Post-pandemic uplift for OEMs and their suppliers

OEMs and their suppliersA new mood of supply chain cooperation and improved transparency could enable OEMs and suppliers to continue to adapt and thrive in the emerging post-pandemic marketplace, says Jeff Kennelly, director and aerospace & defence sector specialist at Vendigital.

The pandemic will have a lasting impact on many industry sectors, not least for high-value manufacturing OEMs and their suppliers, many of which have been forced to adapt to a culture where market disruption is the new norm. While working hard to manage in uncertainty, some of these businesses have developed a more customer-centric, data-based operating model that should serve them well in the future.

During the pandemic, manufacturers in a variety of industries have experienced unprecedented levels of demand uncertainty, due a ‘perfect storm’ of influences including Brexit, the Suez Canal blockage and the knock-on effects of forced shutdowns through much of last year. For many manufacturers, accurate demand forecasting is no longer possible. Combined with the impact of supply shortages affecting raw materials and components, this means staying operational and keeping production lines open remains challenging.

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As an example, the impact of the global shortage of semiconductors has brought some electrical goods makers and the industries they serve to a standstill. Others in the sector have found that materials shortages in other areas, such as plastics and metals have had an equal impact. With supply lines into these businesses becoming less dependable, at a time of increased demand uncertainty, manufacturers have been forced to abandon just-in-time operating models in favour of processes that require greater focus on inventory management and control. For some businesses, close cooperation with customers has made it possible to increase inventory without necessarily increasing costs with creative commercial contractual terms.

The airline industry and its supply chain are among those most deeply affected by the restrictions imposed during the pandemic. For airlines, the need to reduce costs while fleets were grounded became a fight for survival which impacted the entire supply chain – from the component, engine and aircraft manufacturers, MRO businesses and airport solutions providers, such as fuel and ground handlers to the airports and airlines themselves, this has truly been the biggest crisis in aviation history. Facing such extreme constraints on their operating model, airlines and aircraft makers knew they couldn’t simply pass cost down the chain as this could force companies out of business. Instead, some businesses chose to focus on enhancing customer/supplier relationships and work together more closely.

One sector where closer customer/supplier relationships have helped to keep businesses afloat during the pandemic is aviation MRO. In a bid to reduce operating costs, many airlines chose to deploy greener and/or newer aircraft, as they would require less fuel and servicing. Faced with reduced demand for heavy maintenance, some MRO service providers responded by adapting their operating models to allow for more lighter repair services. Those businesses that were in close contact with their airline customers through this volatile period, were able to secure an early mover advantage by making the adjustments to their operating models at pace.

For many manufacturers, accurate demand forecasting is no longer possible

Many high-value manufacturers in the automotive and aerospace industries were operating integrated ERP systems well before the pandemic, which facilitated just-in-time production methods. For these businesses, transparent, real-time data-sharing across the supply chain is nothing new. Going forward, businesses must continue to harness sophisticated demand planning and inventory management tools, along with a highly flexible operating model. This will enable them to adjust to new products, small batch sizes and rapid product changeovers. A fully-integrated supply chain, will enable businesses to make timely decisions by sharing real-time demand signals and implementing fast feedback loops.

The effects of the pandemic have also required a rethink in key areas of management and many businesses have found themselves going back to basics with their handling of customer relationships. By focusing on effective two-way communication, some businesses gained a mutual understanding of the pressures each was facing and were able to work together to find a solution that would enable them both to survive.

As markets rebound, albeit some more quickly than others, manufacturers and other businesses in the hardest-hit industries can learn lessons from the pandemic. Ongoing market and geopolitical volatility mean it doesn’t make sense to simply snap back to old ways of doing things. Those businesses that have invested in systems integration, digital technology or chosen other ways to strengthen their customer relationships will be better placed to respond to demand uncertainty in the future.

For OEMs and suppliers, it must be hoped that the new mood of supply chain cooperation and improved transparency will continue to bring benefits in the future. This approach could enable them to continue to adapt and thrive in the emerging post-pandemic marketplace and scaling up could be the next big challenge.

Jeff Kennelly, director and aerospace & defence sector specialist at Vendigital.