Recent articles in Aviation World about Boeing applying pressure to its supply chain in an effort to reduce costs have sparked considerable discussion, which nicely outlines the dichotomy faced by many supply chains. In essence, what is the correct balance of profit across a supply chain which allows for the required performance in all areas, by all parties.
The comments section following the Boeing article explore a range of views, ranging from ‘get with the program, it’s the cost of doing business with Boeing’ through to ‘look at all the supplier failures and the on cost of those failures’ plus a spread of specification related comments, and a debate about engineer’s understanding of costs.
Although it is a Boeing centric discussion, the same basic argument has been seen in countless material based supply chains. The challenge remains understanding the balance of risk and reward, innovation, marketing activity, development and research effort within a commercial environment which tends to be non-transparent.
Similar approaches have been tried in other industries, and there tends to be a cyclical path between close and balanced working, and margin protection over time. The happy medium between the two is a challenge to identify and maintain, as a range of factors both internal and external drive the tipping point around.
The macro pressures of the economic environment do weigh heavily in the airline industry - the ranks of parked up unused jets at our local airport in the recession starting in 2008 was testament to the reduction in demand for flying with the linked effects on airline solvency and plane orders. Current economic conditions have a number of features which might suggest future contractions, together with efficiency needs which require investment to meet, and potential changes in the established hub and spoke model. Needless to say, if there is a smart economist at Boeing who is being listened to, it could drive a change from a development/partnering model to a ‘capture the flag’ model.
Equally, it might be a firmly embedded change from one model of management to another driven by no more than a change in personnel, perhaps as a senior supply chain executive transitioned into the Trump administration. New brooms often look for a change, driving in different approaches from their predecessor. Whatever the reason, the impact in the supply chain is evident, and driving behavioural changes as well.
For businesses with well-developed and in place category strategies and supplier strategies, changes like this require those strategies to be reviewed and tested against new directions, and updated where required. More challenging is a change of approach when the strategies are not in place and the consequences of change are less well thought through. This can lead to a high degree of challenge as the impact of new approaches is revealed through testing, rather than by thinking it through.
Supply chain professionals, with a good view of the value available across a supply chain outside of short term price and margin grab, will often look to extend and explore the visibility of a more detailed business case and aim to protect value contributions, while still moving towards margin protection. The difficulty, without great strategies, is seeing the cross linkage of different approaches.
Our recommendation, even in margin protection environments, is to progress excellent strategies and seek the best deliverables for the business. Without that approach firmly embedded, less certainty and more risk is the most likely outcome.
Contact us at www.futurepurchasing.com to find out more on how to drive supply led innovation.
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