When meeting procurement leaders from Airbus, Boeing and Collins during the Paris Air Show last week, their priorities for the future were clear: Larger prime and tier 1 OEMS are looking to consolidate their suppliers. They will move towards a smaller number of large champion suppliers who are global in their reach and deliver 100% on time – especially important for contract manufacturers relying on manufacturing know-how rather than design IP.
UK SMEs will have to work hard to improve competitiveness and innovation if they are to grow in scale as OEMs continue to consolidate. In this blog, we consider the three key challenges SMEs will face and how they can secure their future by growth.
Evolving Procurement Strategy
The scene was set by VP Airbus Procurement Rafael Duflos when he spoke about Airbus’ detail metallic part procurement strategy. Airbus buy 80% of the value of their sales from the supply chain, including £2Bn on detailed metallic parts annually. Incredibly this includes 400,000 unique components.
It’s not surprising then that Airbus’ 5-year plan is to consolidate components across aerospace, space and defence into bundles, for launch procurement “waves” of no less than $30m dollars each. Airbus are looking to move from 100s of suppliers to a handful of “champions” who can supply at scale with 100% on time performance.
Faced with this reality, what support is available to the supply chain?
1. The Growth Challenge
From walking around the Paris Air Show many of the ADS team got the impression that the nations with similar market share to the UK – France, Germany and Japan, had a larger number of mid-sized and mid-cap organisations across both OEM and contract, particularly when compared with 20 years ago, suggesting growth.
Other nations where consolidation and growth hasn’t occurred at a company level are pitching their Supply Chain to the global market as aligned clusters; the Italian Piemonte Cluster combines 280 SMEs, 14,800 employees and a total turnover of EUR3.9Bn. The cluster promotes itself as a “complete, organized supply chain cluster with exceptional aggregation capacity”
Improving the productivity and global competitiveness of the UK supply chain is a core aim for the Sharing in Growth programme. Funded by industry and the Regional Growth Fund and backed by leading aerospace primes through the Aerospace Growth Partnership’s Supply Chain Competitiveness Charter, Sharing in Growth UK was set up to support business transformation to improve competitive performance. Today it delivers a £250M programme of intensive four year business transformation to around 60 UK suppliers.
2. On Time Delivery Challenge
SMEs and competitiveness programmes in the UK celebrate 95, 99% on-time delivery statistics but the reality is that prime companies expect 100% before even considering a new supplier, because that is the expectation from them on final assembly lines and airline customers.
One major prime OEM shared that they maintain a stock of 30-days of completed products to ensure that production or logistics delays can be absorbed and not compromise 100% delivery.
We noted that many SMEs have been asked to do the same to prepare for Brexit, but often can’t afford this due to the lean nature of operation needed to maintain healthy cash flow and competitiveness. However, one multinational organisation we spoke to suggests their cost of capital for buffer stock is comparable to employing a few executives to manage late delivery enquiries and implement get-well plans.
Managed by ADS, Supply Chains for the 21st Century (SC21) improvement programme sets out a continuous improvement pathway, working with businesses to improve quality and delivery excellence as part of a journey of raising performance.
3. The Innovation Challenge
New aircraft programmes present major opportunities to increase UK content providing we have a competitive UK supply chain aligned to prime needs. As the market shifts to new architectures, materials, and more electric architectures and electric propulsion, growth in the supply chain is reliant on companies innovating to cater to shifting prime ambitions and investments.
The development of Intellectual Property – tied to either product or manufacturing know-how – is a crucial supplement to running a competitiveness business, balancing long term resilience with short term performance.
The Aerospace Growth Partnership contains many vehicles that support UK companies of all sizes with R&D projects aligned the UK’s strengths and global themes. The National Aerospace Technology Exploitation Programme (NATEP) is managed by ADS and provides grants worth up to $250k for promising applications, plus support and mentoring through the process of writing R&D proposals. The Aerospace Technology Institute (ATI) also provides match funding for collaborative R&D proposals as well as larger stand-alone R&D projects.
Are you ready to future proof your business?
The key message coming out of the Paris Air Show is for UK supply chain companies to address challenges to scale as airframers and primes move towards higher rate production. Plan for change now to take advantage of the opportunities it generates.
To discuss the takeaways and to find out more about the support programmes mentioned, please contact Omar Kadhim, ADS Head of Aerospace Business Development.