Consider the growing complexity of manufactured products, soaring costs related to global sourcing and demand uncertainty, and the critical nature of so many parts today. It all adds up to a hugely complex supply-chain challenge.

Exhibit Number 1: the automotive sector. For evidence of the importance of good parts management, look no further than the 9 million vehicles that have been recalled so far this year in the U.S. For General Motors, it was faulty ignition switches. For Toyota, allegedly defective gas pedals. Other automakers with large recall programs this year include Nissan, Honda and Ford Motor Co. As of this moment, the industry is on track to break its record of 30.8 million vehicles recalled in 2004.

Why is it so difficult to get a handle on the automotive parts supply chain? Partly it’s due to the complexity of a typical vehicle today. “Versus 20 or 30 years ago, it’s an apples-and-oranges comparison,” says Fred Thomas, industry director with Dassault Systèmes. The modern automobile is essentially “a rolling electronic device,” with some 50 separate control units. As these systems “talk” with one another, the possibility of error grows exponentially.

A good part of the solution rests with the supplier industry. Decades ago, U.S. automakers were much more vertically integrated, producing major components in addition to assembling vehicles. Then, in 1999, GM spun off its Delphi Automotive Systems subsidiary, and a year later, Ford cut loose Visteon. Other rivals followed suit.

Along with the separations came the challenge of forging tightly managed supply chains involving multiple independent partners. But with the industry focused so heavily on cost, quality sometimes fell between the cracks.

Suppliers today face the task of upgrading information-technology systems, especially as they relate to traceability and defect containment. Having caught the cost-control bug from downstream customers, “many elected not to invest in internal manufacturing systems, to the degree their OEM [original equipment manufacturers] might have wanted them to,” says Thomas. Now they’re being called on to manage a parts universe of unprecedented scale and complexity.

“A lot of people would say the pendulum swung too far,” Thomas says. “Today we are swinging back, to saying that the lowest cost isn’t the only component that has to be considered.”

Pendulum or not, we’re far from returning to the age of vertically integrated producers. In its place are software tools that can enable collaboration within each link of the chain. Suppliers and OEMs are working more closely together than ever before in areas such as product design and lifecycle management. In theory, at least, an automaker can see in advance what a supplier is building, match that to the specs of the vehicle’s original design, and determine whether the parts meet quality requirements before they’re even shipped.

In theory. For the most part, Thomas acknowledges, the auto industry is far from achieving that level of collaboration. “I would give it a B-minus or C-plus,” he says. “There’s a lot more to be done in this area.” The two sides need to synchronize their manufacturing efforts, to plug the holes where defective parts can slip through.

Automakers, meanwhile, are addressing the complexity issue by reducing the number of platforms on which they build their models. With fewer configurations to service, suppliers should have an easier time tracking and managing critical parts.

Exhibit Number Two: aerospace and defense. Here, the big challenge lies in staying profitable and efficient at a time of deep federal budget cuts. Meanwhile, the demand for quality parts is more intense than over, as airlines replace older planes with more fuel-efficient models.

The high number of retirements on major routes is creating a fresh opportunity for aftermarket parts, to support the continued operation of older aircraft, says Thierry Tosi, vice president and general manager of service solutions with Rockwell Collins, Inc. And not just in developing markets, he says: many of the older planes being grounded aren’t that old. A retired Boeing 737-500 could be as young as 10 years.

Buyers are cutting aftermarket parts and aircraft no slack. The same quality standards apply. “'Used' means an aircraft has been flying but is in good shape, recertified to fly and tested by a qualified service center,” says Tosi. The rules are no less stringent for the parts that go into those planes.

In addition, aftermarket parts suppliers must also adjust to a change in the nature of repair operations. Traditionally, says Tosi, customers preferred to deal with service centers that were geographically close. They bought their own spares and maintained direct relations with the retail center.

Today, about 40 percent of the market consists of “one-stop” integrated services. Buyers “don’t care where the repair is done in the network, as long as [the provider] manages logistics and spares,” says Tosi. “Each time a unit fails, they’re guaranteed to get another.” That service model is becoming increasingly popular, he says, noting that budget-conscious customers no longer want to own or buy their own spares.

Tosi says customers are increasingly drawn to platforms for the sale, exchange or lease of used parts, such as Rockwell Collins’ own Intertrade offering. It buys, recertifies and resells parts, the great majority of which originate from outside Rockwell.

A finished product is only as good as the parts that make it up. The same goes for the supply chain that supports it.

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