Management of Vulnerabilities in the UK Aerospace Industry

Just recently I took a closer look at some aspects of supply chain risk management in the automotive supply chain. Within limits insights gained from this industry could also be transferred to other examples.

Today I review an early work focussing on another manufacturing industry: the UK aerospace manufacturers.

Method

In 2003 Haywood and Peck published their findings of a case study. These covered the foundations of how the companies understand of supply chain risk management. They also reported on some of the risk measures used by the participating companies.

All in all 47 semi-structured interviews were conducted with managers of differing levels in the aerospace supply chain.

This purposive sampling allowed multiple levels of the supply chain networks to be included in the study, ranging from the focal firm’s customer (purchasing organisations for the armed forces of national governments), through two tiers of suppliers above the Prime. In addition, input came from two industry bodies representing small and medium enterprises (SMEs) nestling in the higher reaches of the supply networks. It was clear however that at least six or seven tiers existed upstream of the Prime Contractor and downstream the final consumers (pilots and other users) remained unvisited.

As you can see the authors were quite blunt about the limitations of their endeavor to analyze the complete network. Though this constraint should not be taken too seriously, since this study aimed for a preliminary sketch of the status quo only.

Key findings: Risk sources

The first findings come from the assessment of the risk sources faced by the interviewees.

First, the respondents did not deal with either the precise geographical location of a problem or on the impact of other ‘external’ sources of risks. […]
In fact several of the managers interviewed related the sources of risk directly back to the Critical Success Factors (CSFs) for the focal firm’s Strategic Supplier and Commodity Management processes: Cost Focussed Decisions; Extreme Quality/Performance Requirements; Delivery Schedule Adherence; Customer-Supplier Relationships. […]
Nevertheless, the examples put forward by interviewees highlighted tensions between them. The link between interviewees’ perceptions of ‘sources of risk’ and process CSFs was upheld by members of the industry focus groups involved in the validation exercise. […]
The second theme to emerge was that managers frequently defined a source of risk with reference to acknowledged or perceived constraints imposed by the nature of the product and the structure of the industry.

Furthermore, many interviewees acknowledged that their supply chain is most vulnerable during times of change, but also that change is a constant state in their supply chain activities.

Key findings: Tools

The second stream of findings analyzes the tools and techniques, which were employed by the companies.
The authors therefore divide the realm of supply chain management into three tool categories: Supply Chain Planning, Supply Chain Management and Supply Chain Change Management (figure 1).

Figure 1: Continuum of Supply Chain Management Activities (From Strategic to Operational; Haywood and Peck, 2003)

The extreme left of the spectrum is occupied by pure supply chain planning, which in an ‘ideal world’ would be unencumbered by the legacy commitments of existing production facilities or supplier contracts. The right by pure supply chain management actives. These are the day-to-day activities undertaken in the management of a mature established supply chain.

Figure 2 summarizes the tools used by or considered useful (marked in italics), by the interviewed managers.

Figure 2: Selected Measures to mitigate Supply Chain Risks (Haywood and Peck, 2003; click to zoom)

However, it is important to recognise that Figure 2 represents only a summary of what is or could be in use somewhere in the network.
[Also it should be recognized, that] other tools and mitigation techniques again suggest contradictory requirements. For example, to mitigate cost-related risks, lean manufacturing techniques were being used (Set 5), while elsewhere someone is using inventory, capacity and capability buffers on a regular or temporary basis to mitigate delivery or schedule adherence problems (Set 7 and 11).

Key findings: Implementation

Lastly, the authors took a look at the obstacles preventing implementation of the tools.
Three key factors were unveiled.

• The first was staff training, there was quite a widespread recognition that existing tools could be much more effective if implemented correctly.
• The second was widespread confusion over terminology.
  The research revealed that there was absence of a common understanding of the scope or extent of supply chain risk management, muc h of it relating to confusing and contradictory interpretations of ‘supply chain’.
• The third issue was visibility.
  

Based on the findings the authors developed three methods to help improve implementation.

• Method 1, a ‘go it alone’ option was motivated by the possibility of achieving competitive advantage over rival organisations through exclusive or advanced identification of sources of risk. For example, if the consequences of an anticipated event were expected to disrupt others in the same industry sector, an organisation might gain advantage by simply improving its tolerance relative to its competitors.
• The second method tabled was a more limited audit encompassing the focal firm, its immediate customers and suppliers. The method involves organisations acting collaboratively, in interlocking risk management relationships to produce overlapping information flows all along the supply chains. Such an approach would allow organisations to identify relevant sources of risk within their locus of control or immediate supply chain vicinity and enjoy the confidence that others were doing the same.
• Method 3 was an extension of Method 2, based on interviewees’ suggestions that the effectiveness of their current management tools would be improved by the introduction of a shared data environment. It was felt that this would significantly reduce the commercial risks attached to sub-optimal supply chain performance. The majority of interviewees considered Method 3 to be sound in principle. It reflected the frequently expressed view that improved sharing of data would lead to consequential improvements in profitability and facilitate the continuous improvement practices that contribute to longer term supply chain health.
  

Conclusion

This research gives an glimpse into the early stages of risk management in supply chains in the UK around the turn of the millennium.
For many companies and supply chains the detected problems still exist.
Two tasks still remain: First, opening the eyes of decision makers to include a trans-corporate view on risks and embrace supply chain strategies to battle supply chain risks. Ergo, applying holistic system thinking to system problems.

Second, finding ways to circumvent the implementation obstacles. How can risks be reduced without compromising the competitiveness and autonomy of the focal company?