that with the experience gained from ever-increasing responsibility in the aircraft supply chain, Pacific Rim competition is on the horizon not only for GAMC-like first supplier tier assembly work, but also for entire 100-seat transport aircraft.
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From page 196... ...
1990. Mixed motive marriages: what's next for buyer-supplier relations?
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