Navigating volatility and changes in the Aerospace industry

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In today’s business environment, aerospace procurement and supply chain leaders are dealing with unpredictable and complex challenges. These disruptions have significantly transformed the landscape, pushing them to rethink their strategies to stay strong and sustainable.

ArcBlue’s Director for Southeast Asia, Chris Hampden, explores how recent events have impacted aerospace companies and how suppliers to the aerospace industry can enhance their positions in the market. 

The Current Business Environment

The aerospace industry is navigating through a period marked by increased frequency and intensity of supply chain disruptions. Events from 2011 to 2023 have highlighted the vulnerability of global supply chains to natural disasters, geopolitical tensions, economic fluctuations, and pandemics. Notable disruptions include:

These events have caused a ripple effect, leading to prolonged recovery times and increased costs, profoundly impacting global supply chains and financial performance.

Impact on Financial Performance

Operational Disruptions

Major operational risks bring various challenges, each with significant recovery times and impacts.

These disruptions underscore the importance of robust risk management and solid contingency planning.

Strengthening Aerospace Industry Resilience

Global commercial aviation demand has shown a strong recovery from significant disruptions, such as the COVID-19 pandemic and the grounding of Boeing 737 MAX aircraft.

This recovery, measured in Revenue Passenger Kilometers (RPK), is expected to continue its upward trajectory. However, despite the increase in passenger demand, the aerospace supply chain has struggled to keep pace.

Challenges such as raw material shortages, reduced investment in machinery by suppliers, a decimated talent base, and increased costs for materials and labor have contributed to production delays and high costs.

These issues highlight the need for adaptability and innovation to meet growing demand and maintain operational efficiency.

Industry Leader Insights

As the aerospace industry grapples with the challenges of supply chain recovery, key industry leaders have voiced their concerns and insights on the situation.

These perspectives collectively emphasize the critical need for strategic adjustments in the aerospace supply chain to meet rising demands and mitigate ongoing disruptions.

Navigating Disruptions and Ensuring Delivery

The aerospace industry is experiencing growing pains as its complex supply chain struggles to meet rising demand. Costs are a major pressure point, and the scarcity of raw materials has led to significant price hikes. Efforts to prop up financially vulnerable suppliers have added to the financial challenges. Travel to manage suppliers and the need for additional on-site labor have further inflated assembly costs. Unfortunately, this pressure often translates to quality issues, with rejected parts adding to inefficiencies.

There is light at the end of the runway, however. Suppliers who are consistent with delivering their commitments and navigating these disruptions will be well-positioned to thrive. Collaboration across the supply chain is essential to overcome these challenges and ensure a stronger future for the industry.

Enhancing Resilience and Sustainability

Historical vs. New Priorities

Traditionally, procurement and supply chain leaders focused on building global supply chains to achieve the lowest possible costs. This often meant minimizing inventory through lean operations and leveraging volume through single-sourcing.
Today, however, procurement and supply chain leaders recognize the need for a more balanced approach. They are shifting their focus to building resilient supply chains that can withstand disruptions. This includes balancing global with regional sources, optimizing inventory levels and diversifying suppliers to mitigate risk.

New World Priorities

Procurement and supply chain leaders must consider additional factors that were not previously given as much weight. These include:

Conclusion

The aerospace industry faces a transformative period where resilience, sustainability, and innovation are paramount.

By reevaluating and redesigning supply chain strategies and embracing more pressing priorities, procurement and supply chain leaders can navigate volatility and ensure long-term success.

References

¹ Note: Hendricks and Singhal (2003, 2005); based on study of >800 public announcements of supply chain disruption over a 10 year period, change in sales and change in costs are benchmarked against companies that are in the same industry w ith similar size and performance characteristics; 3 year period measured from 1 year prior to announcement to 2 years post announcement (p. 4)
² Source: Flottau, J., & Wall, R. (2024, July 11). Aviation Week. “Airbus CEO Says Company Is Managing Crises, One Supplier At A Time” (p. 5)
³ Source: Shay, L. A. (2023, July 14). Aviation Week. “Boeing Supply Chain Leader’s View Of The Parts Runway” (p. 5)
⁴ Source: Lockheed Martin. (2024). Supply chain resiliency. “Delivering Innovation Through Supply Chain Resiliency” (p. 5)
⁵ Source: Anselmo, J., & Norris, G. (2024, April 1). Aviation Week. “Daily memo: GE Aerospace chief sees no quick fixes for supply chain woes” (p. 5)