Leeham News and Analysis
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Leeham News and Analysis
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Collaboration is key with supply chain, says Airbus
By Scott Hamilton
Dec. 12, 2023, © Leeham News: The aerospace supply chain still hasn’t fully recovered the COVID-19 pandemic. All aerospace manufacturers are affected, as are the supplier to the suppliers.
At the annual Aviation Forum last week in Hamburg, Germany, Airbus said collaboration is one of the keys to recovery.
Jurgen Westermeier. Credit: Airbus.
Jürgen Westermeier, the chief procurement officer (CPO) at Airbus, said “unlocking the power of collaboration” means “great things happen when we work together.
“This has been illustrated in the past, when we had to face a situation of crisis together. In the past, in the face of a crisis, collaboration has been key,” Westermeier said.
There have been first-hand a series of successive crises which radically reshaped the aerospace sector. “Be it in an unprecedented global pandemic, geopolitical events, the likes the world hasn’t seen in a long time, and a climate emergency that no one can ignore anymore. Several suppliers entered the COVID period with weak financials.”
In addition, the CPO said, there has been high inflation, increasing energy prices, rising labor costs, and bank interests that are putting the ability of certain categories of suppliers at risk. “Airbus developed over the years several collaborative tools designed to better manage the crisis together. First, the Supplier Financial Watchtower,” Westermeier said. “This allows Airbus to monitor the financial health of its supply chain and identify potential issues. We are then able to deep dive into specific situations to understand the risk at stake, and if necessary, co-develop a mitigation plan with the supplier concerned. Not only does this approach ensure we can support our supplier in securing a planned ramp-up, but it also allows us to develop a sense of community.”
All in this together
“We are all on the same team,” Westermeier said. Airbus can also call upon another tool called the Joint Improvement Plan. This is a governance framework designed to mitigate the crisis and, in parallel, transform the ways of working together collaboratively with the supplier to avoid new crises arising in the future.
The CPO said that this methodology is key to building strong relationships with the suppliers and improve mutual trust for future collaboration. Another tool called CONBID enables Airbus to identify the needs of its supply chain for a specific material. “It is key to ensuring we can actively arbitrate the demand within our supply chain and redistribute when required.
“This is something we specially started last year when we realized there would be an issue with the availability of aerospace steel. So, in the present, as we adapt and above all prepare for the future together, collaboration is key. Collaboration is a key lever for increased productivity and enhanced efficiency.”
Boosting resilience
Westermeier said that as Airbus continues to face challenges, it is really critical that the OEM and supplier boost resilience together across the entire aerospace sector. “We have launched a number of collaborative initiatives really designed to increase the effectiveness through standardized approaches such as, and let me start with our initiative, ZERO-M (Zero Missing Parts). Traveled work from the production line to the ramp is the bane of any OEM’s existence. ZERO-M aims to reduce the impact of supply chain disruptions across all operational flows and with the final vision of reaching zero missing parts in the long run.
ZERO-M Together is designed to strengthen Airbus’ prevention system, reach higher levels of anticipation and standardize good practices across the industry, such as buffer management.
Another one, called AXcess, addresses how efficiency translates into competitiveness.
Reducing costs
Westermeier said that Airbus developed, tested and standardized a set of proven methodologies that aim at collaboratively taking costs out of the system.
“In light of the difficult economy context, it is quite clear that we all must presume every opportunity to reduce costs whilst ensuring the financial stability of our suppliers, our partners is maintained.
Boeing long ago implemented a supplier cost-cutting program called Partnering for Success. After seeing too many suppliers reporting profit margins larger than Boeing did, the company largely forced its suppliers to cut costs or they’d risk being dropped as a Boeing supplier. The program drew widespread angst, with some renaming the effort Partnering for Poverty or Preparing for Sacrifice.
In Boeing’s backyard in the greater Seattle area, some suppliers groused that they preferred working with Airbus. While Airbus also sought to cut costs, they said, at least the method wasn’t as adversarial.
Interestingly, on the sidelines of the Hamburg Aviation Forum, LNA heard similar complaints about Airbus being heavy handed and some preferred working with Boeing.
Airbus has other programs intended to boost collaboration.
For years, OEMs relied on just-in-time delivery of parts and components. With the supply chain still operating below peak efficiency, Airbus—and others—have added buffers to inventory. At Airbus, this buffer is about a four-month supply of parts.
Eco-Aviation
With a shift in emphasis toward eco-aviation, Airbus likewise is working with suppliers—collaborating, to use the buzz word—to make Airbus “greener.”
“We collaborate with our innovation ecosystem to imagine future concepts that will bring this vision to reality,” Westermeier said. For Airbus’ sustainability and innovation roadmaps, “perhaps our biggest challenge in preparing the future is the journey to become more sustainable.
“Sustainability is an industry-wide challenge, and we will only succeed through collaborative and aligned initiatives. It is a special time for the aviation industry, where we connect today and tomorrow. Today, we are part of creating an ecosystem for SAF, Sustainable Aviation Fuel, to decarbonize the current and the future fleet,” the CPO said.
SAF also addresses the current fleet. Airbus is also working on several research and technology projects that are aimed at making its aircraft more efficient and already preparing for the next generation of conventional aircraft he said.
Airbus Initiatives
“Airbus launched a number of collaborative initiatives, focusing in particular on data transparency and decarbonization. The Airbus Supplier Sustainability Council set up back in 2022, establishes a framework to collaboratively accelerate sustainability initiatives with the supply chain and fostering a new model of engagement with suppliers. These ambitious sustainability targets cannot be reached without a clear innovation roadmap.”
Reading the PR from Airbus, you get the impression that they really partner with their supplier and try to work hand in hand. And then you read the comments from the suppliers and realize, it’s all the same. The big squeeze the small wherever and whenever they can.
Airbus biggest supplier is ….Airbus itself via its substantial subsidiaries such as Stelia, Aerotec , Airbus UK etc
There’s been a very, very noticeable sudden (and unfair) squeeze on engineering suppliers this year… This all rings a bit hollow for me.
It is all about the margins.
Scott said it. When things are going fine, OEMs can’t stand it when suppliers’ margins are better than the OEM’s margin. “Supply chain management” really means “extract gains from suppliers.”
Then, when supply disruptions occur, suddenly the OEMs need the parts, and they let their foot off the suppliers’ necks.
I’ve been at conferences where OEM’s suggest that “coordination” with suppliers is a principle. I agree with SomeoneInToulouse. It’s not.
I was impressed by how many times the word “collaborative”
was used in the article.
Subtier suppliers in Aerospace are between a rock and a hard place. The work is specialized enough that 5 axis machines and automated sheet metal equipment gets dedicated to part family’s and is not easily shifted to generic machine shop output. In essence, the primes have shed brick and mortar facilitys off of their balance sheets onto 3rd party investors. They own them without the expense of owning them. The primes squeeze margins back to themselves through programs such as Boeings Partnering through Poverty and ruthlessly reduce gross revenues to the point where the business becomes unsustainable. The primes have a great deal having large subtier providers. They have shed facilities, employees, retirement funding, taxes, health care and all the other embedded costs off their books and only pay for parts in a variable cost fashion.
You may call it collaboration, and it might be, if your view of collaboration looks like a sharp blade against your throat……..
well said.
They can start by paying their suppliers on time.
Should in the contract, its not?
What do you do when your main customer doesn’t pay you on time?
Boeing is suing a sole source supplier who makes parts for fighter jets because the supplier is closing at the end of the year.
https://twitter.com/patbahn/status/1655795959681482755
On a longer range view, I think we are seeing a combination of factors changing and its going to be very erratic to stabilize , if it ever dos stabilize.
The parts requirements have gotten so extreme that you no longer have all sorts of players. Some have been bought out and consolidated (fasteners is one I seem to remember from the 787 debacle)
It takes high skill engineering (getting any) and equipment wise to produce parts.
In the meantime we are in a drop in engineering talent and getting the investment to expand (or start up ) is hard and costly to come by.
Hammering your suppliers was always stupid but you could get away with it if there were other suppliers. Now?
The reality is that suppliers may not have the upper hand, but miss one part and your airplane does not get built (better way to put it at best its travel work and at worst it can be a hold up)
It may be that suppliers more remote are sought out and treated better and taken more for granted or abused in your region.
To avoid any non aircraft discussion I won’t say what area I watch carefully, but there is a sector that is doing extremely well. If I was an engineer I would go with that good paying sector that is not beat down.
Like Pilots and Airlines, the big guys are going to have to start paying engineers to go to school and offer them a career path.
But those realizations are slow and painful coming for the companies and people that are in the vice and getting squeezed.
For years, Airbus has imposed price cuts on its suppliers as part of production rate increases, weakening them. When a crisis hits, they lay off to survive, and now Airbus is going to reproduce the same scenario, favoring new low-cost sources in countries that want to develop their aeronautics business at the cost of public subsidies. Same for Boeing?
so what is Airbus’s catch phrase equivalent to Boeing’s Partnering for Bankruptcy?
because that is what this is. screw the supplier so you can do more stock buybacks and pad your C-Suite compensation.
Successful companies like Mercedes understands that customers, suppliers, employees and owners must stay happy. Often price reductions are coupled with volume increases and technical support to help suppliers automate more lovering cost/unit but still make more money.
You’re not wrong, but there are some significant differences between the auto and commercial aircraft industries.
Principle among those is regulation. Could you imagine if every auto part had to go through the documentary, testing and maintenance hoops that aircraft do? Then it seems like almost every day, an AD comes out with changes.
It’s akin to every aircraft being built is an F1 car, with the whole thing being torn apart and scrutinized every so often and the machine itself has been created to the edge of what is possible in engineering terms, to wring out every little bit of performance.
Adrian Newey is trying to trim off thousands of a second…
Aircraft OEM’s are trying to trim off pounds from a 50t behemoth…
I know the truck maker Scania with much lover volumes act the same way working closely with suppliers to increase volumes and reduce prices. Actually some car electronics are designed/tested to higher standards than aircraft electronics. It used to be that 1hr flying ment 1hr mechanics work, so the maintenance/check intensity of aircrafts is of another world. The reliability compared to a well made truck is not that great, the MD80/90 could hardly do more than 5 cycles a day before something broke and required maintenance.
Avolon agrees $18 billion deal for 140 Airbus, Boeing jets
https://ca.sports.yahoo.com/news/avolon-agrees-18-billion-deal-135327403.html
‘DUBLIN (Reuters) -Global leasing giant Avolon said on Tuesday it had agreed to order 100 A321neo aircraft from Airbus and 40 737 MAX aircraft from Boeing in a deal its owner said was worth a combined $18 billion at list prices.
Avolon also purchased 20 Airbus A330neos planes in September and 40 737 MAXs from Boeing in June. Leasing companies control more than half the world’s fleet of aircraft.’
“Interestingly, on the sidelines of the Hamburg Aviation Forum, LNA heard similar complaints about Airbus being heavy handed and some preferred working with Boeing.”
Old news, been like this for a couple of years. Both OEMS. If you are not a blue chipper airline one is in worse shape. Better to call your local leasing company.
FG: Lockheed Martin sues F-35 supplier
The [supplier] argues that Russia’s 2022 invasion of Ukraine, and subsequent economic sanctions against the major supplier of raw titanium, drove the price of titanium sponge – a processed form of titanium ore – to levels that were untenable under the terms of the 2018 contract. […]
Additionally, Howmet claims Lockheed and its other F-35 suppliers sold their scrap titanium on the open market, rather than provide the recyclable material to Howmet, as the company claims was contractually required. […]
Lockheed expects to deliver fewer than 100 of the fifth-generation fighters in in 2023, well below annual production capacity. The Pentagon and some overseas allies have stopped accepting new jets until Lockheed completes flight certification of the Technical Refresh-3 upgrade package. While Lockheed continues to produce TR-3-configured F-35s at the normal rate, and expects to deliver those aircraft sometime in 2024, the company will not receive payment until acceptance by the Pentagon resumes.
Back to the topic of the story……….Airbus. Turkish order firmed up
Turkish Airlines orders 200 Airbus aircraft worth tens of billions of dollars
https://www.ft.com/content/817e888a-3fec-43d5-8f3e-cbdfb6288e39
250 A321neo
75 A350-900
15 A350-1000
5 A350F
Airbus sales teams will have some nice Christmas bonuses.
williams
Or not (grin) with those kinds of discounts Turkish got………………
Give us what we want or no sales.
Why don’t you tell us a story about how you worked for some company that made a fortune selling products at a loss. It might make the dark days go a little quicker, where you are…
Doesn’t have to be a loss, could be break even and make money on the back end.
Anyone who has done business with the middle east businesses know they go into negotiations with the idea you are screwing them, and they want to screw you first. Personally seen many long negotiations that make you beat your head against the wall. But eventually a deal is done. There is a reason this deal with the two OEMs takes or took a long time.
TWA, you are right, but Airbus will take the volume and 20 years of over priced parts sales.
Sure – could be anything you and TW say it is. If only there was a place we could look at documents which detailed the financial gains or losses of AB & BA, right? (if of course, one was able to comprehend what was in those documents)
But what I really come here for is to listen to TW go on about his exciting times flying a Cessna 150/152. He must be, like – the only guy ever…to do that.
For BA, BGS has been the only division that’s profitable for awhile.
Frank P:
Trust me Spinning a C-150 was not in the curriculum and I did it alone. I believe two factors in play. I was not coordinated into a stall (training). I think the plane was mis-rigged a bit.
Bless Cessna, it came out of it with the right correction (well not exactly right, but close enough).
I believe they had an Airbatic model but the run of the mill ones were not supposed to be spun. Sure taught me to be tight on the T&B during stalls (well that an any other time)
Or landing on a field that we were told not to, buzzed it, looked ok, landed, mud everywhere. Cleaned it off as best I could, make sure not on the wings and took off in the grass alongside.
Flew to a close by airport that had a Fixed Base operation and asked to borrow their hose.
Guy is cracking up, what did you do ? Well something stupid obviously but it seemed ok at the time.
Now don’t get me wrong, everyone should be able to comment on aviation matters.
You do need to be a pilot to really understand that aspect of aviation. Others bring different perspective to this, it takes a system for it to work.
Between the two orders, Turkish and Avalon, that’s 250 firm A321Neo’s added to the backlog. A company could make a living off of producing just that one aircraft…
Not bad.. then the 321XLR’s EIS coming up soon. nice- or lucky, or something. 😉
yeah: great, cutting-edge stories about those wild n’ wacky 150s..
That’s quite a lot of aircraft!
Comments on what the arrival of nearly 100 A350s into the Middle East hub market is going to do to Emirates?
It’s interesting to see that Turkish could be offering a decent selection of all-A350 routes, whereas Emirates would be offering quite a lot of routes with 777er or -9 as one of the legs. I know which I’d prefer, as a ticket buying customer…
The number of orders placed in the past eighteen months or so seem to come from absolute Fantasyland to me, but maybe they’ll pan out. For now, I remain skeptical. Weren’t we just said to be in a world-threatening pandemic? And, where is all the money coming from, setting aside the expenditures for a couple of ongoing major (it is said) wars?
‘And, where is all the money coming from’
If things continue as they have – historically, half of the aircraft ordered will be owned by lessors.
Turkey benefits from it’s geographic location, as do the ME3, being in between Western Europe and China/Oceania.
Those lessors do have the expectation of being paid by
parties downstream, though, no? They’re providing a service and some flexibility, certainly, but I’m still unsure how it all pencils out- and why. Geopolitics could figure in, and not just via “war”.
@Vincent
Lessors own the asset and if airlines fail to pay the agreed upon rate, the aircraft will be repossessed (Russia notwithstanding) , in which case insurers look to be on the hook. You would expect that one day, if things normalize there, airlines will have to make good on their obligations to them.
If you look at recent history, events will happen, followed by a recovery; 9/11, 2008 ARM crisis, pandemic…this too shall pass.
Rule #1 of a successful enterprise: do not beggar one’s suppliers. If you do, one day they won’t be one’s suppliers at all…