Key suppliers to aerospace giant Boeing are struggling with the fallout from the grounding of the 737 Max aircraft. More than 600 suppliers, along with countless interconnected companies across the ecosystem involved in the aircraft’s production and return to service, are re-evaluating their financial goals, revisiting their supply-chain performance, and developing broader strategies to weather the storm.
Boeing’s recent crisis represents but one of the many complex global risk factors impacting aviation, aerospace and defense (AA&D) supply chains. Risks driven by trade wars, the coronavirus outbreak, and inadequate mitigation strategies are causing serious shortages and delays from Chinese suppliers. And it’s not just happening in the AA&D sector —the automotive and pharmaceutical industries, among others, have also been impacted.
The combined effects of these disruptions have made it even more evident that supply chains, no matter how mature, are far more inelastic than we believed. Operational strategies currently focused on “digital” transformation should also include a strong risk-preparedness component, stressing greater transparency and sustainability.
This isn’t the first time, nor will it be the last, that a major disruption in AA&D has presented itself. The key question is how ecosystem partners can respond, now and in the future. Maintaining profitability and a healthy balance sheet in the face of such an event is certainly achievable.
A concentrated, data-driven SIOP (sales, inventory and operations planning) optimization approach, combined with a comprehensive review of product mix, demand signals and supply constraints, is the first step toward mobilizing corrective action. SIOP optimization is a key enabler of survival and success during a disruption.
Despite the enormous impact and scope of current issues, these are not intractable problems. Solutions begin to emerge with a fresh look at the supply chain for opportunities to:
SIOP initiatives hold great potential to realize value through deeper collaboration in the supply chain. Moreover, leveraging the supply chain as a competitive weapon and shield against the effects of disruptive events can help to ensure that business partners endure. The coronavirus exposes in the cruelest way weaknesses in the hyper-connective nature of global supply chains, and the urgent need for contingency planning and risk preparedness.
Multiple potential points of failure are preventing necessary changes from being widely adopted and institutionalized. Chief among these are cultural concerns, an insufficient focus on strategic planning, and failure to mobilize tactical enablers.
The most successful companies capitalize on the adversity that disruptions foment. Those experiencing a slowdown would do well to use the time to re-evaluate and prepare themselves proactively by working to become more effective organizations. An SIOP optimization diagnostic can arm an enterprise with the insights and corrective actions to address cultural, strategic and tactical concerns for multiple scenarios, so that organizations are prepared for any eventuality.
By combining a focus on SIOP with total value optimization (TVO) methodology, AA&D companies can free up cash, reduce or redeploy production capacity and inventories, and identify alternative sources of demand — while remaining ready to reengage when a disruptive event concludes.
Given our inability to divine the future, underestimating the next set of global disruptions is perhaps inevitable. However, companies that take proactive, balanced steps to mitigate supply-chain risks, and increase visibility and durability, are more likely to enjoy continued success and profitability.
David Grasso is executive vice president of aviation, aerospace and defense at Maine Pointe.
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