Crystal Ball Manufacturing MAMA’s Brown: Aerospace opportunities fly high
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By Gavin Brown
President
Michigan Aerospace Manufacturers Association
2011 will be a year of expediential growth or decline for aerospace and defense manufacturers, depending upon their strategic relationship being recognized with existing customers and reducing costs. If successful, these highly strategic aerospace manufacturers will have the option to do more with existing customers and can grow a new customer base by being the integrated supply chain champion who delivers on a variety of business metrics.
The current incumbent “bid and supply” manufactured components environment that has dominated aerospace is due largely to the fact that aerospace is an industry that is risk-resistant and new unproven vendors, even if less costly, introduce unknown risk. Cost was secondary to getting components from reliable sources. In 2011, aerospace primes, OEMs and Tier 1 & 2 companies have to expect more from their vendors to survive, grow and prosper. The manufacturers who can align themselves with these strategic supply chain dynamics will also grow and prosper.
Aerospace manufacturing companies supplying components and assemblies to both the commercial market and government will have to offer strategic value as partners who have to deliver reduced costs. The way that this will be measured is not only by the standards of cost, on time delivery and zero PPM, but the demonstrated ability to drive lean manufacturing efficiencies forward with results, vertical integration with current suppliers that provide a distinct advantage and a financial relationship that ensures long term commitments.
2011 will be a defining and challenging time to achieve cost reductions because in the past, the primes, OEMs and Tier 1 & 2 companies mainly communicated with their supply chain partners on problem issues at hand, rather than as a strategic partner. The change comes in the primes and OEMs working with the Tier 1 & 2s more closely, as strategic partners, on issues of technology sharing, visibility of the Tier 3 & 4 supply chain partners and financials.
Aerospace companies who understand that their business viability is in jeopardy unless they achieve strategic relationships from their supply chain will forge forward in 2011. This will also transition down to the Tier 3 & 4 companies, which were largely left out of the strategic partnership.
The financial aspect of commercial aerospace procurement of components and assemblies will also force changes with vendors. Payables on the commercial sector can be 45-90 days or more, consignment programs, and pay when the plane is delivered are all options that are forcing strategic alignments with vendors in 2011. These financial changes will make the supply chain partners a strategic alliance in order to deliver components and keep companies from running into financial hardships.
OEMs and primes are reexamining current incumbent suppliers for their ability to deliver on strategic goals and placing more emphasis on doing more with those they rate as partners they can move forward with and to delete those who fail. This is where there is opportunity to grow with a current customer or to aggressively go after new customers by demonstrating how your company can be the strategic partner they are looking for. In 2011, new vendors displacing incumbent sources can be as high as 20-30 percent of the current spend for outsourced components or assemblies.
Look for 6--11 percent growth in commercial aerospace in 2011. It will be program specific to planes that are going online for full production. The U.S. market will be led by Boeing, but others like Gulfstream will also do well. Worldwide, Airbus will continue to deliver more planes, China will continue to grow its commercial development, but will look for initial help from existing suppliers from the U.S. and other parts of the world. Brazil will continue to grow its growing aerospace output, and India is getting to become a major source of manufactured components. The global market is looking for U.S. manufacturing capabilities to sublimate their growth demands.
On the government side, if your company is delivering aerospace and defense components directly to the U.S. governmental agencies, you will incur new cost reduction requests of 10 percent in 2011. This will also be for new, sustainment and repair components. The demand for government aerospace will grow for sustainment programs and will be more program-specific for new planes, UAVs and helicopters. There is an advantage to being a supplier to the U.S. government in that you get paid 30 days from delivery.
One aspect of supplying to the U.S. government is to make sure you are ORCA listed and are CCR and JCP registered. This allows government buyers to look at your past performance, and it will allow you to compete on certain programs where they need history. Not being listed or registered can often be an impediment to even being considered for a contract.
It is important to be able to visit government facilities onsite to be able to understand what is being demanded. On the supplement or repair side, having the ability to look at a part that may have either an old print or no print and to be able to reproduce drawings from scratch is not uncommon.
For aerospace manufacturers in 2011, it is a time of evolution from the old supply chain of being a supplier of components who wins individual bids, to being a highly dynamic and strategic partner who understands their role in the supply chain and how they can deliver value. It is a time of opportunity for dramatic growth.