If you want to know what the UK aerospace industry will look like tomorrow, then take a look at the car industry today. Worldwide consolidation has left just eight global car makers. First tier suppliers have become systems and subassembly suppliers, delivering complete assemblies direct to the production line every few minutes.
Ten years ago, car makers might have made a 20% margin. Today, they’re doing very well with 3%. On top of that, the industry is running at 30% over-capacity and car buyers demand cheaper and cheaper cars.
These pressures haven’t hit the aerospace industry yet, but they will, warns Richard Heatherill, business development manager at XR Associates. XR was Ford’s internal production management consultancy. It became an independent company three years ago and is now working with UK aerospace clients on introducing lean manufacturing.
Heatherill believes that despite booming profits and operating margins, the aerospace industry must become as lean as the car industry. Aerospace has ten years to get its act together, he says.
Globalisation has already begun, with the creation of the European consortium to build the new A3XX super jumbo being the latest example. Aerospace companies no longer make money building planes or engines, says Heatherill. Their profits now come from providing the maintenance and the finance that go with the planes.
`The cost of flying is eventually going to be determined by the market. Manufacturers will have to build aircraft efficiently enough to be able to deliver that price,’ he says.
There’s a huge opportunity to improve productivity within aerospace, continues Heatherill. And there are two ways to drive costs down – improve the product, and improve the manufacturing processes within the supply chain. On both counts, aerospace manufacturers can learn from the automotive industry.
Since 70% of the cost of an aircraft is committed at the design stage, it is essential that manufacturers improve their relationships with their suppliers to involve them in the design process as early as possible, he says. But customer-supplier relationships in the aerospace industry are at best mixed and at worst terrible, says Heatherill.
`I was at one major original equipment manufacturer recently. It’s attitude to its suppliers was quite frankly “Stuff `em.” It was going to take 10% out of the cost of a product simply by cutting the price it paid by 10% or 20%.’
The industry cannot afford to bully its suppliers, says Heatherill. If it does, those suppliers won’t be in business in 12 or 18 months time. The car industry tried it, and it worked for a short time because there was undoubtedly some fat, but ultimately it failed, he says.
`In aerospace, a lot of the bad suppliers have gone. So manufacturers can’t afford to demand cost cuts and threaten to de-source suppliers. If they do they will run out of good suppliers, especially the ones with regulatory approvals.’
One aerospace manufacturer that did try to dictate to its suppliers soon realised it wasn’t going to work, says Heatherill. `Suppliers began turning round and saying “Stuff you too.” Their argument was: `If you want to pay 10% less, that’s fine, we can’t afford not to work with you. But you will get higher reject rates and your lead time has just gone up by 16 weeks.’ In the meantime they began looking for new customers.
Heatherill believes that aerospace manufacturers need to recognise that their suppliers are critical to the success of their businesses. `They need to put programmes in place to ensure that their suppliers become efficient, effective and work with them on a long term basis. And I don’t think many have cottoned on to that.’
The situation is complicated by the fact that a number of large suppliers are also customers. Nevertheless, says Heatherill, mistrust between the supply base and the manufacturers is costing money. Mistrust means that very little cost data is shared between manufacturer and supplier – there’s no openness. So although some manufactures are beginning to do long-term deals with their suppliers to reduce costs year-on-year, they’re not tackling the real cause of high costs at all, says Heatherill.
`When suppliers are working on a 30% or 40% mark-up, they don’t need to bother improving their manufacturing processes because they can afford to take the cost saving straight out of their bottom line,’ he added.
What’s needed is `total cost modelling’, says Heatherill. This is the process widely used in the car industry in which supplier and manufacturer declare what their costs and overheads are and what their profit is. Everything is completely transparent, says Heatherill. `From there they can sit down together to see where there is maximum opportunity to take out cost.’
In the automotive industry the old formula of cost plus profit equals price has long gone, says Heatherill. Today price is fixed by the customer and profit is fixed by the shareholder. The only variable is the cost. `Car makers have had no option except to take out cost. They have been forced to get on their production lines and take the waste out.’
Heatherill says there is antipathy among many aerospace manufacturers to what the automotive industry has achieved through lean manufacturing. `It won’t work here,’ is a common complaint, he says.
`But it will work here, the techniques have been proven. What the industry needs is someone to drive it. And at the end of the day it will be the shareholders who will force the industry to change,’ he concludes.
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