Supply Chain Disruptions and How to Face Them

Working in consultancy, I have the opportunity to have a taste of the different trends and issues faced by OEMs and their suppliers. Pre-COVID, there was a balance between quality, production efficiency and supply issues. However, after operations restarted post-COVID, there  was a drastic shift toward supply chain and logistics. Do not get me wrong, it does not mean that quality and efficiency are not important but without parts it simply does not matter that you are efficient and have a solid quality system. What we are seeing in demand for our services is more supplier crisis management, more unbalanced demand issues, and no clarity in forecasting as markets become quite unpredictable. Today, 2 out of 3 projects AMBE Engineering is servicing are related to supply and logistics issues and in most cases in very deep trouble. We are seeing a big need to concentrate operations and suppliers in the North American region, either by relocation or new supplier development within existing capabilities. We are also seeing more and more companies repatriating support activities, such as warehouse management, third-party logistics and even procurement that in the past were assigned to a partner outside the organization. Suddenly, complete operations were stumbling as result of that decision, and they found out the hard way that it was not as cheap as projected.  On top of that, they did not have any control or alignment with internal strategies at the time of execution. 

Currently, we are being asked for task forces to provide 24/7 plant crisis management at many North American manufacturing sites, ranging from Global Tier 1 suppliers to small family businesses. Support includes supply protection, leadership augmentation, sub-supplier management, value stream and shipping execution, and operational improvements.  The main scope of work is focused on avoiding plant shutdowns after arriving on-site. 

Most aerospace OEMs and suppliers are experiencing acute supply shortages. The industry needs to find a way back to the right execution of value streams, ranging from shop floor management to production rate improvements, material availability, inventory control, and many others. Supply chains have been completely disrupted in most industries, but in aerospace, as I have written before, the impact is bigger and it is going to take longer to recover simply due to complexity and lead times. 

Although we have managed to go back to “normal” after the COVID pandemic, the reality is that we are still in the middle of a perfect storm. I think this just showed how weak supply chains were. In the name of being efficient and lowering costs, we hit the bone and made those chains weak and not resilient at all. Aerospace supply base risks are growing in frequency and severity. While these risks have many causes, AMBE's client projects are identifying a pattern of drivers. We are understanding and trying to be preventive or at least providing counseling to customers so they take proactive action to avoid bigger impacts.

First on the list of drivers is materials management. There are many problems and breakdowns in the flow due to forecast difficulty and high demand volatility coupled with extended/variable logistics lead times. Over the last two years, markets have struggled to find stability. First a pandemic, then unpredictable logistics costs and flows, natural disasters in different regions, commercial wars, such as that between the US and China, which is the most impactful but not the only one, the war in Ukraine, the exit of the UK from the European Union, to name the most disruptive. As a result, market trends are almost impossible to predict, which leads to changes in demand up and down the chain. There is an issue as well with raw materials scarcity compromising the whole supply chain, and especially in aerospace with its long lead items in the range of even months. The situation is not going to change soon, and we need to resist and proactively manage demands and be closer to our suppliers to be able to react, support, influence and manage materials to be able to complete assemblies. There is no magic wand to fix it; pure hard work and help from specialists focused on the most critical suppliers are needed. The times when you were able to manage with your direct supplier are over. Communication, management and knowledge need to assess and focus on the whole chain because many sub-suppliers’ performance issues outstrip the tier suppliers’ capability to successfully manage, execute and deliver. 

The second driver for disruption relates to human resource issues, with shortages across organizational levels and functions, especially in skilled and technical roles. Logically, resource shortages are causing operational issues, such as lack of ability to deliver, excessive overtime/attrition, extended learning curves and the loss of experience and certified skills. This slows down the speed to recover schedules and the ability to innovate and develop new processes and products.

On top of that, economics are adding pressure and cutting down the ability and capacity to recover at a faster rate. Budgets have been exceeded due to all sorts of extraordinary expenses  (overtime, premium freight, customer chargebacks), while interest rate increases and inflation are resulting in spending cuts  or freezes on potentially necessary hiring, CAPEX , quality improvements, OPEX projects, new product development and launches. And, of course, as a result, leadership’s attention has been diverted from proactive and present tactical work to crisis management and "fire fighting." 

As mentioned, all these drivers for disruption are not going to improve in the short term. We are learning to live with them. All we can do is improve our processes, lead times and customer and supplier relationships. The key is to develop the skills and capacity to manage and overcome risks before they hit the floor. As a consultancy firm, we recommend proactive risk assessments and audits of your supply base to implement necessary steps to preempt potential supply disruptions. Risk assessments and audits should go beyond traditional quality and delivery systems to include human resources, financials, materials management and leadership capability and capacity wherever possible. If your company has the expert resources with enough knowledge and experience with these kinds of processes, you should strategically decide to focus on your supply chain health. And if you do not have those resources or capacity to focus within your organization, you can always look for help from a specialist. But no matter how you do it, be focused on the topic, because not only for aerospace but for other industries as well, it is the bread and butter of operational execution these days. Be proactive, not reactive. The more you are in control, the less you are going to suffer.