Aeronautical supply chain must test its links as demand soars

Sector is set to double over the next decade, but SMEs face capacity constraints and price pressures

Andy Page knows a good deal about aerospace supply chains. He worked at Rolls-Royce for more than 25 years, managing thousands of suppliers critical to the success of the aero-engine maker.

He now finds himself again working extremely closely with suppliers — but this time as chief executive of Sharing in Growth UK (SiG), a £250m government-backed scheme that aims to help boost growth in the sector.

“I have been acutely aware of the challenges, strengths and weaknesses of supply chains around the world during my career,” says Mr Page. “The UK can continue to be a dominant force, but the supply chain needs investment to be able to compete.”

Launched in 2012, the SiG programme aims to work with about 60 small to medium-sized aerospace companies to develop their businesses.

At its heart is an intensive four-year development scheme that costs more than £3m per company, of which £1.2m comes from the Regional Growth Fund. It is designed to tackle the barriers to growth by providing training and support in leadership, strategy, manufacturing processes and business planning.

David Nutton is chief executive of RLC Group, which makes complex components such as rotating compressor blades. RLC is one of 34 companies currently taking part in the programme.

“We’re using SiG to help leverage the development of the business,” says Mr Nutton. “No matter how good we are today, we’ve got to keep driving forward. A company in any country can buy the same assets — it’s how we use them and how we manage them.”

This is a critical time for the industry; the aerospace sector is expected to double in size over the next 10 years, with a forecast of 27,000 new passenger aircraft.

This benefits the global aerospace supply chain, as there is an unprecedented number of new aircraft and engine programmes under development in the industry.

But it also comes with risks, with some commentators warning that the supply chain is already facing capacity constraints and price pressures.

Ian Waller, manufacturing and aerospace audit partner at Deloitte, says: “Aircraft manufacturers are relying heavily on their supply chains to accelerate component delivery to support increasing production levels. At the same time, they are demanding efficiency and reduced cost from their suppliers, in order to improve their margins per aircraft.”

Andrew Mair, chief executive of Midlands Aerospace Alliance, which represents about 300 suppliers across the Midlands, believes that obtaining finance also remains an issue for smaller companies.

“We think there’s still a challenge in terms of what ought to be the traditional financial sources, the banks. The issue lies in whether the financial community understands or accepts the long payback of aerospace,” he says.

Larger aerospace component makers are playing their part in mitigating the risk of supply chain problems ahead of the ramp-up in production rates. Last year, Meggitt, the FTSE 100-listed engineer, started a supplier risk assessment programme to judge the degree to which a supplier can produce at a required rate or volume.

“It is focused on identifying potential risks to our supply chain for all the growth programmes, and the ramp-up we need to do,” explains Amir Allahverdi, group operations director. “We wanted to get ahead of any problem.”

Aerospace commentators agree that supply chain management is essential to making sure the aircraft programmes run smoothly and on time.

“Even late delivery of a relatively small or low-dollar-value component to the final assembly line can cause out-of-position work, which will have an impact on schedules and cost,” says John Schmidt, managing director for aerospace and defence at Accenture, the consultancy.

Experts believe that both Airbus and Boeing have learnt from mistakes and are being much more careful about increasing their build rates too quickly. Boeing’s attempt to boost production in 1997 led to severe difficulties, with the company plunging to a net loss and its factories and supply chain struggling to cope.

Chris Shaw, who heads operations at aviation supplier Cobham, says he is confident its supply chain can handle the volume increase. “The rate increases are about 10 to 15 per cent, but over a number of years. So with good management and visibility, I don’t think it’s unsurmountable.”

Some companies are already thinking further ahead, looking at how they can improve their productivity in the next five to 10 years. Meggitt is working with the Advanced Manufacturing Research Centre in Sheffield and the Warwick Manufacturing Group to look at new processes and technology, such as 3D printing.

“Some of these things will be game-changing in the next 10 years, and will allow us to do things better, faster and cheaper,” says Dave Johnson, chief operating officer at Meggitt. “It’s a continual reinvestment process for us.”

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