Sales and Operations Planning to industrialize the Aerospace Supply Chain

Erschienen im Journal „Supply Chain Management“ III/2019 (November 2019)

Summary

There are plenty of theoretical foundations, methods and tools for effective and efficient supply chain management in the aerospace industry – yet the gap between the theory and the practical application is immense.

To achieve sustainable corporate success, the increasingly interdependent, agile and international civil and military aerospace supply chain, with its complex services and products, needs theoretical knowledge and practical skills: starting at the top.

And there’s another vital component in the mix: the desire to achieve integrated, cross-functional planning and control within one’s own company, and for open cooperation in the supply chain throughout the product life cycle – all with the belief and conviction that win–wins are possible.

Balancing market requirements with delivery capabilities, the sales and operations planning (S&OP) is an essential process in every company and throughout the entire supply chain. Its implementation enables optimised business planning across and within all companies.  

The S&OP process challenges all stakeholders: SMEs are challenged by the need for transparent, process-oriented and tool-based procedures, while OEMs and Tier 1 suppliers are challenged with personal commitment and enhanced responsibility.

In the pages that follow, we call for improved industrialisation of the aerospace supply chain, based on our own operational and consulting experience in low volume/high complexity industries.

Using S&OP to secure and optimise the business plan

Sales and operations planning – S&OP for short – is one of six working areas of the German Aerospace Association’s Supply Chain Excellence (SCE) Initiative. It exists to help the industry build supply chain management capabilities and harmonise the planning and order processing.

Sustainable customer satisfaction and competitive operational performance depend on a close connection between market requirements and the corresponding performance of companies’ capabilities and their supply chains – making S&OP vital.

It connects business planning, delivery planning and downstream functional planning with primary demand management and operational execution. It enables effective external communication with customers, suppliers and investors throughout the entire product lifecycle.

S&OP is vital when it comes to creating, implementing and managing an effective business plan – all of which is an important leadership task.

The ability to implement S&OP requires stringent processes, sufficient data quality in powerful IT applications, and a suitably skilled workforce.

The importance of working across interfaces

Ultimately, the internal interface management (cross-functional in common cash register) and cross-company interface management (cross-company in separate cash registers) need to be addressed.

The following situations and attitudes can often be observed:

On the one hand, colleagues working in sales insist on the non-plannability of incoming orders. There are short-term and sometimes large deviations in the scope and timing of incoming orders compared to planning. Yet it goes without saying that customer desires must be satisfied – even far below initially planned lead times.

On the other hand, those responsible for operations keep quiet about what is actually possible – existing buffers and flexibility aren’t transparent, and certainly aren’t offered proactively.

Through numerous meetings, emails, phone calls and rumours, a one-time compromise is usually achieved… and, soon after, the process starts over. Over and over, resources are wasted, budgets are busted, customers are frustrated – requiring ‘heroic working in firefighting mode’ time and again.

This behaviour is often reflected through the external supply chain, where the purchasing department deals with its suppliers in the same way. This commonly leads to notified orders being upgraded to rush orders, and often a general feeling of non-compliant contracts becoming escalated to severe contract disputes.

Weaknesses and inaccuracy in the customer order are not pointed out and are instead used by suppliers for their own short-term advantage. But a highly interdependent supply chain is only conditionally suitable for delimitation and power games – which ultimately lead to a waste of valuable resources and a reduction in the competitiveness of all parties involved!

Two perspectives illuminate the current situation:  

The technical/deterministic/processual aspect

Although sufficiently theoretically explained, off the shelf availability of effective methods & tools, considerable weaknesses are still observed in execution:

• discipline is required in the management of master data – a task that often isn’t considered important enough
• stringent processing of technical changes in design and construction documents and prompt maintenance of work schedules are rarely praised
• coordinating delivery times both internally and externally is exhausting
• when it comes to on-time customisation respecting design freeze dates, recovery is considered a strength
• voluntary and induced* micro-management usually takes the place of effective escalation management and local empowerment
• KPIs measuring delivery and operational performance are often used only for accusation or justification, not for sustainable improvement

*seducing the manager by confirming his authority as ‘highly important’ enables the issue in hand to be skirted.

The human/social/organisational aspect

This approach has much to do with the different cultures and the existing relationships between the parties involved. Mutual, performance-oriented appreciation throughout the value chain is a basic principle for valuable cross-functional, cross-company partnership.

Lip service is often paid to the importance of partnership with suppliers and the need for transparency, teamwork and a deep customer orientation. To be a risk share partner means to share both risks and opportunities – not, as is too often the case, to share only the risks and forget about the opportunities. This is not the way to an efficient supply chain. Instead an ‘extended enterprise’ perspective has proven to be the right approach. In highly industrialised industries, purchasing departments see their suppliers as internal supply plants and, as far as possible, treat them accordingly. A stringent performance-oriented make or buy management can be based on this, enabling optimal use of resources and the sustainable development of core capabilities.

Reciprocal perceptions must be examined and considered in order to enable effective cross-company work between SMEs and large corporations with their diverse corporate cultures.

Based on existing stereotypes, what do we think of one another?

What might the structured, clever corporate manager think about the greedy, unprofessional small/medium-sized business manager?

• “He wants to rip me off.”
• “He doesn't keep contracts.”
• “He doesn't see the performance of his international competitors.”
• “He’s got a big boat in Nice and he’s complaining to me?”
• “He takes advantage of his employees.”
• “I don't understand how he runs his business.”

What might the entrepreneurial, agile medium-sized company manager think about the administrative, risk-averse corporate manager?

• “He wants to rip me off.”
• “He doesn't keep contracts.”
• “He’s wasting my know-how on others.”
• “He’ll be doing another job next week anyway.”
• “He can't think and act like an entrepreneur.”
• “It's totally administrative. It doesn’t add value. It's just hot air.”
• “I don't understand how this company is run.”

S&OP is a mutual improvement process delivering valuable consultancy

The aforementioned aspects are addressed by a well-defined and implemented S&OP process which leads to continuous improvement in performance-oriented, fact-based and benevolent discussions.

The change management that has to be carried out is considerably facilitated, since alignment to the ‘why?’ has already been created by the common works.

The cycle of cross-functional and cross-company S&OP work with business partners or at management level ideally takes place every three to six months.

Quarterly/Monthly internal target–performance assessments highlight deviations from the plan and allow early corrections. Interface partners are all operative company units – grouped under ‘operations’ – and areas concerned with sales and contract management – grouped under ‘sales’.

Sales ensures that customers understand the dependencies (such as reliableforecasts or adequate understanding of customers’ expectations) necessary for a good contract realisation, and keep track of progress internally.

Operations should not restrict itself to act as a reactive, cost-optimised contract implementer but should additionally contribute ideas to streamline procedures towards customer satisfaction

A central supply chain management function compiles the actual data situation and enables targeted resource management with the help of financial controlling and workforce capacity management.

Necessary changes to increase performance are recognised in time and actions are planned considering adequately the different perspectives of all stakeholders. This builds a strong foundation for a continuous improvement process executed along the PDCA-cycle.The benefit to the customershould be the ultimate driver in the search for the right approach.

This closely interlinked working model thrives on regular meetings, clearly defined rights and duties and, if necessary, internal service level agreements between those responsible. Efficient and timely exchange of information using a clear, coordinated data and communication structure – as well as a skill-based division of labour – are important.

Stringent application is mandatory, and it’s vital to decide which function is responsible for managing the implementation of the process.

An urgent requirement of this planning and control process is to be more precise than the delivery schedule. Daily plans are available for a weekly delivery target, and weekly plans are the basis for a solid monthly delivery target. Achieving quarterly delivery targets is then practically guaranteed – leaving the CFO to look forward to the annual financial statements with no concerns.

Finally, it’s vital that everyone shares the same definition of the words ‘urgent’ and ‘punctual’. Without this, permanent annoyance between the contractor and the supplier is inevitable. A clear distinction between OTR (on target request) and OTD (on time delivery according to contract) is strongly recommended.  

S&OP troubleshooting eliminates disturbance, auto-financing the required digitalisation

In an environment of digitalisation, artificial intelligence and Industry 4.0, the effort that aerospace companies put in to optimise delivery planning and control seems inadequate!

Process automation is simply too low and not consistent enough. OEMs, suppliers and sometimes even plants within one company have their own order processing system and their own data. Too many IT interfaces are operated manually, master data are out of date, and technical changes take too long to run through the N-tier chain. (Why else would buyer furnished equipment still be part of the aerospace supply chain?!)

What’s missing is a continuous and transparent view of delivery and the associated order performance throughout all actors of the supply chain. The inability to track performance makes competition among supply chain participants impossible. The transparent realisation of the principle: ‘information flow before material flow’ should be entirely possible in the digital age.

Nevertheless, many players are involved in a considerable manual effort to rescue the delivery schedule using their most valuable employees, and only a few people are working to improve this situation – perhaps one could argue that the industry finds comfort in this ‘non-transparency’ because there’s always a scapegoat and a saviour!

The necessary internal and cross-company investments can be financed by eliminating weaknesses and disturbances, such as:

• lack of knowledge of customer and end-user needs (customisation, entry into service, etc.)
• lack of synchronisation between functions (development, purchasing, production, etc.)
• inadequate assessment of suppliers’ capabilities
• incentives for late changes through additional payments
• lack of penalisation for late orders
• both known and unknown buffers in demand planning
• late addressing of obsolescence
• assignment of orders to the past to signal urgency

Summarising classification

SME suppliers guide themselves primarily on ability and corporations on knowledge. With the necessary commitment of everyone involved, further industrialisation of the aerospace supply chain is becoming a mission possible!

S&OP is an effective way to boost supply chain performance – provided it is applied correctly, supported by the right tools and implemented on the basis of jointly practiced principles.

The proposed steps towards a high-performance aerospace supply chain should not be seen as technical, complex, over-determined or soulless, but instead as a chance to create a value-generating network of business partners.

References

1. Managing Complex Supply Chain Networks, - https://www.aca.team/fileadmin/pdf/2019-06-03-survey_digitalization_aerospace-supply-chain_2016_EN.pdf
2. Hype Cycle for Supply Chain Planning, 2014: published 27 October 2014, ID: G00263832, www.gartner.com
3. Lean Supply Chain Management in Aerospace: W.Beelaerts, S.C.Santema, R.Curran, Delft University of Technology, The Netherlands
4. Enterprise Resource Planning and Supply Chain Management: Karl Kurbel, Oldenbourg Verlag
5. Supply Chain Management: S.Chopra, P.Meindl ; PEARSONISBN 13: 9781292093567

Zusammenfassung

Theoretische Grundlagen, Methoden und Werkzeuge für ein effektives und effizientes Lieferkettenmanagement in der Luftfahrtindustrie gibt es hinreichend. Dennoch ist in der praktischen Anwendung eine erstaunliche Umsetzungslücke zu konstatieren.

Für einen nachhaltigen Unternehmenserfolg braucht die zunehmend wechselseitig abhängige, agile und internationale Lieferkette der zivilen und militärischen Luft- und Raumfahrtindustrie mit ihren komplexen Dienstleistungen und Produkten jedoch beides: theoretisches Wissen und praktisches Können - und dies in allen Bereichen, begonnen mit der Unternehmensleitung.

Unabdingbar ist die dritte Komponente: Das Wollen - zur integrierten, funktionsübergreifenden Planung und Regelung im eigenen Unternehmen und zur offenen Zusammenarbeit in der Lieferkette über den kompletten Produktlebenszyklus - im gegenseitigen Wohlwollen, Respekt und basierend auf der Überzeugung das Win-Wins möglich sind.

Der Sales & Operations Planungsprozess (S&OP) regelt den Abgleich zwischen den Marktanforderungen sowie dem Leistungsvermögen des Unternehmens und seiner Lieferkette.  S&OP ermöglicht eine optimierte Geschäftsplanung und deren sichere Umsetzung – in jedem einzelnen Unternehmen und übergreifend für die Exzellenz der gesamten Lieferkette.  

Im S&OP Prozess sind alle gefordert – KMUs im Bereich transparenter, prozessorientierter und toolbasierter Vorgehensweisen, sowie die OEMs und Tier1 Lieferanten in Ihrer Integratorenrolle mit stärker persönlich verantwortender Handlungsweise.

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Autoren

Bert Stegkemper
Dr. Thomas Lehmann