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Engine Manufacturer Flies High With On-Time Delivery, Supplier Network Transformation and Aftermarket Plan

Supply Chain in the Aerospace sector

Abstract

The senior management team at this aerospace manufacturer wanted to drastically improve its supply chain operations and asked Deloitte to perform a diagnostic assessment. The client's objectives were to:

  1. Raise the service levels of its aftermarket operations
  2. Reduce transportation costs by 30 to 40 percent
  3. Improve supplier On Time Delivery (OTD)
  4. Develop an implementation plan to achieve the objectives

After a successful diagnostic, the Deloitte team developed three programs to help transform the client's supply chain:

  1. Supplier OTD
  2. Logistics Network Transformation
  3. Aftermarket service level improvement and inventory reduction project

 

The Challenge

With unprecedented growth in the aerospace industry, the supply chain of this leading engine manufacturer was not keeping pace. Overall capacity, up and down the chain, was constrained. Supplier OTD was at historic lows. Globalization of the supply base was not supported by a strategic logistics network or management system. For a company that had a long history of high customer satisfaction, senior management recognized that its delivery performance was unacceptable.

How We Helped

Supplier On Time Delivery 

Based on the initial findings of the supply management assessment, achieving industry leading performance in supplier OTD required a multidimensional program. We organized these programs into four work streams that included:

  1. Strategy Development: Designed and implemented a rigorous process based on leading practices to develop and execute individual value stream strategies. Ensured scope of strategies include supplier relationship, resource, inventory profile, contract terms and conditions. Developed and rolled out tools, templates, standard work and processes for strategy development. Established a Value Stream Strategy Review Board, including parameters or metrics and periodic strategy and follow-up reviews.
  2. Demand Planning & Scheduling: Minimized order churn through enforcement of a frozen zone with strict criteria for exceptions. Altered policies affecting order churn, including date fences for use of APO (Advanced Planning and Optimization) engine smoothing, month- and quarter-end inventory measurements, safety buffer stock adjustments, reserve supplier capacity to address overdue backlog.
  3. Skills improvement: Developed a buyer education plan around supplier relations, industry and product knowledge through practical examples from the strategy development work.
  4. Contract Capabilities: Developed contract's strategy and framework to align with the value stream strategy components and execution capabilities. Determined the mechanism for incorporating incentive-based terms and conditions into contracts.
Logistics Network Transformation 

We redesigned and integrated the transportation logistics and network for new engines/parts, used engines/parts, reconditioned engines/parts, and leased engines to reduce operating costs and capture tax savings.

This project was implemented in a two-step approach. Step 1 focused on the network design and Step 2 on the implementation of the most cost- effective global transportation network.

The transportation network was modeled using a powerful numerical analysis tool and by re-engineering the global transportation planning process. The outcome was a detailed design blueprint that defined the number and strategic locations of cross docking points, regional distribution centers and forward stocking locations.

Aftermarket Service Level Improvement and Inventory Reduction 

The current planning capabilities of this company’s enterprise resource planning system did not meet the special requirements for the aerospace aftermarket environment. We developed and implemented a program for requirement gathering, vendor benchmarking and selection, including a pilot prototyping. The pilot prototype used live data and customized business scenarios to demonstrate the tool's capabilities and quantification of benefits to build the business case for acquisition and implementation of this tool. 

Some of the key functional capabilities include: multitiered network inventory optimization, customized algorithms for specialized segmentation and product lifecycle planning.

Solution

These programs are currently under way and have the following benefits and targets:

  • Identification and implementation of process, organization and technology improvement opportunities resulting in 33 percent reduction in logistics costs
  • Development of transportation network design and implementation that supports a 50 percent reduction in emergency part shipment's cycle time
  • Stabilization of the forecast and reduction of order alteration volatility by 50 percent — returning up to 13 percent capacity to key constrained suppliers
  • Selection and implementation of aftermarket planning tools to increase fill rates by 5 percent while reducing inventory by 15 percent

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