Part 1 - Grenoble INP

Transcription

Projet de Fin d’Etude
Part 1:
présenté pour obtenir le grade
d’Ingénieur en Génie Industriel
par
Quirino BARBOSA
Understanding the Supply
Chain Management best
practices in the Aerospace
industry
Analyse des risques de la chaîne d’approvisionnements
Supply Network risks analysis
Tuteur industriel : M. Emmanuel Soler
International Supply Manager – Airbus France
Tuteur enseignant : Dr. Samuel Bassetto
Maître de Conférences, Laboratoire G-SCOP, ENSGI-INPG
Janvier 2008
English version
Entreprise de référence:
December 2007
Description
The purpose of this project was to implement tools and frameworks to manage supply
network risks at Airbus France procurement division.
We succeed to describe a common supply chain framework based on the MRP II 1 philosophy
and to provide a risk management tool: a FMEA 2 . This procurement division is moving from
a reactive suppliers’ management philosophy to a proactive suppliers’ management
philosophy.
Key words:
Supply Chain Management
Risk Management
FMEA
MRPII
Lean and Agile Management
1
2
MRP: Manufacturing Resource Planning
FMEA: Failure Mode and Effects Analysis
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Supply Chain Risk analysis in the aerospace industry
December 2007
Table of contents
1.
ACKNOWLEDGEMENTS ........................................................................................................................ 6
2.
RECOMMANDATIONS ............................................................................................................................ 7
Chapter1: Understanding the Supply Chain Management best practices in the Aerospace
industry
3.
INTRODUCTION ....................................................................................................................................... 9
4.
INDUSTRY ANALYSIS ........................................................................................................................... 10
4.1.
INDUSTRY ANALYSIS: A COMPETITIVE DUOPOLY ................................................................................ 10
4.1.1. Major players in the commercial aircraft industry ....................................................................... 10
4.1.2. Industry characteristics................................................................................................................. 11
4.2.
INDUSTRY DYNAMICS ......................................................................................................................... 12
4.2.1. Description of the main product innovations ................................................................................ 12
4.2.2. Theoretical approach of innovation .............................................................................................. 14
5.
COMPARATIVE ANALYSIS OF SUPPLY CHAIN MANAGEMENT STRATEGIES................... 19
5.1.
SUPPLY CHAIN FRAMEWORK THROUGHOUT THE MAIN STAKEHOLDERS PERSPECTIVE ........................ 19
5.1.1. Suppliers’ network in the aerospace industry ............................................................................... 20
5.1.2. Original Equipment Manufacturer................................................................................................ 20
5.1.3. Customers...................................................................................................................................... 24
5.2.
COMPARATIVE ANALYSIS BETWEEN AIRBUS AND BOEING’S SUPPLY CHAIN AND TRENDS IN THE
AEROSPACE INDUSTRY ...................................................................................................................................... 26
5.2.1. Similar Supply Chain Management Practices............................................................................... 26
5.2.2. Supply Chain comparison of the A380 and the 787 programs...................................................... 26
5.2.3. Outsourcing strategy..................................................................................................................... 28
5.2.4. New trends in Supply Chain Management .................................................................................... 28
6.
CONCLUSION .......................................................................................................................................... 30
Chapter 2 State of the art: Building tools and frameworks to manage Supply Chain Risks
7.
INTRODUCTION ..................................................................................................................................... 32
8.
SUPPLY CHAIN MANAGEMENT ........................................................................................................ 33
8.1.
EMERGENCE OF SUPPLY CHAIN MANAGEMENT PRACTICES.................................................................. 33
8.2.
WHAT ABOUT SUPPLY CHAIN? ........................................................................................................... 34
8.2.1. Supply Chain focuses on the product ............................................................................................ 34
8.2.2. Supply Chain focuses on the organization .................................................................................... 36
8.3.
WHAT ABOUT SUPPLY CHAIN MANAGEMENT (SCM)? ....................................................................... 37
8.3.1. Nature of the partnering relationships.......................................................................................... 37
8.3.2. SCM as a management philosophy ............................................................................................... 38
8.3.3. SCM as the implementation of a management philosophy............................................................ 39
8.3.4. SCM as a set of management processes ........................................................................................ 40
8.3.5. Definitions..................................................................................................................................... 40
9.
RISK MANAGEMENT ............................................................................................................................ 41
9.1.
9.2.
9.3.
WHAT IS RISK?.................................................................................................................................... 42
RISK VS. UNCERTAINTY ...................................................................................................................... 44
WHAT IS RISK MANAGEMENT? ............................................................................................................ 45
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9.3.1. Overview of risk management definitions ..................................................................................... 45
9.3.2. Risk Management processes.......................................................................................................... 46
9.4.
AN ONGOING DEBATE: SUBJECTIVE VS. OBJECTIVE RISK .................................................................... 50
10.
SUPPLY CHAIN RISK MANAGEMENT (SCRM) ......................................................................... 51
10.1.
WHY SUPPLY CHAIN RISK MANAGEMENT IS BECOMING AN IMPORTANT ISSUE? ................................ 51
10.2.
STATE OF THE ART SCRM DEFINITIONS .............................................................................................. 52
10.2.1.
Origin of the SCRM theory....................................................................................................... 52
10.2.2.
Some definitions… .................................................................................................................... 53
10.3.
SUPPLY CHAIN RISK MANAGEMENT PROCESSES ................................................................................ 55
10.3.1.
Supply Chain Risk Sources and Risk consequences ................................................................. 55
10.3.2.
Supply Chain Risk Drivers and Risk Mitigating Strategies ...................................................... 57
11.
HOW DO LEAN, AGILE AND “LEAGILE” SUPPLY CHAIN STRATEGIES AFFECT
SUPPLY CHAIN RISK MANAGEMENT? ..................................................................................................... 59
11.1.
LITERATURE REVIEW .......................................................................................................................... 59
11.1.1.
Lean philosophy ....................................................................................................................... 59
11.1.2.
Agile philosophy ....................................................................................................................... 65
11.1.3.
Leagile philosophy ................................................................................................................... 65
11.2.
WHAT ARE THE IMPLICATIONS OF THE SUBJECTIVE-OBJECTIVE DEBATE REGARDING THE NATURE FOR
DEVELOPMENT OF TOOLS AND FRAMEWORKS FOR (LEAN, AGILE AND LEAGILE) SUPPLY CHAIN RISK
MANAGEMENT? ................................................................................................................................................. 66
12.
CONCLUSION ..................................................................................................................................... 69
Chapter 3: Case Study: Building tools and Frameworks to manage Supply Chain Risks at an
aircraft manufacturer: Implementation of a FMEA
13.
INTRODUCTION ................................................................................................................................ 71
14.
A PROJECT TO IMPLEMENT PROACTIVE MANAGEMENT PRACTICES ......................... 71
14.1.
A380 PROJECT DELAYS: AN EVIDENCE OF THE NECESSITY TO BUILD A PROACTIVE SUPPLY CHAIN
MANAGEMENT PHILOSOPHY ............................................................................................................................. 72
14.2.
A TEAM FOCUSED ON BUILDING STRONG SUPPLIER RELATIONSHIPS: THE SUPPLIER DEVELOPMENT
TEAM 73
14.3.
OBJECTIVE: BUILDING TOOLS AND FRAMEWORKS TO MANAGE SUPPLY CHAIN RISKS ........................ 74
15.
METHODOLOGY ............................................................................................................................... 75
15.1.
INTEGRATION PHASE INTO THE SUPPLIER DEVELOPMENT TEAM ........................................................ 75
15.1.1.
Supplier Development processes .............................................................................................. 76
15.1.2.
An example of an industrial Diagnosis..................................................................................... 77
15.2.
UNDERSTANDING THE CLIENTS NEEDS OF THE PROJECT ...................................................................... 77
15.3.
THEORETICAL APPROACH TO HAVE A DEEP UNDERSTANDING OF THE PROJECT ................................... 77
15.3.1.
Theoretical approach ............................................................................................................... 78
15.3.2.
Define a common supply chain framework .............................................................................. 79
15.3.3.
Define the scope of the Supply Chain framework..................................................................... 81
15.3.4.
Conduct interviews to identify objective and mostly subjective risks ....................................... 82
15.3.5.
Building a Risk Management tool: FMEA................................................................................ 83
16.
16.1.
16.2.
16.3.
RESULTS .............................................................................................................................................. 85
SUPPLY CHAIN PROCESSES .................................................................................................................. 85
FMEA ................................................................................................................................................ 85
COMMUNICATION STAKES .................................................................................................................. 86
17.
CONCLUSION ..................................................................................................................................... 86
18.
REFERENCES ..................................................................................................................................... 87
19.
WEB LINKS ......................................................................................................................................... 92
20.
APPENDIXES....................................................................................................................................... 93
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20.1.
APPENDIX 1: STATE OF THE ART DEFINITIONS..................................................................................... 93
APPENDIX 1....................................................................................................................................................... 95
20.2.
APPENDIX: SUPPLY CHAIN FRAMEWORK. IDEF MODEL ..................................................................... 99
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1. Acknowledgements
First, I would like to thank all the Supplier Development Team: Myriam BARATTEAREMON, who spent time with me to share relevant knowledge about risk management
issues and also who convince me during the world-cup that rugby is a fascinating sport;
Marion SMEYERS, who gave me constantly good directions to conduct my project and who
made several jokes per day; Emmanuel SOLER, who helps me to get a highly-structured
vision on supplier relationships management and who gives me strong insights in civil
engineering too! The experience of working with this team has been tremendously
educational and inspiring.
I would like to thank also Laure FUENTES, Marie-christine SEMPE-RAUFAST, Marcel
BEI, Daniel TROY, Jean-claude BOIJOUT, Stephanie COROND, Jean-marc CASTERA,
Jacques MILLON, Christelle OLALDE, Sebastien DARNIS and Guillaume VAYSSE.
Finally, I would like to thank Samuel BASSETTO, who helps me a lot concerning research
topics. Thanks to his generosity and trust, I have had the opportunity to conduct an interesting
research project. Unfortunately, when he came to visit me at Toulouse, we hadn’t succeeded
to find time to visit this beautiful city. Next time…
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2. Recommandations
Risk management is not an easy task. The key of this project is that risk management issues
must be strongly supported by an operation management philosophy based on proactive
approaches. Lean manufacturing is the best practice that the organization must implement in
order to be competitive and proactive.
However, as always in such an important industrial firm, the biggest difficulties doesn’t stem
from technical difficulties but rather from communication and cultural difficulties.
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Part 1:
Understanding the Supply
Chain Management best
practices in the Aerospace
industry
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December 2007
3. Introduction
The aim of this part is to provide a brief description of the civil aircraft industry. This industry
is presented as a duopoly where Airbus and Boeing are the main players. The purpose is to
put forth a static picture of the aircraft industry and then to study its evolution through an
innovation perspective. This evolutionary vision enables to present some of the challenges
that this duopoly has to cope with.
Supply chain management is getting the cornerstone of the strategies used by Airbus and
Boeing. Therefore we will provide a comparison of the supply chain strategies used for the
last programs, the A380 program (Airbus) and the 787 program (Boeing).
The results are that the aerospace industry is getting more focused on its core competencies
and thus it has adopted a risk sharing partnership within the entire supplier network in order to
reduce costs and to enhance flexibility not only at one point of the supply chain but rather on
the entire supply network.
Moreover we tried to bring out trends in this industry based on a kind of benchmarking study.
Indeed the automotive industry is getting the reference for the supply chain management.
Thus we have presented some of the methods used in the automotive industry that can be
applied in the aerospace industry.
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4. Industry analysis
4.1. Industry analysis: a competitive duopoly
Nowadays, the industry can be characterized by a duopoly between Airbus Industry and the
Boeing Company. Historically, Boeing has dominated the industry since the beginning of the
aircraft industry development, thanks to a series of successful models. At that time this
industry was characterized by a monopoly. In the 1990s, the industry underwent a
transformation from primarily a monopoly by Boeing, to a competitive duopoly. In 2004,
Airbus attained the n°1 position market and delivered 35 more aircrafts than Boeing,
accounting for 53% of total deliveries that year.
4.1.1. Major players in the commercial aircraft industry
• Airbus
Headquartered in Toulouse, France and with its main aircraft assembly operations in the
same city, Airbus Industry is the largest commercial aircraft producer in Europe. Airbus
was formally established in 1970 as a consortium of French (Aérospatiale), German
(Deutsche Airbus GmbH), and later Spanish (CASA: Constructiones Aeronauticas SA)
and U.K. (BAE: British Aerospace) companies. In 2001, Airbus officially became a single
integrated company. Its major stakeholders include European Aeronautic Defense and
Space (EADS) Company with 80 percent shares of stock and BAE system with 20 percent
shares of stock. Its total revenue was about 22.3 billion euros in 2005 and 26 billion in
2006.
The main purposes of this industrial companies grouping were:
Ö To enhance their industrial strengths
Ö To broaden their competences area
Ö To improve their competitiveness
Ö To deepen their expertise
• Boeing
Based in Chicago, Illinois, Boeing is consisted of two main businesses; its defense
division, Integrated Defense Systems (IDS, headquartered in St.Louis, Missouri), and its
commercial division, Boeing Commercial Airplanes (BCA, headquarters in Seattle,
Washington). Key manufacturing sites for commercial airplanes are located in Everett,
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Washington (747, 767, 777 and 787) and Renton, Washington (737). Its total revenue was
about 61.5 billion dollars in 2006 (29.1 billion for BCA and 32.4 for IDS).
It is important to bring out the fact that we cannot compare the strategy of Airbus and the
strategy of the entire Boeing Group. Indeed we have to compare the Boeing Commercial
Airplanes division with the Airbus group, owing to the fact that Defense markets and
Commercial markets do not evolve in the same environments.
4.1.2. Industry characteristics
Before understanding the industry dynamics, it is necessary to emphasize key characteristics
of the industry as Product & Market, Cost Structure and Technology.
• Product & Market
Airlines have different needs for different routes and schedules. They also have varied
preferences for features, as well as the degree of flexibility and capability for
customization. Moreover, aircraft-manufacturing industry is constrained by long lead
times that can be very costly. The long lead-time in current production is a result of the
complexity of manufacturing processes and highly customizable parts, which in turn stem
from a fairly heterogeneous demand.
Purchase decisions by airlines are more often impacted by the existing maintenance crew
and flight crew, as any training costs incurred often represent a significant percentage of
the operating costs. Hence, the cost of switching from one airplane manufacturer to
another can be prohibitively high, depending on the customer’s existing fleet composition.
• Cost Structure
The cost structure of commercial aircraft manufacturing can be characterized by high
fixed costs, and relatively marginal production costs. Labor costs are kept high; therefore
production operates at a high minimum efficient scale 3 .
• Technology
Technological innovation has been the key driver for product differentiation, although
most of the innovations in recent years reside in systems and components that are outside
3
Minimum Efficient Scale: The MES is the output for a business in the long run where the internal economies
of scale have been fully exploited.
http://www.tutor2u.net/economics/content/topics/buseconomics/mes.htm
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of the manufacturer’s domain, such as avionics and flight control systems. Over the past
few years, manufacturers have tried to differentiate themselves by leveraging more
significant technological advances, for instance, Boeing’s composite building materials
for its new 787 model and Airbus’ “double deck” design for its A380 and also the new
A350 composite aircraft. In the next section we will be more focused on supply chain
innovation.
4.2. Industry dynamics
In the following section we will have a theoretical approach to describe the main product
innovation conducted in this industry in the past few years. In the next section (1.3) we will
be more focused on supply chain innovation.
4.2.1. Description of the main product innovations
In order to have a good understanding of the aircraft industry evolution, we can assess the
way this duopoly manage its innovation and technology. In this part we will describe the main
product trends that exist in the aerospace industry:
Ö Airbus A380 key characteristics
Ö Airbus A350 key characteristics
Ö Boeing 787 key characteristics
•
Airbus A380
The main objectives of the Airbus A380 programme are to
offer double improvements in fuel burn and operating
costs when compared with today’s largest commercial
aircraft. The A380 has the potential to increase the
operator’s return by as much as 35%. Its increased
capacity and longer range provide airlines with significantly more seat-miles on every flight.
The A380 can fly 10 to 15 % more range and burn less fuel than the Boeing 747. Thanks to
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several technological improvements, the A380 will provide a direct operating cost per seat
which is 15-20 per cent lower than the competitor. 4
The A380 has been positioned as a desirable solution to help airlines cope with the rising air
traffic demands and enable them to improve the utilization and efficiency of their fleets
without increasing the number of flights.
•
Airbus A350 Xtra Wide Body
The A350 XWB is the Airbus’ response to market demand
for a medium capacity long range wide-body family.
Available from 2013, the A350 is made of more than 60
per cent new materials and in particular, its innovative use
of all-new Carbon Fibre Reinforced Plastic (CPRF).
Moreover thanks to an improved aerodynamic design and to new efficient engines, the A350
provide a greater fuel economy in all flight regimes.
The investments for the A350 program amounts today to 10 billion euros. This investment
was initially estimated to half of this amount.
•
Boeing 787
The Boeing 787 is Boeing’s newest aircraft type. It is a
mid-size widebody aircraft for medium to long ranges,
intended as the successor of the Boeing 767 and to
compete with the Airbus A330 and the future A350. The
objective of the company is to build a very fuel-efficient,
silent and clean aircraft, with maximum use of new technology.
The Rolls-Royce and General Electric turbofans will be much more fuel efficient than the
engines on earlier widebody aircraft. Moreover about fifty per cent of the primary structure,
including the fuselage and wing, will be made of composite materials, like carbon fibre
reinforced plastics. This makes it possible to manufacture one-piece fuselage sections, which
eliminate 1500 aluminium sheets and 40 000-50 000 fasteners. Finally, another feature is
“health-monitoring systems” that will monitor the technical condition of the airplane and
4
www.airbus.com 2007
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December 2007
report maintenance information to computer systems on the ground. This must help to reduce
maintenance costs 30 per cent compared to current airliners 5 .
In contrast with the A380 capacity, which is designed for a “hub-and-spoke” airline route
system, the 787 is targeted at rapid, direct, point-to-point connections with capacity of 250
passengers.
To conclude, nowadays there are two main fields of improvement in the commercial aircraft
industry:
Ö Reducing acoustic nuisances
Ö Reducing fuel consumption
4.2.2. Theoretical approach of innovation
A key feature of invention is the degree of newness that the developed product will involve.
It’s not the purpose of this paper to list here all the inventions that appeared these recent years
in the aerospace industry. However we will try to analyse here two “macro” inventions that
will affect and have already affected the commercial aerospace industry:
Ö Material innovation: Key decisions in the material area concern the choice between
the uses of composite or metallic parts. Moreover the Titanium plays a prominent
place in the aerospace environment. Therefore there is also an important choice to do
between a metal alloy and a titanium alloy.
In order to take a relevant decision the main criteria are: Technological criteria
(resistance, rigidity, mechanical fatigue, corrosion) but also Design criteria
(compactness, encumbrance, procurement & manufacturing effectiveness).
Ö Aircraft architecture: The aircraft architecture plays an important role in the aircraft
capacity definition. Airbus, with the A380 Program, has chosen to increase seats
capacity with a longer range capability.
The purpose of this theoretical approach is to put forth a framework to analyse the current
state of two main innovations and their evolution in the aerospace industry. The main
difficulty is to describe what lies behind a particular phenomenon we are describing. To
5
www.boeing.com 2007
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achieve this objective, on the one hand we will clarify the main differences between
innovation and invention. On the other hand we will use a dynamic theory as the moving
equilibrium theory.
•
Innovation vs. Invention
In this part we will describe the main innovations that affect the commercial aircraft industry.
To do this, we will use a theoretical approach developed by David Smith 6 . In his book
“Exploring Innovation”, he gives us a relevant framework to describe the main steps of the
“innovation” process. The three main steps are the following: Invention, Commercialization
and Diffusion. “Innovation is about commercialization of invention” in order to make them
relevant to business.
Carbon Fibre
Titanium Technology
Very Large Airlines
Reinforced Plastic
Invention
Commercialization
Diffusion
Innovation
Figure n° 1: Difference between Invention and Innovation
Carbon Fibre Reinforced Plastic
A prominent use of Carbon Fibre Reinforced Plastic in the aerospace industry enables a gain
of weight. Therefore it enables to reduce fuel consumption. The Carbon Fibre Reinforced
Plastic material was only used in the civil aerospace industry for secondary elements as
interior fittings and so on 7 . This material was seldom used for the manufacturing of wings
owing to two main difficulties:
Ö High cost in comparison with the aluminium
Ö Risks of delamination 8 , that doesn’t enable to use this material for the aerodynamic
structures.
6
David Smith- Exploring Innovation- McGraw Hill Education- Europe-2005
L’industrie française des matériaux composites
http://www.industrie.gouv.fr/biblioth/docu/dossiers/sect/pdf/rapfinal_long.pdf
7
8
Delamination: Séparation des couches d'un stratifié par rupture près ou dans le plan de joint ((La norme
AFNOR T-50-100 reprend la norme ISO-472 : 1988)). Un délaminage est un défaut existant dans les matériaux
composites stratifiés se caractérisant par une séparation ou un manque de liaison entre deux strates. Ce terme est
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However, thanks to many R&D efforts led by the industry (Advanced Composite Technology
Programme-NASA, Boeing, but also British Aerospace, Daimler Benz, Dassault, Eurocopter
and Airbus), the aerospace industry get more capabilities to use the composite to manufacture
aircraft elements and in particular wings.
It seems obvious that the knowledge on the
composite technology will be the cornerstone of the intensive competition between EADS and
Boeing. Between 1998 and 2000, EADS has registered 37 patents whereas Boeing has
registered 56 patents 9 . The composite is a potential game changer in an industry saddled with
high fuel costs.
Moreover there are several industrial challenges when considering Supply Chain and
Operation Management issues for the composite. Here, we have a “macro” flowchart of the
Supply Chain between the end customer and the Tier 1. This Supply Chain is described
toward an energy perspective 10 .
Emissions
Energy
Emissions
Emissions
Emissions
Energy
Energy
Global Effects
Fate and Persistence
Emissions
Distribution
Recycle
Supplier
Raw Materials
Production
Products
Wastes
End User
Customer
Transportation
Wastes
Wastes
Warehouse
Emissions
Waste
Product
Development
Wastes
Production
Energy
Recycle
Emissions
Figure n°2: Dyadic Supply Chain throughout an energy perspective
improprement employé à la place de « cisaillement » ou de « clivage » qui est la contrainte exercée conduisant
au délaminage.
9
L’industrie française des matériaux composites, p 116
10
Environment, Safety, and Health considerations-Composite Materials in the Aerospace Industry, p34
http://ntrs.nasa.gov/archive/nasa/casi.ntrs.nasa.gov/19950016608_1995116608.pdf
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Here we have some of the Supply Chain and Operations Management challenges:
Ö Procurement Challenges: Obviously a new material strategy has a strong impact on
the Supplier Panel and Network. The use of composites is changing the procurement
organization’s focus, increasing buyer interactions with engineering and restructuring
the Supply Chain 11 . Boeing was the first company that has taken the initiative to
integrate more the procurement activities into the company’ strategy. The integrated
Supply Chain Management is now an important issue for this company. Now the
design team and the procurement team work closely together in order to employ new
supply chain tactics such as:
-
ESI: Early Supplier Involvement in the aircraft design
-
Advanced sourcing practices for key raw materials
-
Outsourcing of entire systems to suppliers
Ö Operation Management Challenges: According to several industrial diagnoses
realized at the Procurement Department of Airbus, the bottleneck operations are often
operations that compel a discontinuous flow (thermal heat treating, oven and so on). In
that case, lot sizing problems must be seriously considered and solved. Owing to the
physical characteristics of the composite material, manufacturing activities should take
these constraints into consideration. Indeed composite materials should be stocked at a
low temperature and a controlled atmosphere 12 . After that the destocking operations
will play also a prominent place into the manufacturing process. Indeed the
temperature of the material plays here an important place.
11
Composites bring Boeing's buyers, engineers and parts suppliers closer
http://www.purchasing.com/article/CA6419134.html
12
La filière composite à l'Aérospatiale
http://www.w3architect.com/static/people/fgaillard/these/Aa-FiliereCompo.html
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Titanium Alloy Technology
These recent years the annual consumption of titanium alloy is constantly increasing.
The
aerospace industry plays an important role in this phenomenon. The commercial aerospace
industry represents approximately 35% of the annual consumption. This trend has a major
impact on the procurement strategy. Indeed the titanium has to be considered as a scarce raw
material that is strongly affected by the raw market fluctuations. As another scarce raw
material, Airbus and Boeing have to integrate these variations into their procurement strategy
in order to get the best prices and also to assess procurement risks to balance efficiently the
offer and the demand.
To do this, both companies have to:
Ö Manage scraps; that means trying to sell the scraps back to the demand market
Ö Improve inventory management throughout the supply chain
Ö Realize economies of scale by having a procurement strategy not only for their
companies but for the all Supply Network
Ö To manage supply risks; that means having a clear vision of the worldwide demand
and offer in order to implement the best procurement strategy (multi-sourcing vs.
strong partnership with a unique supplier, …)
•
Punctuated equilibrium
The second theoretical approach is the “Punctuated equilibrium”. The main notion behind this
theory is that the technology evolves not a “on a smooth continuous basis, but via a
succession of fits and starts”. Airbus has developed a double-deck aircraft to improve the
seat-miles ratio. This project involved several technological challenges and it represents the
future of the entire Airbus Company. Moreover the evolution of this program will affect the
behaviour of the EADS group too.
This theory provides relevant insight owing to the fact that it enable to describe this
architecture innovation through an evolutionary perspective.
The discontinuities that
punctuated periods of equilibrium are linked to a major technological innovation. The
innovations linked with the A380 program enable to reach a new equilibrium.
The technology developed for this program enabled the civil aerospace market to reach a new
equilibrium not only for the skills and knowledge, but also for the needs and the market
opportunities.
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Market
Suppliers
Abilities
Market
Low to medium
capacity
aircrafts *
Skills
Suppliers
Abilities
High capacity
aircrafts *
Skills
Knowledge
Customer
needs
Knowledge
Customer
needs
1st equilibrium
2nd equilibrium
Time
* Capacity of both range and seats
Figure n°3: Evolution of the punctuated equilibrium
Furthermore, the evolution of the core technology will also cause an evolution of the market,
the customer behavior, and the suppliers.
Some factors can give rise to inertia in the development of a new technology. The main
factors could be the following: traditions, sunk costs, internal political constraints and
uncertainties. In the case of the development of the A380 Program, the major constrains are
the sunk costs and the market uncertainties.
5. Comparative analysis of Supply Chain Management strategies
5.1. Supply Chain Framework throughout the main stakeholders perspective
In this section we will describe the aerospace supply chain throughout the main stakeholders’
perspective. On the one hand we will conduct a static analysis in order to have a better
understanding of the main stakeholders and their role in the entire supply chain. On the other
hand we will get an evolutionary perspective on the aerospace supply chain to forecast the
behaviour of the entire network.
The three main stakeholders are the Supplier, the Aircraft manufacturer (OEM 13 : Airbus or
Boeing) and the Customer.
13
O.E.M. :Original Equipment Manufacturer :
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5.1.1. Suppliers’ network in the aerospace industry
The civil aerospace industry is characterized by an extensive, deep and multi-tiered supplier
network. The OEMs were playing a prominent role in this network. They were controlling all
the decision processes in this industry. Since few years, this industry has evolved from a
“build to print” subcontractor relationship to a turnkey “design to build” risk-sharing
partnership (MacPherson and Pritchard, 2005).
The major first-tier suppliers can be segmented as followed: aerostructures (including
fuselages, wings, landing gears and generally work packages), equipments (interior cabin
systems, engines …), material (titanium, steel…).
The aerospace industry has very high entry barriers owing to high sunk cost and high
requirements of technological maturity and capabilities. Thus, the number of qualified firsttier suppliers, is limited. In this industry, it is common that different OEM purchase parts or
components from the same supplier.
5.1.2. Original Equipment Manufacturer
To describe the tasks of the OEMs, we can use the SCOR model at the level 1. There are four
activities: Plan, Source, Make, and Deliver.
• Plan
The most important here is probably to know exactly the environment that will be affected by
the planning decisions. Indeed too many planning decisions are not taken in accordance with
the suitable level of granularity. The first task in “Plan” is to define the strategic objectives
and then associate these objectives to the most suitable horizon plan in order to get the most
efficient multi-tiered vision.
In the following figure we have described the project management organization according to
the most suitable horizon plan.
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Level of granularity
Strategic level
Portfolio management
Program
Program
Program
Project
v
vv
Figure n°4: Plan: Having a multi-level vision throughout the organization
Concerning the planning activity of the industrial systems, there are several concepts that
depend on two factors: time and cost to realize the products.
In terms of time, the most interesting parameter is the ratio between the production cycle of
the products and commercial cycle.
In terms of cost, the most interesting parameter is the degree of customization of the end
product.
These two parameters define the place where the demand occurs in the OEM process. That is
the decoupling point.
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Figure n°5: Basic control logics for supply chains (Delfmann &Albers, 2000)
Ö Make To Stock environment:
The decoupling point is just after the assembly process. The client won’t accept any
delays and order the products after its fabrication. This strategy is based on statistical
inventories forecasts. This strategy is effective to get a good on-time-delivery but the
inventories costs could be important.
Ö Assembly To Order environment:
The delivery time is longer here. The client chooses the product from an existent
catalogue. In the ATO environment forecasts play still an important place. There is a
number of possible end item configurations, all made from combinations of basic
components and sub-assemblies. The ATO enables to maintain flexibility, starting basic
components and sub-assemblies into production, but in general, not starting final
assembly until a customer is received (For instance this environment could be observed at
Dell, IBM and so on).
Ö Make To Order environment:
Company carries no finished-goods inventory and builds each customer order as needed.
This concept is often used when there are a very large number of possible configurations.
Often the production is launched before receiving the firm order in order to reduce the
commercial cycle.
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Ö Engineering To Order environment:
In that environment the product is highly customised and often produced in small
quantities. This environment requires the highest degree of collaboration between OEM
and the supplier.
To conclude:
Cp: Production Cycle
Cc: Commercial Cycle
x
Cp
{ ETO,MTO, ATO, MTS}
Cp
and
Cc
Cc
x
Cp
<
1
Cp
Cp
< Cc MTO< Cc ATO< Cc
MTS
ETO
Responsiveness
Cost
As we can see, a trade-off decision is needed between cost and responsiveness.
• Source
The main tasks in this part are the following:
Ö Schedule deliveries; receive, verify, and transfer product, and authorize supplier
payments.
Ö Identify and select supply sources when not predetermined, as for engineer-to-order
product.
Ö Assess supplier performance and maintain data about the suppliers
Ö Manage inventory, incoming products, supplier network, import/export requirements,
and supplier agreements.
• Make
As we have seen before, there is a trade-off between responsiveness and cost of
manufacturing. This trade-off implies the fact that the manufacturing chain is split into two
parts:
Ö An upstream chain that is led by the inventory policy
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Ö A downstream chain that is led by the customer’s order
Therefore the most difficult is to define the point in the manufacturing chain where we change
from a Make-To-Stock environment to a Make-To-Order environment.
Manufacturing based on
forecasts
Manufacturing based on
orders
Figure n°6: The bound between the MTS and the MTO environment
The main tasks in this part are the following:
Ö Schedule production activities, produce and test, package, release product to deliver
Ö Finalize engineer for engineering-to-order product
Ö Manage in-process products (WIP), equipment and facilities, production network,
regulatory compliance for production.
•
Deliver
To summarize the main tasks in delivery encompass the following activities:
Ö Warehouse management from receiving and picking product to load and ship product
Ö Receive and verify product at customer site
Ö Invoicing customer
Ö Manage deliver business rules, performance, information, finished product
inventories, transportation, product life cycle, and import/export requirements.
5.1.3. Customers
The customers can be split into three groups: airlines companies, aircraft leasing companies
and aircraft freight companies.
Nowadays there are approximately 500 airlines companies around the world operating large
commercial aircraft. However, only a few airlines are responsible for the majority of the new
orders. For instance, 50 largest airlines in the world operate 35% of the world’s fleet 14 .
12
Airbus Market Outlook 2005-2025 ; Global Market Forecast
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December 2007
Leasing companies are those companies that purchase aircraft directly from manufacturers or
from the second-hand market and then lease them to airline companies. Since leasing
companies handle most of the asset holding costs for the airline companies, their role as the
source of new aircraft orders becomes even more important during business turndowns in the
airline industry.
Meanwhile, the size of the global fleet of jet freighters is regularly increasing mainly due to
globalization phenomenon. Airbus forecasts freight traffic for 144 individual domestic and
international flows on the basis of historical traffic, economic data and country-to-country
trade statistics. Airbus forecast that air freight expressed in terms of freight-tonne kilometres
(FTK) will grow at a 6% average annual rate over the 2005-2025 period. Over the next 20
years, fast growing Chinese exports, as well as its emerging express market, will radically
change the hierarchy of the top freight markets 15 . Nowadays the world freight aircraft fleet
consists of 1, 644 aircraft in service, 908 were converted from passenger service and 736 are
factory-build freighters.
2005 130% 2025
1644
4115
Freighter
Freighter
89%
Passenger
service
aircraft
Total
15491
29385
17 135
33500
2026
1980
3980
89%
Passenger
service
aircraft
Total
Airbus Forecasts
2006 100%
19230
36420
21 210
40400
Boeing Forecasts
Figure n°6: Products Forecasts
Airbus and Boeing have sensibly the same forecasts for the next 20 years. Aircraft freighters
represent approximately 10% of the global market. These statistics provide us only a “macro
picture” of the civil aircraft market. For instance Airbus and Boeing have differing opinions
on how to satisfy this growing market. Airbus bet on very large aircrafts as the A380 whereas
Boeing is not developing that kind of aircraft.
13
Airbus Market Outlook 2005-2025 ; Global Market Forecast
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5.2. Comparative analysis between Airbus and Boeing’s supply chain and
trends in the aerospace industry
5.2.1. Similar Supply Chain Management Practices
If we look roughly at the supply chain management practices’ “picture” between Airbus and
Boeing, we can easily find some similarities.
Indeed both have major suppliers that participate early in design and development process.
Moreover they are both reducing their supplier base. This is a good way to simplify the
supplier’s network and to improve the informational flows.
Both tried to commit to long-term, mutually beneficial, reliable and stable relationships with
key suppliers. Building strong relationships throughout the entire supplier’s networks is the
cornerstone of supply chain management success. However it is difficult to reach a reliable
relationship in the suppliers’ network. Therefore trust plays an important place here.
Electronic links with suppliers via supplier portals have been created (request for
quotes/proposal, order placement, technical data interchange, such as technical specifications,
engineering drawings, facilitating virtual collaboration with global collaboration with global
partnering suppliers).
Moreover RFID initiatives have been developed by both the companies 16 . They have worked
together to reach for consensus regarding standards for using global RFID technology on
commercial airplanes.
5.2.2. Supply Chain comparison of the A380 and the 787 programs
Due to an increasing market pressure, aircraft manufacturers are forced to lower their prices,
while offering better products, in order to attract customers.
Under this pressure, aircraft manufactures have adopted a risk sharing partnership within the
entire supplier network in order to reduce costs not only at one point of the supply chain but
rather on the entire supply network. Indeed these recent years, both Airbus and Boeing asked
for the A380 and 787 programs to absorb non-recurring costs. Non-recurring costs are related
to non-recurring engineering activities, as researching, designing and testing a new product.
This tactic enables the prime manufacturers to shift manufacturing risks to the suppliers. For
instance, for the A380 program, Airbus has established a “risk-sharing partnerships” with
16
http://fr.biz.yahoo.com/11072007/175/aviation-week-ainsi-qu-airbus-et-boeing-vont-presenter-des.html
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more than 30 of its major suppliers (Alenia, Eurocopter, Fokker, Labinal, and Saab), that will
cover about 25 percent (US$ 3 billion) of the project’s non-recurring costs 17 .
Boeing has asked all its partnering suppliers to carry all the non-recurring costs, but in return
gives back to the suppliers the intellectual property rights on the components and systems
they provide, which indicates a reversal of earlier practices.
The most significant transition is that suppliers are taking up much more responsibilities in
product design, development and manufacturing than ever.
Airbus has just discovered its partnership architecture and modular outsourcing strategies.
However Boeing is reaching the next level in the 787 program. Indeed, Boeing is fast
adopting a revolutionary business model similar to the so-called “system integration” model,
involving its risk sharing partners throughout the design, development and manufacturing
processes for all the major components and subassemblies.
With the 787 program, Boeing delegates the major responsibilities of the development and
manufacturing to its first-tier suppliers and assumes the central role of system integrator. This
indicates the first time for Boeing to outsource the entire wing design and manufacturing to
external suppliers.
In order to reduce final assembly cycle times, Boeing has adopted a higher-level of
integration at the supplier level, by significantly reducing the number of parts and
components, subassemblies or sections that go into the final assembly stage. This means that
the first-tier suppliers are moving upward in the value chain and assuming more the role of
the system integrator. First tier suppliers, therefore, can offer more integrated and
interconnected solutions, decreasing the number of the components comprising the airplane.
The first-tier partnering suppliers are also given full control of their own lower-tier supplier
networks.
On the other hand the last program developed by Airbus seems to be more in the mold of the
traditional model. The core technologies related to complex or key airframe components have
typically been kept pretty much in-house within the core respective companies. This model
17
A.T. Kearny & The Society of British Aerospace Companies-The Emerging Airline Industry , 2003
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has remained essentially unchanged in the development of the recent Airbus aircraft platforms
despite the fact that it has been increasing its outsourcing contents in recent years.
Airbus has to continue the development of this “risk-sharing partnership” strategy and the
harmonization of the methods and tools in the airbus group as a first step and then to the
entire airbus’ suppliers network as a second step. For instance Airbus is facing several
difficulties, as:
•
A lack of harmonization of the IT systems and particularly a lack of standardization of
the CAD softwares.
•
A lower-level of integration at the supplier level. Airbus has to significantly reduce the
number of parts and components, subassemblies or sections that go into the final
assembly stage.
5.2.3. Outsourcing strategy
The differences between Airbus’ and Boeing’s outsourcing activities mainly echo the quite
different difference overall outsourcing philosophy of these two companies. Taking the
position of the 787 program, Boeing had delegated the entire responsibility for wing design
and production to its Japanese partners, while it has also assigned a significantly greater share
of the work to the Chinese suppliers. In contrast, Airbus, while it also engages in industrial
offset agreements, it has typically elected to do so in connection with the older Airbus aircraft
models. This is a main reason explaining why Airbus seems to be facing many more
difficulties in Japan than in China. Decades of technology development through extensive
involvement in Boeing’s projects have helped the Japanese companies to establish a
leadership position in wing design and composite technology. All of this financed by Japanese
government.
5.2.4. New trends in Supply Chain Management
• Modular design 18
As observed few years ago in the automotive industry, the aeronautic industry spread modular
design methods to improve the overall Supply Chain efficiency. The modular design is an
18
Frigeant V. and Talbot D. Proximités et logique modulaire dans l’automobile et l’aéronautique : vers une
convergence des modèles d’approvisionnement ? IIIèmes Journées de la Proximité « Nouvelles Croissances et
Territoires », Paris, décembre 2001.
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approach aiming to subdivide a system into smaller parts (modules) that can be independently
created and used in different systems or programs to drive multiple functionalities. This
method enables to reduce costs due to less customization, and less learning time and it offers
more flexibility in design.
This method has not only changed the design strategies but also the entire industrial
organization that is not more organized by products but rather by modules. Therefore the
manufacturing activities are often based on postponement principles 19 . The design and the
fabrication of the modules can be led by an important tier 1. These tiers 1 are thus in charge
all the suppliers’ network associated with this module.
This strategy enables to realize important economies of scale mainly due to a standardization
of the components.
The trend for the OEM is to design the module and to ask a tier 1 to manufacture an entire
module and manage its supplier’s network.
• Rationalization of Tiers two suppliers’ panel
Nowadays the trend is to rationalize the Tier 2 supplier’s panel. The prime manufactures ask
the suppliers to merge in order to be able to respond to an increasing demand in terms of
products’ variety and ramp-up of production.
• Lean Manufacturing
The concept of Lean Manufacturing has been developed by Toyota 20 . The OEMs and the
major suppliers of the aerospace industry have tried to apply the Lean manufacturing best
practices in order to be more efficient. The next step is to apply these practices to the entire
suppliers’ network. This situation can create a disconnection between the lean manufacturers
and “conventional” manufactures that may result in inefficiencies, such as excess inventory,
excessive lead times, quality non conformance and late deliveries. The present situation is that
we have several elements (firms) in the network that try to be lean, the optimum will be reach
when the entire network will be “lean” (Lean Supply Network).
19
The notion of manufacturing postponement is to retain the product in a neutral and non committed status as
long as possible in the manufacturing process.
20
Taiichi Ohno has developed the Toyota Production System. Lean manufacturing is the production of goods
using less of everything compared to mass production: less human effort, less manufacturing space, less
investment tools, and less engineering time to develop a new product.
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Past
Platform
assembly
Large scale
integration
OEMs
Small scale
integration
Value-added parts
and assemblies
Raw material procurement
strategy
Modular Design
Risk Management: Proactive
philosophy
Supplier’s
network
Emerging
System
integrator
Supplier’s
network
Future
System
integrator
Supplier’s
network
Individual
Individual/common
Common
-
+
+
++
++
Figure n°7: Evolution of the Aerospace industry
6. Conclusion
Airlines’ expectations are higher than before. There is a cost consciousness of the overall
industry. Prime manufacturers are trying to face to ramp-up challenges. Moreover the
intensive competition between Airbus and Boeing is improving the industry efficiency by
using most of the methods used few years ago in the automotive industry.
But before trying to use new supply chain best practices, there are still many difficulties
owing to cultural barriers and a lack of harmonization throughout the entire organization.
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Part 2:
State of the art:
Building tools and
frameworks to manage Supply
Chain Risks
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7. Introduction
Supply Chain Risk Management is of growing importance, as the vulnerability of supply
chain increases. Many industries put efforts in order to implement proactive management
practices. Risk management and particularly supply chain risk management is therefore
playing an important role. Supply chain risk management practices must be supported by
effective operations strategies. One of the current fads in operations management practices is
to apply lean, agile and “leagile” methods. Consequently we will show how we can build
relevant tools and frameworks to manage supply chain risks in a lean, agile or leagile context.
Firstly we have presented the state of the art concerning Supply Chain Management, Risk
Management and Supply Chain Risk Management practices (Appendix 1). We tried to
identify further research areas and we conclude that there is a lack of understanding of the
nature of risks among many supply chain researchers and practitioners. Therefore we decided
to answer the following question: What are the implications of the subjective-objective debate
regarding the nature for development of tools and frameworks for (lean, agile and leagile)
supply chain risk management? We have found that this debate between objective and
subjective risks plays an important place in the risk identification and estimation process.
Moreover this part enables us to get a theoretical background before presenting the case study
where we will present tools and frameworks to manage risks in a supply chain.
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8. Supply Chain Management
Since more than ten years almost all the companies have understood that trying to compete
alone in an environment characterized by:
Ö An increasing market pressure
Ö Procurement globalization phenomenon
Ö A high demanding market concerning delays and quality
Ö A growing uncertainty
Ö A fast evolution of innovation and technology
Ö ...
is not the efficient way. Companies have now set up the partnership as the cornerstone of their
strategies and tactics. Therefore having a good understanding of the interrelationships
between separate company functions and between the company and its markets, its industry
and the national economy is becoming a real competitive advantage.
Supply chain management is thus presented as the best solution to reach this new partnership
optimum.
8.1. Emergence of supply chain management practices
The term supply chain management has risen to prominence over the past ten years (Cooper
et al. 1997). For instance, at the 1995 Annual Conference of the Council of Logistics
Management, 13, 5 % of the concurrent session titles contained the words “supply chain”. At
the 1997 conference, just two years later, the number of sessions containing the term rose to
22,4 %.
Corporations have turned increasingly to global sources for their supplies. This globalization
of supply has forced companies to look for more effective ways to coordinate the flow of
materials and information into and out of the company. Key to such coordination is an
orientation toward closer relationships with suppliers. Moreover customers are demanding
products consistently delivered faster, exactly on time, and with no damage.
This global orientation and increased performance-based competition, combined with rapidly
changing technology and economic conditions, all contribute to market place uncertainty.
This uncertainty requires greater flexibility on the part of individual companies and supply
chains, which in turn demands more flexibility in supply chain relationships.
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Therefore managing the several supply chains related to a company represent obviously the
key success to compete in that environment.
8.2. What about Supply Chain?
At first glance when we try to establish a state of the art about the “Supply Chain” and the
“Supply Chain Management”, it appears that a definition of supply chain seems to be more
common across authors than the definition of supply chain management (Cooper and Ellram
1993; LaLonde and Masters 1994; Lambert, Stock and Ellram 1998). We can list here some
of the more representative definition of supply chain.
Christopher 92
A supply chain is the network of organizations that are
involved through upstream and downstream linkages, in the
different processes and activities that produce value in the
form of products and services delivered to the ultimate
consumer
Definition oriented
toward the value
chain that
encompasses the
end consumer
A network that is in charge of supplying raw materials, of
transforming these raw materials into components and then
into end-products. Finally this network is in charge of
delivering these end products to the customer
Supply chain is a set of firms that pass materials forward.
Normally, several independent firms are involved in
manufacturing a product and placing it in the hands of the end
user in a supply chain-raw material and component producers,
product assemblers, wholesalers, retailer merchants and
transportation companies are all members of a supply chain
Definition oriented
toward the product
End-user focused
definition.
Partnership and
Collaboration play
here an important
place
Tayur and al. 99
A system which comprises suppliers, manufacturers,
distributors and retailers that exchange material flows from
suppliers to clients and information flows from clients to
suppliers
Definition oriented
toward the links in
the entire supply
network
Mentzer and al.
2001
A supply chain is defined as a set of three or more entities
(organizations or individuals) directly involved in the upstream
and downstream flows of products, services, finances, and/or
information from a source to a customer
Definition oriented
toward the links in
the entire supply
network
Lee & Billington 93
La Londe & Masters
94
Even if these definitions bring out the fact that the entire supply network must be customer
focused, they are some differences concerning the ways to reach this point. Indeed some
definitions are more focused on the product, others on the organization.
8.2.1. Supply Chain focuses on the product
Supply Chains focused on the product enable to get an operational view on the entire supply
chain. In that definition design, manufacturing and logistic plays an important place. With this
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definition it is easier to understand the main challenges that every department has to face
with, from the shop floor to a more cross-functional level of the organization.
Ö Definition oriented toward transformation processes (New and al. 95)
It is relevant to have a value added perspective on the entire chain. In this definition the main
activities are: raw material transformation, components manufacturing, end-products
manufacturing and transfer activities.
Physical Distribution and Storage
Raw material
Transformation
Components
manufacturing
End-product
manufacturing
Wholesaler
End Customers
Retail
Recycling
Figure n° 8: Transformation processes
Ö Definition oriented toward a Client/Supplier relationship (Tayur and al. 99)
The purpose of this definition is to make the people think the organization as a sequence of
several Client/Supplier relationships. This supply chain encompasses the suppliers of the 1st
tier suppliers and the clients of the 1st tier clients.
The main benefits of building the supply chain as a sequence of Client/Supplier (C/S)
relationship from the shop floor to a strategic level of the organization are the following:
•
Establishing a C/S relationship supposes to measure the efficiency of this
relationship. Therefore it enables to get a relevant vision on the entire process
efficiency
•
Establishing a C/S relationship supposes to set metrics (measure process) related to
relevant objectives. That enables to monitor regularly the current status of projects and
operations. The purpose of setting relevant metrics is to facilitate reengineering
operations and to build a relationship based on trust.
•
Finally setting metrics is not sufficient to reach the optimum. We have to assess
regularly the relevance of these metrics according to the evolution of the organization.
Moreover when we want to implement a new indicator we have to assess its global
efficiency (i.e. checking its relevance in comparison with the others metrics of
interrelated processes). That enables to see if there are not too many conflicting
objectives.
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8.2.2. Supply Chain focuses on the organization
There is another definition of supply chain focused
on the organization. In this definition, the difficulty
Client
Supplier
Plan
Source
Make
Deliver
is to define the scope of the supply chain. Owing to
(Mentzer, 2001) there are three types of supply
SCOR model: Supply Chain Framework oriented
toward the organization
chain
complexity: a “direct supply chain”, an
“extended
supply chain” and an “ultimate
supply chain”.
Ö A direct Supply Chain -a- consists of a company, a supplier, and a customer
involved in the upstream and/or downstream flows of products, services, finances,
and/or information.
Ö A extended Supply Chain -b- includes suppliers of the immediate supplier and
customers of the immediate customer, all involved in the upstream and/or downstream
flows of products, services, finances, and/or information
Ö An ultimate Supply Chain -c- includes all the organizations involved in all the
upstream and downstream flows of products, services, finances, and information from
the ultimate supplier to the ultimate customer.
b
a
c
Supplier’s
supplier
Ultimate
supplier
.
.
.
.
.
.
Supplier
Supplier
Supplier
Financial
provider
Organization
Organization
Organization
Third party
Logistic
Customer
.
.
.
Customer
Customer’s
customer
Customer
.
.
.
Market
research firm
Ultimate
Customer
Figure n°10: Types of channel relationships (Mentzer, 2001)
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8.3. What about Supply Chain Management (SCM)?
Tacitly there is always, at least, one supply chain in an organization. This supply chain can be
voluntarily managed or not. Therefore there is a clear distinction between supply chain and
supply chain management. As we noticed before in section 1.2 definitions of SCM differ
across authors. At first glance SCM can be defined as the way of managing several partnering
relationships inside and outside the organization. Therefore we will first try to explain the
nature of these different partnering relationships. Next, we will notice that these definitions
can be classified into three main categories: Thinking the SCM as a management philosophy,
as the implementation of a management philosophy and as a set of management processes
(Mentzer and al.,2001)
8.3.1. Nature of the partnering relationships
As stated above, SCM can be defined as the way of managing several partnering relationships
inside and outside the organization. Therefore it is relevant to clarify the nature of these
relations in order to get a better understanding of SCM.
In order to be more focused on their core competencies, many companies have first
outsourced the logistic activities (Third-Party Logistics). This is in that context that the
partnering relationships have appeared. According to (Bowersox, 1990), partners work in an
extended organization that evolves with its own objectives, rules and values. Thus there is a
difference between a continuous partnering relationships and a discontinuous subcontracting
relation where transactions cost is the most used indicator.
(Lambert and al., 1996) proposed a definition of the partnering relationships. Indeed
according to them a partnering relationship is a custom-built relation based on mutual
confidence, open-mindedness, risks and rewards sharing. The objective is to reach a
competitive advantage that is more important than another advantage reached individually by
one member of this partners’ network.
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We can depict the different types of relations that we can find in an industrial environment.
In a capacity subcontracting relationship, the
No subcontracting
relation
P artnering
Capacity subcontracting
contactor relies on a subcontractor to manufacture
Specialized
subcontracting
the products. Capacity subcontracting is a flexible
tool for industrials to cope with punctual increases
of production or technical problems.
In a specialized subcontracting relationship, the
contractor uses specific subcontractor’s equipment
Intelligence
subcontracting
Joint venture
Vertical integration
M ergers &
A cquisition S trategy
Partnering degree
and skills to manufacture products. These
contractors have chosen not to acquire such
equipment and competencies for own strategic
reasons.
Figure n°11: Several subcontracting relations 21
In an intelligence subcontracting relationship, there is a strong relation between the contractor
and the subcontractor. Exchange of information, cooperation and innovation are the key
successes. The purpose is to develop the best product or service based on a collaboration
relationship.
Joint venture and vertical integration are in the “Merger and Acquisition area” owing to the
fact that these activities are rather at a strategic level. Capacity specialized and intelligence
subcontracting relationships are rather at an operational level.
We have now a better understanding of the nature of the links that exist within a suppliers’
network. We can now depict what we understand with the supply chain management issues.
8.3.2. SCM as a management philosophy
As a philosophy, SCM takes a system approach to view the supply chain as a single entity,
rather than as a set of fragmented parts, each performing its own function (Ellram and Cooper
1990). SCM seeks synchronization and convergence of intrafirm and interfirm operational
and strategic capabilities into an unified, compelling marketplace force (Ross, 1998). This
21
Adapted from: Le partenariat : un élément clé de la chaîne logistique, J.Roy, Y. Bigras, 2000 p.6
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definition supposes to think about its several key flows within the organization and its relation
with other organizations with a broad vision (operational and strategic view).
SCM as a management philosophy has the following characteristics:
Ö A system approach to view the supply chain as a whole, and to manage the total flow
of goods inventory from the supplier to the ultimate customer
Ö A strategic orientation toward cooperative efforts to synchronize and converge
intrafirm and interfirm operational and strategic capabilities into a unified whole
Ö A customer focus to create unique and individualized sources of customer value,
leading to customer satisfaction
8.3.3. SCM as the implementation of a management philosophy
Having a SCM philosophy in the organization is necessary to face to the main challenges.
However, this condition is not sufficient and thus the implementation of this philosophy plays
an important place. The implementation of this management philosophy can be structured
with the following six activities. This set of activities represents a coordinated effort between
the supply chain partners in order to respond to the needs of the end customer.
a. Integrated behaviour: Firms must expand their integrated behaviour to incorporate
customers and suppliers.
b. Mutually sharing information: Sharing information throughout all the supply chain is
necessary to implement a SCM philosophy, especially for planning activities
(forecasts’ exchange between all the entities of a value chain) and monitoring
activities (from an operational perspective (quality and delay) to a strategic
perspective (sharing strategic visions to get a proactive attitude)).
c. Mutually sharing risks and rewards: That’s the main objective of a SCM philosophy
implementation
d. Cooperation: Cooperation refers to similar or complementary, coordinated activities
performed by firms in a business relationship to produce superior mutual outcomes or
singular outcomes that are mutually expected over time (Anderson and Narus, 1990).
e. The same goal and the same focus on serving customers. Too often, we can observe
that there is a lack of common objectives.
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f. Integration of processes. This activity can be divided into 4 main steps: Understand
the chain of fragmented operations within the individual company, Be focused on cost
reduction, Understand purchasing activities through a tactical focus with a proactive
approach with customers and suppliers, Extend the scope of integration outside the
company.
g. Partners to build and maintain long-term relationships
8.3.4. SCM as a set of management processes
Owing to (La Londe and al., 1994), SCM is the process of managing relationships,
information, and materials flow across enterprise borders to deliver enhanced customer
service and economic value through synchronized management of the flow of physical goods
and associated information from sourcing to consumption.
Owing to (Mentzer, 2001), the literature is trying to define two concepts with one term, i.e.
Supply Chain Management. The idea of viewing the coordination of a supply chain from an
overall system perspective, with each of the tactical activities of distribution flows seen within
a broader strategic context (what has been called SCM as a management philosophy) is more
accurately called a Supply Chain Orientation. The actual implementation of this orientation,
across various companies in the supply chain, is more appropriately called Supply Chain
Management.
Ö Supply Chain Orientation is recognized by an organization of the systemic, strategic
implications of the tactical activities involved in managing the various flows in a
supply chain.
Ö Supply Chain Management is the implementation of this Supply Chain Orientation
across all the firms in one of the supply chains.
These definitions can be inconsistent with what we stated above about the fact that SCM is a
management philosophy. In that case SC Orientation is rather a management philosophy and
the SCM is the results of this management philosophy.
8.3.5. Definitions
In practice when we try to define or to put in place a supply chain orientation philosophy,
firstly we have to respond these two questions:
Ö What are the actors who will enable to solve our supply chain problematic? Who will
take the decisions, what are the direct clients and the direct suppliers according to our
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problematic? Often there are two main approaches: 1/ we can be only focused on the
OEM 22 . 2/ we can be focused on a collaborative supply chain. The first approach is
limited owing to the fact that it is almost always necessary to have a partnering supply
chain vision. However the first approach can be sometimes useful.
Ö What is the scope? There are four main approaches to define the scope. 1/ A parcelled
out approach that suppose to be focused on one activity as procurement, production or
distribution. 2/ An internal approach. 3/ An internal multi-site approach: In this
approach we analyse the relationships between different industrial sites of one
company. 4/ An integrated approach: In this approach we analyse the behaviour of one
company within its several supply chain from the upstream to the downstream flows.
5/ A global approach: This approach encompasses all the actors from the upstream to
the downstream products, services, finances, information flows.
To conclude we can bring out three more SCM definitions in order to get a deeper
understanding.
Cooper and al. (1997)
Supply Chain management is " …an integrative philosophy to
manage the total flow of a distribution channel from supplier
to the ultimate user
La Londe and Masters
(1994)
Supply chain strategy includes: "…two or more firms in a
supply chain entering into a long-term agreement; …the
development of trust and commitment to the relationship;
…the integration of logitics activities involving the sharing of
demand and sales data;
Faisal, Banwet, Shankar
(2006)
The key issues in SCM are the formation of the supply chain
and its efficient coordination with objectives of customer
satisfaction and sustaining competency. This requires
complex flow of information, materials, and funds across
multiple functional areas both within and among companies.
9. Risk Management
Why have we decided to give rise to risk management issues? Risk management is probability
the best way to respond to a current phenomenon in several industries. Indeed many industries
are trying to move from a reactive to a proactive behaviour.
22
OEM: Original Equipment Manufacturer
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December 2007
The purpose of this part is to review the general literature on risk and then in part 3 to proceed
to examine the literature on supply chain risk and its management. We will also bring out
ongoing debates in order to try to deepen our knowledge in these new risk management areas.
9.1. What is risk?
The environment in which firms evolve is characterized by shorter delays, better quality,
shorter production cycles, shorter commercial cycles and an increasing competitiveness
between actors that are linked to a value chain. This phenomenon is caused by a more toplevel change in general business conditions. In that context, companies are constantly
evolving. Therefore change management is becoming an important issue. However it doesn’t
enable to get a relevant proactive management tool. Change management enables to succeed
the implementation of proactive decisions, but it doesn’t enable to make the right choice.
(Bernstein, 1996) maintains that risk is about choice. Risk management is a good makingdecision tool that enables to reach a proactive behaviour. Although its significance for modern
business is widely acknowledged, risk management is still an emerging discipline that is
under continuous development and change.
We can first analyse some state-of-the-art definitions. Risk, related to project management, is
an uncertain event or condition that, if it occurs, has a positive or negative effect on at least
one project objective, such as time, cost, scope or quality. (PMI PMBOK 2004). Moreover
(Moore, 1983) notes that risk encompasses both the possibility of loss and the hope of gain.
Nevertheless, in looking at how organizations perceive risk, it is the negative connation of
risk-loss rather than gain-which seem to preoccupy managers (Hood and Young, 2005; March
and Shapira, 1987). It is often the case that risk is understood to have only unfavourable or
negative connotation. In that case risk management includes only hedging against
unfavourable events only. However, as stated in the definition above, we have to consider
risk as an unfavourable event but also as an opportunity. Therefore we have to keep in mind
that risk management and opportunity management are tightly linked. It is not surprising that
risk management is becoming an important issue in project management. Consequently risk
management includes maximizing the results of positive events and minimizing the
consequences of adverse events.
Risk is also an uncertain event or set of circumstances which, should it occur, will have an
effect on achievement of one more objectives (APM PRAM Guide, 2004). This definition is
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interesting owing to the fact that it brings out three important terms: objectives, occurrence
and effects.
Ö Objectives: Before trying to define what the risks that surround an organization are,
we have to know, first, where this organization wants to go. Thus defining relevant
objectives plays an important place here.
Ö Occurrence: it enables to measure the probability that an event occurs.
Ö Effects: it measures the impact dimensions of an event
Occurrence and effect represent the two dimensions of risk. In general, the expected value
derived by multiplying the impact the probability is important in decision making.
However, the attitude on risk cannot be explicitly based on considerations of the expected
value only. Indeed we can consider the following example.
In that case two events have the same mean values, but their probability and impact are
different.
0.01 * 20000€ = 200€
0.00001 * 20000000 €= 200€
In that case, the actions taken to mitigate these risks have to be different even if their expected
values are different.
Many other authors have also stressed the negative side and the two dimensions of risk:
Ö (Lowrance, 1980) describes risk as a measure of the probability and severity of
adverse effects.
Ö (Rowe, 1980) defines risk as the potential for unwanted negative consequences to
arise from an event or activity.
Ö (Simon and al., 1997) perceive risk in terms of the likelihood of an uncertain event or
set of circumstances occurring which would have an adverse effect on the
achievement of a project’s objectives.
Finally we can classify risks into five categories:
Ö Pure risks
Ö Financial risks
Ö Business risks
Ö Political risks
Pure risks are normally the insurable ones. Pure risks are typically damages, accidents and
losses that cannot be affected by effective management procedures. Financial risks usually
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are specific risks that are associated with financial arrangements. For instance, hedging
against fluctuations in currency rates can be arranged via forward rate agreements with banks
and financial institutions. Business risk can usually be managed by project management
procedures. Examples of business risks are the following:

Complex technical solutions, or technical problems, or causes of inexperience

Scope changes, changes in design

Schedule delays

Problem in work performance

Regulations, requirements of authorities

Lacking information needed in planning and decision-making

Conflicting objectives between the customer and the contractor
In part three, we will deal with a case study in order to analyse risks in an important aircraft
manufacturer. For sure we will be focused on business risks. Political risks and country
risks are risks that are related to certain geographical areas of project operations. The impacts
of political and country risks are to be analysed at project portfolio level (Kähkönen, 2007).
9.2. Risk vs. Uncertainty
In the literature we can often find some confusion between risk and uncertainty. Thus it
becomes useful to clarify the differences between these two terms before analysing risks in a
real industrial context. There are several state-of-the art definitions.
Indeed (Knight, 1921) made the simple distinction between risk and uncertainty: risk is
something measurable in the sense that estimates can be made of the probabilities of
outcomes are not known. On the other hand, uncertainty is not quantifiable and the
probabilities of the possible outcomes are not known. Knight is focused on the metrics used to
manage risks. As a result, if our purpose is to put in place “proactive” management practices,
we will have to make more effort to deal with uncertainties than risks.
Yates and Stone (1992), however, argue that every conception of risk implies that there must
be uncertainty about the prospective outcomes, and that if the probability of those outcomes is
known, there is no risk. The following equation can illustrate this point of view.
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Risk = {Prospective outcomes} = {f1 (probability1 ; impact); f2 (p2 ; i); ………; fx (px ; i)}
If there is at least one pi that is not measurable
Therefore
Risk ≠0
Yates and Stone
Knight
Risk exists when one of the probabilities of the
several outcomes (Pi) is not measurable.
Risk exists when Pi is known
Uncertainty exists when Pi is not known
The uncertainty defines the cardinal of the set of
outcomes.
{f1 (p1 ; i); f2 (p2 ; i); ………; fx (px ; i)}
p 2 is not known: Uncertainty
(Slack
and Lewis,
p 1 is known:
Risk 20
01) encompass both viewpoints. They describe uncertainty as a key driver of risk through the
development of prevention, mitigation and recovery strategies. Whilst these do not eliminate
uncertainty, they do enable managers to reduce this risks which might arise from uncertainty.
9.3. What is risk management?
9.3.1. Overview of risk management definitions
The purpose of this part is to explain how we can implement a proactive management of a
supply chain within an organization by using risk management. Indeed proactive supply
management is qualitatively different from reactive supply management. Also, it is more than
integrative procurement management and more than strategic purchasing management.
Proactive supply management is concerned with a significant additional issue: risk
management (Smeltzer and Siferd, 1998).
It seems to have a general agreement on what the risk management process should be. In fact,
for instance, (Dickson, 1989) defines risk management as the “the identification, analysis and
control of those risks which can threaten the assets or earning capacity of an enterprise”.
Similarly, Fone and Young (2000) see risk management as a general management function
that seeks to assess and address risks in the context of the overall aims of the organisation.
However, as the Royal Society (1992) stated, there is some dispute over whether it is an
everyday part of business life or something which is brought and used as and when it is
needed. According to us, it is obvious that risk management is not “something which is
brought and used as and when it is needed” because the objective of managing the risk is to
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get a proactive vision on the organization and thus to know what we need in advance. The
definition used by the Royal Society goes against our argumentation.
Most professional bodies which deal with risk take the view that: Risk management should
be a continuous and developing process which runs throughout the organisation’s strategy and
the implementation of that strategy. It should address methodically all the risks surrounding
the organisation’s activities past, present and in particular, future. It must be integrated into
culture of the organization with an effective policy and programme led by the most senior
management. It must translate the strategy into tactical and operational objectives, assigning
responsibility throughout the organisation with each manager and employee responsible for
the management of risk as part of their job description. (IRM/AIRMIC/ALARM, 2002, p.2).
Moreover Tchankova (2002) maintains that “risk management has become a main part of the
organisation’s activities and its main aim is to help all other management activities to achieve
the organisation’s activities and its main aim is to help all other management activities to
achieve the organisation’s aims directly and efficiently”. This definition is relevant owing to
the fact that it brings out the fact that risk management is not another function that the
organization has to cope with. Risk management is rather a support function that helps
managers at every level of the organization in their day-to-day making decision process.
9.3.2. Risk Management processes
Risk management is generally defined as stages or processes including risk identification, risk
estimation, risk response development and risk control (see ISO 10006, 1997).
(Kähkönen and al., 2007) have defined risk management as an eight steps process. The
content is in accordance with existing risk management theory, literature, and standards (see
e.g. ISO 10006, 1997 and PMBOK 1996).
They defined core processes: Risk Identification, Risk Estimation and Risk Response
Planning and Execution. They defined also accessory processes: Risk Management Planning,
Risk Communication, Risk Ownership Development, Risk Management Strategy, and Risk
Management Control. Moreover Simon and al. (1997) suggest that, whilst there is a wide
range of techniques available to undertake each of these stages of the risk management
process, these can be separated into three groups:
Ö Qualitative techniques: These seek to identify, describe, analyse and understand risks.
Ö Quantitative techniques: These seek to model risk in order to quantify its effect.
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Ö Control techniques: These seek to respond to identified risk in order to minimise risk
exposure.
• Risk Identification:
Risk Identification is probably the most important step in risk management processes owing
to the fact that this part of the core processes illustrates the objectives of the project. It
consists in determining which risks are likely to affect the project and in documenting the
characteristics of each. (Haywood M.M. and Peck H., 2003) put forth an eight steps method to
identify and assess risks.
Ö Brainstorm possible risks
Ö Consider what has gone wrong in similar projects previously
Ö Cluster into related topics
Ö Weight according to seriousness and probability
Ö Focus on the very serious and highly probable
Ö Define the project type and review typical risks
Ö Plan how to run the project with the risk in mind. Highlight where in the project the
risks will be most critical-normally along a project’s “critical path”.
Ö Decide how to reduce the risks so that the chances and consequences of failure are
minimised.
The most important here is that some risks are objectives others are subjectives. The purpose
is to reduce the proportion of subjectives risks. We will try in the next sections to present a
solution in order to face this problem.
• Risk Estimation
It consists in evaluating risks and risk interactions to assess the range of possible project
outcomes. This step is aiming for providing further understanding over the identified risks.
Qualitative and quantitative risk analyses are the main approaches for studying the potential
severity of risks.
• Risk Response Planning and Execution
It consists in defining, developing, and executing enhancement steps for opportunities and
responses to threats. To do that, we can use one of these strategies: Risk avoidance (e.g.
cancel the project or find an alternative method to achieve the same objective). Risk reduction
(reduce either the likelihood of an event or its impact); Risk transfer (e.g. insurance); Risk
reduction and transfer (e.g. subcontracting or outsourcing); Risk monitoring (monitor the
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situation and hold contingency reserves); Contingency planning – supporting all of the five
strategies.
Parallel to risk management is the issue of how to mitigate the consequences of an accident if
it does happen: to deal with the situation in a way that minimizes business impact. This is
normally referred to as business continuity management (BCM) and relates to those
management disciplines, processes and techniques, which seek to provide the means for
continuous operations of essential functions under all circumstances (Hiles and Barnes, 2001,
P.379). Business Continuity Management (BCM) is defined as the development of strategies,
plans and actions which provide protection or alternative modes of operation for those
activities or business process which, if they were to be interrupted, might otherwise bring
about a seriously damaging or potentially fatal loss to the enterprise.
The first activities in developing business continuity plans are identifying the risks and
assessing their probability and impact – the steps are hence identical to risk management. Part
of this is to understand what will be affected (damage potential analysis). Then, strategies and
recovery plans should be developed that could be implemented both before the incident
(similar to risk management strategies) and after the incident.
Concerning the accessory processes:
• Risk Management Planning
It consists in preparing and deciding the appropriate risk and opportunity management
approach, tasks and resources for the situation in question.
• Risk communication
It consists in providing shared starting point and understanding or risks and opportunities
• Risk ownership development
It consists in naming the owners for risk & opportunity types or for the identified risks &
opportunities. Examples of typical criteria are expertise and “power”.
•
Risk Management Strategy
It consists in defining the overall strategy and possibly specifying it in the terms of most
important risks. Typical choice are: modify project objectives, risk avoidance, risk prevention,
risk mitigation, develop contingency plans, keeps options open, monitor situation, and accept
risk without any actions.
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• Risk Management Control
It consists in responding to changes in risk over the course of the project. As risk management
is to be applied as a continuous process throughout the project life cycle, one important
function for risk management control is to ensure that the process of identifying, estimating,
and responding to risks is repeated during the project life in an iterative manner.
Finally (Simon and al., 1997) suggest that, whilst is a wide range of techniques available to
undertake each of the three stages of the risk management process, these can be separated into
three groups:
•
Qualitative techniques: These seek to identify, describe, analyse and understand risks
•
Quantitative techniques: These seek to model risk in order to quantify its effect
•
Control techniques: These seek to respond to identified risk in order to minimise risk
exposure.
This can be illustrated by the following figure:
Accessory
Processes
Risk Management
Risk communication
Planning
(QL, QT, C)
(QL, QT, C)
QL
Core Process
QT
C
1
Risk Identification
Risk Management
Control
(QL, QT, C)
Risk Response Planning
and Execution
Risk ownership
development
Risk Estimation
(QL, QT, C)
2
3
QL
QT
C
Qualitative Quantitative Control
Risk Management
Strategy
(QL, QT, C)
Figure n°12: Risk Management processes
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To conclude (Zsidisin and al., 2000) did a comparison between several industries to identify
their risk management best practices. Concerning the aerospace industry, they found that it is
using both quantitative and qualitative risk assessment method, using formal models. In order
to mitigate risk on strategic parts, they work with suppliers to find ways to mitigate risk.
Finally contingency plans are implemented by a cross-functional team.
9.4. An ongoing debate: subjective VS. objective risk
Making a clear distinction between objective and subjective risks is an important issue in the
risk identification process. Owing to (Khan O. and Burnes B., 2007) there is a long-standing
debate between those who see risk as objective and those who argue that risk is subjective
(Bernstein, 1996; Frosdick, 1997; Moore, 1983; Spira and Page, 2002; Yates and Stone,
1992).
During the risk identification process there are two main steps: The first one consists in
identifying what has gone wrong in similar projects previously. This step refers rather to
objective risks. The second one consists in identifying what could be the “new” risks. This
refers rather to subjective risks. (Lupton, 1999) observed that views of risk range between the
technico-scientific perspective, which sees risk as objective and measurable, to the social
constructionist perspective, which sees it as being determined by the social, political and
historical viewpoints of those concerned. (Yates and Stone, 1992) argue that risk is a
subjective construct because it represents an interaction between the alternative and the risk
taker. The Royal Society (1992) argues that a particular risk or hazard means different things
to different people in different contexts and risk is socially constructed.
(Kähkönen and al., 2007) argue that the uniqueness of projects and associated lack of
appropriate statistically derived frequencies for deriving probabilities implies that a subjective
approach must be adopted to estimate risks. Subjective estimates refer here to the fact that
risks must be estimated by knowledgeable individuals. The use of judgement, of
knowledgeable project people does not mean that risk estimates would be necessarily be
unreliable, but the subjective estimate approach of expressing risk in this context rather refers
to the fact that best possible source of information-i.e. knowledgeable people-is used.
There are several tools for quantifying and managing risk as FMEA (failure mode and effect
analysis), CBA (cost benefit analysis), Hazop (hazard and operability study) and RBA (risk
benefit analysis. Though accepted and used by many managers, they have been criticised for
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removing the element of human judgement from decision making by disguising underlying
assumptions with mathematical formulae (White, 1995).
Nevertheless, the issue of whether risk is a subjective or objective construct does not appear
to be acknowledged in the supply chain literature. Therefore we will try to consider this issue
in our risks analysis of an aerospace supply chain.
10. Supply Chain Risk Management (SCRM)
10.1. Why Supply Chain Risk Management is becoming an important issue?
In order to cope efficiently with the increasing variability of the environment in which
companies evolve, proactive management tools are necessary. In industry, especially those
industries moving towards longer supply chains (e.g. due to outsourcing) and facing
increasingly uncertain demand as well as supply, the issue of risk handling and risk sharing
along the supply chain is an important topic (Norrman A., Jansson U., (2004)). As (Hendricks
and Singhal, 2005) showed, not only can the failure to mange supply chain risks effectively
lead to a sharp downturn in an organisation’s share price, which can be slow to recover, but it
can also generate conflict amongst the organisation’s stakeholders. (Cousins and al., 2004)
identify the wider consequences of a failure to manage risks effectively. These includes not
just only financial losses but also reduction in product quality, damage to property and
equipment, loss of reputation in the eyes of customers, suppliers and the wider public, and
delivery delays.
There are several trends that increase the vulnerability to risks in supply chains:
Ö Shorter product life cycles and compressed time-to-market
Ö Increased demand for on-time deliveries in shorter time windows, and shorter lead
times
Ö Globalization of supply chains
Ö Reduction of supplier base
Ö Reduced buffers, e.g. inventory and lead time
Ö Increased use of outsourcing of manufacturing and R&D to suppliers
Ö Fast and heavy ramp-up demand early in product life-cycle
There is another trend which consists in moving from a direct supply chain to an ultimate
supply framework (cf. 1.2.2) that involves more stakeholders. Therefore, it is getting more
complicated for managers to get a relevant organization’ vision on an operational level and on
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a strategic level as well. This lack of visibility involves more uncertainties in making decision
processes and also non-effective process monitoring practices.
Recent events have demonstrated that a disruption affecting an entity anywhere in the supply
chain can have a direct effect on a corporation’s ability to continue operations, get finished
goods to market or provide critical services to customers. Organisations that think they have
managed risk have often overlooked the critical exposures along their supply chains. As noted
by (Braithwaite & Hall, 1999), supply chains that run hundreds if not thousands of companies
over several tiers present significant risk. Some writers suggest that the domino effects of
disruptions in supply chains might have been exacerbated in the last decade (Cristopher &
Lee, 2001; Engardio, 2001; McGillivray, 2000).
There is a need to develop tools in order to identify failures earlier in the supply chain and to
avoid this “domino effect”. Indeed the closest the failure to the customer is identified, the
most important the impacts are, and particularly on cost (Bassetto, 2005).
120
100
Faillure Cost (%)
100
80
60
40
20
10
0,1
1
Preliminary
Design
Design
0
Manufacturing
Client
When is the failure identified?
Figure N° 13: The cost of a failure depends on where this failure is identified.
Firstly, we will try to analyse relevant SCRM definitions in order to get a common
understanding of a SCRM philosophy. Then we will present what could be the main steps in
leading a SCRM approach.
10.2. State of the art SCRM definitions
10.2.1.Origin of the SCRM theory
The BuyGrid model (Robinson and al., 1967; Wind and Webster, 1972) could be considered
as the first efforts in SCRM research. This model describes the behaviour of buyers in three
different purchasing situations: (1) The straight rebuy: where the product being purchased is
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the same as was ordered previously, (2) The modified rebuy: where some aspects of the
product specification have changed, e.g. price. (3) The new task: where an entirely new
product or service is being purchased. Moreover the Williamson‘s theory (1975, 1979) about
the transaction cost economics (TCE), could be also considered as the first steps in the SCRM
theory. Indeed TCE is concerned with the financial exchange and investments between a
buyer and supplier, with part of the costs being associated with managing the buyer and
supplier relationship. These costs could be very high and could expose the supplier to
considerable risk should the customer choose to go elsewhere. However, they are a cost the
supplier has to incur if they wish to do business with the customer. TCE predicts that as
investments become more specific to the buyer and supplier relationship, and as transaction
uncertainties increase, the relationship will move towards a more long-term contract in order
to safeguard the position of both parties. TCE implies that long term relationships may reduce
uncertainty and risk (Williamson, 1975, 1979).
10.2.2.Some definitions…
There are three important things to consider when dealing with Supply Chain Risk
Management issues. In fact, the first thing to do is to define the scope of the analysis. SCRM
could of course deal with risks for a single company, or even with the impact on a single
logistics activity. Often it is relevant to think about buyer-seller relationships (a dyad)
throughout the organization (both external and internal processes). Moreover the definitions
have to bring out two important dimensions: risks and uncertainties. Finally definitions have
to give an idea of the risk management process.
•
Some emphasizes a broad vision of the Supply Chain
According to (Artebrant and al., 2003) SCRM is the identification and the management of
risks within the supply chain and risks external to it through a co-ordinated
approach
amongst supply chain members in order to reduce supply chain vulnerability as a whole. This
definition implies to have a “double-vision” on the Supply Chain: a vision on the internal and
the external processes as well. This supposes to identify clearly the boundaries of the chosen
perimeter. Moreover this definition brings out the vulnerability of the whole supply chain.
Finally, managing supply chain risks is a collaborative effort.
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Other authors emphasize the necessity to get a broad vision when leading supply chain risks
management projects. According to (Christopher and al., 2002), in order to assess supply
chain risk exposures, the company must identify not only direct risks to its operations, but
also the potential causes or sources of those risks at every significant link along the supply
chain.
Recently, a number of writers have sought to move the focus of attention away from
analysing and managing risk at level of individual customers and suppliers and towards the
understanding and management of risk at the level of the entire supply chain (Cousins and al.,
2004; Harland and al ., 2003; Lewis, 2003).
(Harland and al., 2003) recommend that risk management should focus on positioning the
organization to try to avoid such events, and to develop strategies to manage the impact of
them, should avoidance not be possible. However, their supply chain risk model is still at an
early stage of development. They argue that more and better tools are needed to assist in risk
assessment and management at the supply chain level and not just at the level of the
individual firm, though they also acknowledge that it is very difficult to develop such tools.
We will see in the case study an example of such a tool based on a FMEA in order to assist
managers in risk assessment and management.
•
Some emphasizes the role of key functions in a SCRM approach
The relationship between many aspects of risk and supply chain management has been well
documented. Often the approach was focused on one component of the supply chain strategy
as “Closer working relationships with suppliers”, “Purchasing partnerships”, “Supplier
quality/auditing/certification programmes”, “Supplier improvement programmes”, “Multiple
sources vs single sourcing”, “Strategic alliances” , “Communication and early involvement of
suppliers in strategic decisions”and so on.
According to (Norrman and Linroth, 2002) Supply Chain Risk Management consists in
defining collaboratively with partners, a set of supply chain risk management process tools to
deal with risks and uncertainties caused by, or impacting on, logistics related activities or
resources. This definition brings out the importance of using an efficient supply chain risk
management tools. That supposes to do the necessary efforts to develop such tools. As many
SCRM definitions, this definitions is focused on logistics activities.
Furthermore, more research by Carr and Smeltzer (1997) identified the willingness to take
risks as a key component of strategic purchasing. Indeed he defines proactive purchasing as
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purchasing’s willingness to take risks and to effectively use current knowledge to make
decisions about the future. Carr contends that purchasing proaction includes purchasing
foresight and purchasing’s willingness to initiate change.
Similarly, Smeltzer and Siferd (1998) maintain that managing risk is central to purchasing
management. Perhaps, the most established body of work dealing with risk and industrial
purchasing comes from the work of the IMP (Industrial Marketing and Purchasing) Group
(Ford and al., 2003).
SCRM is a collaborative effort between at least a dyad within internal and external processes.
Moreover SCRM could be seen as the understanding of the short, middle and long term
evolution of every links within the partnering network.
10.3. Supply Chain Risk Management processes
In order to define SCRM processes, we based our analysis on the literature. Indeed (Jüttner
and al., 2003) suggest that it is relevant to distinguish four basic constructs: Supply Chain risk
sources, risk consequences, risk drivers and risk mitigating strategies.
10.3.1.Supply Chain Risk Sources and Risk consequences
(Jüttner and al.) emphasize the fact that among practitioner-oriented risk management
literature and the industrial world as well, the uses of the term”risk” can be confusing owing
to the fact that some associate “risk” with “the potential sources of the risk” and some
associate “risk” with “the potential consequences of this risk”. It the last case it refers to the
potential outcome indicators. In this sense, the terms “operational risks”, “human risks” or
“risks to customer service levels” are consequences of risks becoming events.
We will adopt the definition provided by (March & Shapira, 1987), they define “risk” as “the
variation in the distribution of possible supply chain outcomes, their likelihood, and their
subjective values”. The uncertain variations or disruptions affect the flows of information,
materials or products across organisation borders (LaLonde, 1997). Supply chain risks hence
comprise any risks for the information, material and product flows. After that we have to
choose the perimeter of the analysis, i.e. which type of supply chain framework will we
choose (direct, extended or ultimate supply chain, c.f. 1.2.2).
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According to (Jüttner and al., 2003) supply chain-relevant risk sources fall into three
categories: Environmental risk sources, Organisational risk sources and Network-related
sources.
• Environmental risk sources
Environmental risk sources comprise any uncertainties arising from the supply chainenvironment interaction. These may be the result of accidents (e.g. fire), socio-political
actions (e.g. fuel protests or terrorist attacks) or acts of God (e.g. extreme weather or
earthquakes).
• Organisational risk sources
Organisational risk sources lie within the boundaries of the supply chain parties and range
from labour (e.g. strikes) or production uncertainties (e.g. machine failure) to IT-system
uncertainties.
• Network risk sources
Network-related risk sources arise from interactions between organisations within the supply
chain. According to (Das & Teng, 1998), environmental and organisational uncertainties are
the risk sources “to” the various links in the supply chain and network-related uncertainties
are risk sources “of” the various links. There are mainly three types of network-related risk
sources: lack of ownership, chaos and inertia (Christopher and Lee, 2001).
Ö Lack of Ownership
Lack of ownership risk sources in supply chains result from a lack of clear definition of the
boundaries between buying and supplying companies in the chain. The main causes of this
risk are outsourcing and concentration on core competencies and thus a complex network of
relationships. The main consequences are an increase of inventory costs due to product
obsolescence, markdowns.
Ö Chaos
Supply networks are more complex, this complexity can lead to chaos effects. These chaos
effects result from over-reactions, unnecessary interventions, second-guessing, mistrust, and
distorted information throughout the entire supply chain.
Inactive cooperation and collaboration leads to a breach of trust. Once there is a breach of
trust in an organization, it is hard to rebuild it again. The risk is that trust can never be rebuilt
as long as the same people are involved (Mariotti, 1999).
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Information sharing among supply chain partners can be leveraged through collaboration
between buyers and suppliers. The objective is to build a boundaryless extended enterprise,
where information is transparent and there is a high level of trust and commitment
(Christopher, 2000).
The bullwhip effect, which describes increasing fluctuations of order patterns from
downstream to upstream supply chains, is an example of such chaos. (Lee and al., 1997)
Ö Inertia
This risk is characterized by a lack of responsiveness to changing environmental conditions
and market signal. Even if many firms try to develop responsive and flexible organization
(c.f. Lean and Agile, Leagile supply chain); the risk of inertia is still playing an important role
in the risks landscape. Flexibility is often sacrificed for cost reduction. Consequences can be
an inability to react to competitor moves, shifting customer demand or to any other
unpredicted event arising from environmental or organisational risk sources.
10.3.2.Supply Chain Risk Drivers and Risk Mitigating Strategies
Risk drivers are changes to the structure of supply chains and impact directly on networkrelated risk sources. Through the trends of globalisation and outsourcing, the complexity
stages, dynamic network shapes become the reality. The supply network structure describes
lateral and horizontal inter-linkages, reverse loops or two-way exchanges encompassing the
upstream and downstream activities within and among the supply chain organisations
(Lamming and al., 2000). A supply network brings with it risks from all related network
sources, namely uncertainties due to lack of ownership, chaos and inertia (Christopher & Lee,
2001).
We can consider that most of the supply chain disruptions are caused by these drivers, or at
least exacerbated by them.
There are mainly four mitigating strategies: (1) avoidance, (2) control, (3) co-operation, (4)
flexibility. Owing to Jüttner and al., these four mitigating strategies could be described as
follow.
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Avoidance
Dropping specificproducts/geographical markets/supplier and/or customer organisations
Control
Vertical Integration
Increased stockpiling and the use of buffer inventory
Maintaining excess capacity in productions, storage, handling and/or transport
Imposing contractual obligations on suppliers
Information security
Corporate social responsibility
Continual risk analysis and assessment
Co-Operation Joint efforts to improve supply chain visibility and understanding
Joint efforts to share risk-related information
Joint efforts to prepare supply chain continuity plans
Trust among supply chain partners
Aligning incentives and revenue sharing policies in a supply chain
Flexibility
Postponement
Multiple sourcing
Localised sourcing
Agility in the supply chain (ability to thrive in a continuously changing, unpredictable
business environment)
Strategic risk planning
Table n°1: Risk Mitigating Strategies in Supply Chains (Jüttner and al., 2003)
Finally we can describe here which strategy we will use for the case study. Indeed our
analysis will rather look for organizational and network risk sources than environmental risks.
The main reasons of this choice are that organizational and network risk sources are rather
“internal” supply chain risk sources. Therefore, we will be focused on the optimization of
these “internal” processes and then after it is relevant to look for environmental risk sources.
Network Risk Sources
Organisational Risk Sources
Environmental Risk Sources
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Environmental Risk Sources
Network Risk Sources
Organizational Risk Sources
Figure n°14: Diagram representing the scope of the case study
11. How do Lean, Agile and “Leagile” Supply Chain Strategies
affect Supply Chain Risk Management?
As stated above, our goal is to get a deep understanding of organizational risk sources. In the
case study, we will look at the organization at an operational level. One of the current fads in
operations management practices is to apply “lean, agile and leagile” methods. An
unprecedented number of companies are pursuing lean management and agility to reduce
costs, improve customer service, and gain competitive advantage.
Owing to (Omera K., 2007) the failure to locate the work on supply chain risk in the wider
literature is most clearly shown by the absence of any discussion regarding its nature, such as
the subjective/objective debate (c.f. 2.4). Therefore in this part we will try to answer this
question: What are the implications of the subjective-objective debate regarding the nature for
development of tools and frameworks for (lean, agile and leagile) supply chain risk
management?
11.1. Literature review
11.1.1.Lean philosophy
The lean approach, which can be traced to Toyota and also known as the Toyota Production
System (TPS), has resulted in legendary success by Japanese auto manufacturers. Lean
principles have helped the Japanese automobile manufacturers to achieve higher quality,
lower cost, and faster time-to-market. Furthermore, Japanese lean manufacturers have made
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significant efforts to diffuse lean principles across their supplier networks over the past
several decades, which have fostered the evolution of a new structure of buyer-seller networks
relationships. Previous studies have shown that much of the competitive advantage enjoyed
by Japanese can be attributed to this new-supplier structure (Womack and al., 1991; Dyer and
Outchi, 1993).
Taiichi Ohno, the founder of the TPS philosophy, believed that the cornerstone of the
implementation of the Lean philosophy was the elimination of wastes. He developed in 1988
a list of seven basic forms of wastes:
1. Defects in production
2. Overproduction
3. Inventories
4. Unnecessary processing
5. Unnecessary movement of people
6. Unnecessary transport of goods
7. Waiting by employees
Lean focuses on the elimination of wastes with a bias towards pulling goods through the
system based on demand. Despite the focus on pull several authors note Lean is really a
make-to-stock system, reacting to demand signals that typically come from forecasts or next
tier distributors, rather than actual orders. The demand horizons are typically shorter than
non-Lean systems, but the overall supply chain still relies on finished goods inventory.
Lean principles can be compared with mass-production practices that had typically
represented both U.S. and European automotive manufacturers.
The key differences between a “lean push” and “mass production push” is that lean typically
relies on a much shorter forecast horizon and an ability to adapt should production schedules
need to be changed. Therefore the organization must be able to anticipate accurately the
quantities, qualities, and allocation of products that will match consumer demand. This
supposes to be focused on the customer.
Firstly Lean philosophy was mostly applied to improve manufacturing management practices.
However Lean best practices spread out to several disciplines. Lean principles have also
found application in logistics (Disney, Nairn, and Towill, 1997; Jones, Hines, and Rich 1997;
Wu 2002), product development and launch (Bowersox, Stank, and Daugherty 1999),
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purchasing (MacDuffie and Helper, 1997), accoundting (Ahlstrom and Karlsson 1996), And
even office environments (Hyer and Wemmerlov 2002; Tapping and Shuker 2003).
In order to deepen our understanding of Lean management practices, we will conduct a
comparative analysis of different ways to manage supplier relationships and particularly the
role of suppliers’ development team between Lean practices and mass-production practices.
The interdependences that exist within the supply networks of every firm involve managing
effectively the relationships with the partners. This represents significant technical and
organizational challenges.
•
Supplier relationship management in a mass-production context
To summarize, supplier relationships management in a mass-production context is a zero-sum
game, where each entity of one of the supply networks evolve independently.
In that context, firms believed that having a broad supplier base would offer the firm a
competitive advantage. Indeed they believe that it will encourage more intense competition,
thus enabling to negotiate lower costs and to achieve higher product quality and better
delivery times.
Concerning the mass-production subcontracting system, bargaining relationships are typically
driven by price. In this context, where exchanges of informational flows are sporadic,
suppliers offer a price below their actual cost, only to ask for a cost adjustment later from
their customers. They are generally unwilling to expose to their customers any information
about their own costs and profits. Moreover there is a lack of operational vision from both
parts. There is no relevant information exchanged concerning production operations and
capabilities. The information exchanged concerns mainly the prices of the components.
The buyer-seller relationships in a mass-production context could be described as
relationships where suppliers have little involvement in their customer’s product design and
development processes.
In this context, it is difficult to drive a profound stabilization of the processes and to reach
common standard between all the entities of one of the supply networks that a firm have to
manage. Thus there is no real best practices sharing and implementation. That represents a
loss of time and it broadens the possible set of risk sources.
In that context, objective risks play an important place. However these lacks of
standardization, of processes stabilization, of common best practices reduce common
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knowledge on risks. Therefore, it will be necessary to ask more knowledgeable individuals in
order to draw a “relevant picture” of risk sources. Moreover these knowledgeable individuals
have only a good vision of their processes and often they have no vision on how their
processes are linked to the other ones in a given supply networks. Thus they have not a good
vision on what we call before Network risk sources.
Even if we make a special effort to identify these subjective risks, the tools and frameworks,
which we will develop to manage efficiently supply chain risks, will be less effective than
tools develop in a Lean context. Indeed Risk Management tools and frameworks must be
supported by an effective operational strategy.
•
Supplier relationship management in a Lean context
In contrast with conventional mass-production manufacturers, Lean context is a win-win
game.
In a Lean context, the supply network is better organized. Each entity in the supply network
keep much smaller supplier bases and adopts single or dual sourcing purchasing policies. The
supply network is also organized throughout a multi-tiered hierarchy structure. In this multitiered hierarchy structure there are, at the moment, two different entities: the first-tiers
suppliers and the other ones (2nd, 3rd …tiers suppliers). Indeed in several industries, first tiers
suppliers are getting involved in real collaboration relationships where risks and rewards are
shared throughout the entire supply network. Second and third tiers suppliers try to reach
these objectives but in many industries we are far from it.
First-tier suppliers are usually equipped with excellent technological capabilities and are
assigned full responsibilities for designing and manufacturing a whole subsystem, rather than
discrete parts that are later assembled into finished sub-products. Moreover OEMs authorize
their first-tier suppliers to manage their own respective suppliers, which are second-tier or
lower-tier suppliers. Thanks to much smaller supplier bases and a tiered structure, OEMs can
develop longer-term dedicated relationships with their most important first-tier suppliers.
If we consider a serial production context (in contrast with NPI: New Product Introduction),
this type of relationship between the OEM and the first-tier supplier enables to get a better
vision of the evolution of a value chain. Indeed strategic best practices are implemented in
order to reinforce the trust between buyers and suppliers, there is intensive and frequent
technical or cost information sharing between the customer and suppliers. Exchange of
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production forecasts enable to implement a relevant proactive philosophy.
This clear
definition of rules and mutual assistance enable to enhance efficiency, quality and
productivity in the supply chain. Concerning a new product introduction context, suppliers are
involved in the product development at a very early stage. In order to have a better
understanding of new product introduction challenges, we can quote authors that have
develop theories concerning ESI (Early Supplier Involvement) projects (Balasubramanian&
Baumgardner, 2004; Barata 2004; Burkett (2006); Calvi & Le Dain, 2007; Fujimoto, 1995;
Zsidisin & E. Smith, 2004)
Risk sharing partnership
The risk sharing partnership is mainly based on trust. Suppliers are often required to make
investments in equipment or facilities dedicated to a specific customer only. These
investments can be risky for the suppliers, because they are expensive, tailored to only one
customer and sometimes of no use outside the transaction with this specific customer. That
explains closer relationship between the customer and its suppliers. Both parts can’t easily
walk away from this relationship. For instance in this type of customer/supplier relationship
there are exchanges of competences, customers have guest engineers from its suppliers and
they also transfer its own employees to supplier sites. There are also changes in the inventory
policy; many firms try to make their suppliers the owners of the stock, that’s the VMI
(Vendor Management Inventory) policy. These practices enable to share risks and to stabilize
processes within dyadic relationships (OEM/1st tiers).
Supplier Development activity: The Supply Relationship conductor
In a context where organizations have developed collaborative relationships with other
entities of a given supply chain, it is necessary to dedicate resources in order:
Ö To facilitate know-how transfer throughout a supply chain (to both internal and
external processes).
Ö To apply updated best practices (particularly Lean and continuous and incremental
process improvement best practices as Value Stream Mapping, 5S, Total Quality
Management or Kaizen).
Ö To support purchasing strategies (Suppliers panel rationalization, Supplier selection,
…)
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Ö To have a better understanding of suppliers capability
Resources Management,
and processes (Human
Continuous Improvement policy, Client orientation,
Suppliers Management, (Informational & Material) Flows Management, Operations
Management, Change Management and so on).
Ö To support risk identification, risk estimation, and risk response planning and
execution activities.
However the approaches to supplier development are driven by the individual company’s
purchasing and supplier-relation management philosophy and therefore differ from company
to company. Nevertheless we can find some trends concerning this fact.
For instance Toyota philosophy is driven by a “life-long” partnership. All the partners
(suppliers and customers) are treated as part of Toyota. Thus, Toyota should make the
sufficient efforts to raise the performance of its partners. This philosophy not only established
supplier’s long-term loyalty and identities as members of the Toyota family but also laid out
the foundation of Toyota’s various supplier development processes and organizations. In this
context, risk sharing practices are built on strong relationships between the entities of a given
supply network.
Indeed developing supplier capabilities requires huge investments in time, labour, and money.
In order to avoid unnecessary waste and ensure the effectiveness of supplier development
activities, it is important that the customer company should establish its supplier development
approaches to ensure that its activities are consistent with the company’s overall supplier
management philosophy and business strategies.
There are two important things to define for the implementation of supplier development
activities:
The Role of this department
Its place within the entire organization
We have already presented the role of supplier development activities. To summarize its role
could be seen as the responsible of knowledge acquisition, storage, diffusion and adaptation
to the environment. This role must be supported by a relevant organization framework.
We think that this activity must keep in the touch with the following two activities:
Ö Strategic Purchasing activities: To respond to the following questions: what? (Product)
and when? (effective forecasts communication)
Ö Operations activities: To respond to the following question: How?
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11.1.2.Agile philosophy
Agile systems focus is on flexible, efficient response to unique customer demand. It uses a
Make-To-Order environment for manufacturing and order fulfilment. Instead of relying on
speculative notions of what might be demanded, the quantity of demand, and the location of
that demand, agility employs a “wait-and-see” approach to demand, not committing to
products until demand becomes known. Naylor, Nairn, and Berry (1997) suggest that the agile
company is one that uses market knowledge and a virtual corporation to exploit profitable
opportunities in a volatile marketplace.
Key to providing agile response is flexibility throughout the supply chain. In manufacturing,
this would call for the agility to produce in large or small batches, minimizing the efforts due
to setups and product changeovers, often cited as a critical component of lean manufacturing.
Agility might also call for a flexible workforce with members cross-trained.
Beyond the capabilities of the focal firm, the rest of the supply chain must be responsive as
well for agile market accommodation. That supposes to have open and frequent information
sharing among the partners.
11.1.3.Leagile philosophy
In many cases it is difficult to apply a pure Lean strategy or a pure Agile strategy to an
industrial environment. Hybrid strategies of the lean and agile strategy play thus an important
place. It is necessary to have a good understanding of the leagile strategy in order to develop
relevant tools and frameworks for supply chain risk management.
There are two important hybrid leagile strategies:
Ö The first hybrid approach embraces the Pareto (80/20) rule, recognizing that 80% of
a company’s revenue is generated from 20% of the products. It is suggested that the
fast-moving products that make up the dominant 20% of the product line can be
produced in a lean, make-to-stock manner given that demand is relatively stable for
these items and that efficient replenishment is the appropriate objective. The
remaining 80% are evolving in a more unstable environment. Therefore an agile
strategy could be use in order to employ a make-to-order manufacturing strategy.
Often manufacturing facilities are designed in accordance with this (80/20) Pareto
rule. Some lines are dedicated to efficient processing of fast-moving product while
Ö
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others are dedicated to small-batch lines with quick, frequent changeovers in support
of the slower-moving items.
This strategy consists in using a make-to-stock (lean) policy for high volume, stable
demand products, and make-to-order (agile) policy for low volume, unstable demand
products.
Ö The second one hybrid leagile strategy is based on postponement strategies. Form
postponement refers to delaying the final form of a product until an order is received
from customers dictating the quantity and qualities of the goods demanded (Feitzinger
and Lee 1997; Zinn and Bowersox, 1988).
This strategy supposes to make all the departments work together, from early
design to outbound logistics activities.
11.2. What are the implications of the subjective-objective debate regarding the
nature for development of tools and frameworks for (lean, agile and
leagile) supply chain risk management?
The purpose of this part is to explain which risk management approach will be interesting to
apply according to the nature of the environment in which the scope of the analysis evolves.
According to us, having a good understanding of the operation management strategy is the
key when developing tools and framework for supply chain risk management.
The aerospace industry tries to implement Lean, Agile or Leagile strategies in order to face to
ramp-up production challenges and volatile environments. Therefore it will be interesting to
know which supply chain risk management approach we have to use in each context (Lean or
Agile).
There are three important concepts that we have to consider in the early phases of a supply
chain risk management project:
Ö Room for manoeuvre (That indicates if we are in a proactive or reactive risk
management environment)
Ö Time remaining to milestone target
Ö The entities involved in the supply chain risk management project (dyadic relationship
or all the entities of a value chain)
There are three types of rooms for manoeuvre: Prevention, Contingency planning and Urgent
recovery actions.
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In a Lean context, the environment is more stable than in an agile context. Thus it will be
easier to build prevention plans in a lean context. Agile strategies ask for more flexibility in
both operation and risk management practices.
High
LEAN
Room for manoeuvre
AGILE
Prevention
Contingency
planning
Urgent
Recovery
Actions
Event Date
None
Long
Manageable
Short
Time remaining to milestone target
Figure n°15: Risk management approaches
Moreover, there are two key concepts in a Lean environment: Standardization and multitiered supply network. According to this, we can see one entire supply chain as a recursive
relationship. Indeed if we consider that the relationship between the OEM and the tiers 1 are
described by a set of processes, rules and best practices: Xn, thus we can assume that the
relationship between tiers 1 and the tiers 2 can be described by almost the same set of
processes, rules and best practices at a lower rank: Xn-1. Therefore it will be interesting to
build supply chain risk tools and frameworks based on a succession of dyadic relationships.
On the other side, an agile context asks for more flexibility. Therefore it is more difficult to
have a proactive behaviour in risk management issues. Furthermore, a lack of standardization
and of stable processes doesn’t enable do have a “recursive” perspective on supply chain risk
management. Consequently it will be more relevant to identify all the stakeholders of a given
value chain.
Concerning the objective/subjective debate, we argue that in a Lean environment
approximately 70% of risks are objectives and the other ones subjectives. Indeed as one of the
key concepts of Lean management is standardization and stabilization of processes, risks
could be defined as a deviation from acceptable standards and best practices.
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We can describe briefly the decision diagram in order to build SCR tools regarding the
objective/subjective debate.
Definition of
objectives
Definition of the
scope
Are the Best
Practices
implemented?
Process Analysis
No
Business Process
Reengineering
Yes
Supply Chain Modelling
Objective
Identification of the deviations
from the Best Practices
Subjective
Brainstorm possible risks
Figure n°16: Decision Diagram to build SCR tools
In an agile environment the subjectives risks play an important place. 40% of the identified
risks could be considered as subjectives. Therefore it is important to forecast the organization
evolution and to identify what has gone wrong in similar projects previously, if it is possible
(That corresponds to objective risks identification). Concerning the identification of
subjective risks, the team project must work closely with knowledgeable people. Ideally the
team project must work with multi-functional teams that have a broad vision of the operations
(from the shop floor to the Director’s offices).
Lean
entities involved in the supply
chain risk management
project
Risk identification sources
The “cornerstone”
A dyad
Deviation from Best
practices
Updated processes with a
constant identification of best
practices
Agile
All the entities of a
value chain
Knowledgeable people
Flexibility and relevant
forecasts analysis
Figure n°17: Comparison of SCRM approach
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Organizations must be focused on the “cornerstone” in order to support a supply chain risk
management approach by effective operations practices.
12. Conclusion
The objective of this part was to establish relevant state-of-the-art definitions concerning risk
management issues applied to supply chain management projects. Moreover we bring out the
prerequisites in order to build tools and frameworks to manage supply chain risks. The
subjective/objective debate concerning supply chain risk management is an ongoing one and
it shows us that having a good understanding of the differences between these two types of
risks could help us when trying to implement supply chain risk practices in a Lean, Agile, or a
hybrid environment.
Our scope is mostly operational risks sources. We will present in the following case study, the
methodology and the frameworks used to build a supply chain risk management tool. We
have identified and estimated mainly operational risks sources that can affect quality and
delays in a given supply chain that is moving from a mass-production environment to a lean
environment.
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Part 3:
Case Study:
Building tools and
Frameworks to manage
Supply Chain Risks at an
aircraft manufacturer:
Implementation of a FMEA*
* FMEA: Failure Mode and Effects Analysis
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13. Introduction
In this part we will describe how we have implemented a risk management tool at the
Procurement division of Airbus France. After a brief presentation of the context, that enables
to bring out the evidence that it is necessary to implement proactive management practices,
we will present the mythology used during this supply chain risk analysis project. Finally we
will present our solutions that integrate the subjective/objective debate concerning risk
identification management.
14.
A project to implement proactive management practices
Ramp-up production and costs reduction projects are playing an important role in the
challenges that Airbus has to deal with. In order to face to these challenges, Airbus has to put
many efforts to stabilize and standardize processes across its several entities. Airbus has, not
only, to lead these projects throughout its five main manufacturing sites (France, Germany,
U.K., Spain and recently China), but also throughout its several supply chains (the Airbus’
supply network).
Indeed approximately 80% of an Airbus’ aircraft is bought. Therefore these ramp-up and cost
reductions challenges must be solved at the supplier network level.
Nowadays suppliers’ challenges are mainly the following:
•
Rationalization of the supplier’s panel (identification of the tiers 1, tiers 2, tiers 3 and
so on)
•
Reducing risks when supplying products from the supplier to an Airbus factory or to a
Final Assembly Line (FAL). The objectives are to reduce delays and increase quality.
•
Building strong relationships in order to implement LEAN practices throughout the
entire supply network
•
Making supplying processes for serial production items more reliable
•
Making supplying processes for New Product Introduction or Development items
quickly more reliable
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14.1. A380 project delays: An evidence of the necessity to build a proactive
Supply Chain Management philosophy
The recent delivery delays of the Airbus A380 are the evidence that the aircraft manufacturers
have to implement relevant industrial methods in order to perform in their industry. These
delays are only the “hidden part of the iceberg”. Indeed there are several difficulties that
Airbus has to deal with. To make it simple, these difficulties could be solved by moving from
a reactive management philosophy to a proactive management philosophy.
The main difficulties that Airbus is dealing with are the following:
•
Collaborative efforts, such as conducting Business Process Reengineering operations
at the Suppliers’ place, were triggered when Airbus’ logistic, manufacturing,
purchasing or quality departments had detected problems with one supplier (That
corresponds to a reactive philosophy). Business Process reengineering efforts must
follow a proactive philosophy
•
Trust is one of the keys in managing suppliers’ relationships. However it is not
sufficient to manage efficiently these relationships. Indeed relevant metrics must be
implemented in collaboration with suppliers and the several departments who need to
monitor suppliers’ performance
•
Helping the suppliers to implement supply chain best practices in order to get
harmonized processes between suppliers
However, before trying to implement supply chain best practices at the suppliers’ place
and to harmonize processes within the suppliers’ panel, it is urgent to analyze what is
done “in-house”. Indeed the origin of Airbus Industry stems from an alliance of four
industrial entities (c.f. part 1). This particular organizational framework is a source of lack
of processes harmonization. Moreover it seems obvious that this particular organizational
framework implies that cross-cultural challenges are playing an important role in the
organization evolution.
•
Concerning informational flows: There is a lack of harmonization of the ERP systems,
the collaborative I.T. tools (such as BW 23 ).
23
BW is an I.T. tool that enables to collaborate with the suppliers concerning the KPI (Key Performance
Indicators).
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• Concerning CAD tools: There is lack of harmonization of CAD tools between
departments
•
Concerning supply management practices: There is a lack of common tools to assess
the suppliers’ performance.
14.2. A team focused on building strong supplier relationships: the Supplier
Development Team
The supply chain risk analysis has been conducted in the Procurement division of Airbus
France and particularly in the Supplier Development Team (PMQA; P: Procurement, M:
Material and Airframe, Q: Quality and Supply Chain, A: France). The procurement division is
in charge of buying and supplying products and services. They have to be constantly focused
on the triptych: Cost, Delays, and Quality.
Therefore the Procurement division is in charge of the definition of the Supply Chain
objectives and the implementation of the Supply Chain projects. According to Quality,
Logistics and Manufacturing needs, they must conduct Business Process reengineering
projects throughout the entire Supply Chain.
The procurement division could be divided into three parts:
Procurement
Equipments
Services
Airframe &
Aerostructure
The Airframe & Aerostructure division has to deal with the following products:
Aircraft Door
•
•
WorkPackages
Casting products
•
Fasteners
•
Raw Material (Titanium, Aluminum,
Special alloys)
•
Paint coating sealant
•
Aluminium
Structural
Composite
adhesives
•
Clusters
•
Forging products
•
Aluminium plate sheet & extrusion
•
Structural Composite Adhesives
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The project has been conducted in the department that was in charge of managing the
“Airframe& Aerostructure” area. The suppliers’ panel encompasses approximately 1200
suppliers. The Supplier Development team is in charge of leading continuous improvement
projects at Airbus international strategic suppliers. The quality of the products delivered will
be thus better and the On-Time Delivery indicator will be better too. Therefore, thanks to
these costs reductions, Airbus will buy these products at a lower price. There is a Supplier
Development Team in the Equipment division (who is in charge of managing products such
as: engines, seats, electronic devices, etc…), but their way of managing suppliers
relationships are different.
A purchasing manager of one the commodities is in charge of assessing and improving the
performance of its suppliers’ panel. To do so, he/she works closely with a quality and a
logistic manager. The internal clients of the Supplier Development Team are these triptyches:
Purchasing, Quality and Logistic Managers.
When one of the members of this triptych detects problems (quality or delays) he asks the
supplier development team to solve the problem. That corresponds to a reactive management
philosophy.
To improve both criteria (quality and OTD), the supplier development team conducts
industrial diagnosis at the suppliers sites. In order to conduct these industrial diagnosis, they
use a four steps methodology. First they lead a Process analysis to have a better understanding
of the current organisation status. Then a strategy is elaborated to reach new relevant
objectives. According to this strategy a Business Process Reengineering is realized thanks to
several Lean tools as Value Stream Mapping, 5S, Total Quality Management and so on.
Finally key points of the action plan must be regularly evaluated.
The objectives of these industrial diagnosis are:
•
To decrease manufacturing costs. That could ease a negotiation of prices or it could
help the supplier for future investment in order to face to ramp-up production.
•
To increase the OTD and quality of the delivered products
14.3. Objective: Building tools and frameworks to manage Supply Chain Risks
As we have seen above, the supplier development team is evolving in a reactive environment.
A supplier development project is triggered when a failure is detected in one of the supply
chains. Moreover, as stated in the part 2, there is a need to develop tools in order to identify
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failures earlier in the supply chain and to avoid this “domino effect”. Indeed the closest the
failure to the customer is identified, the most important the impacts are, and particularly on
cost. Therefore it is obvious that moving from a reactive management philosophy to a
proactive philosophy is the cornerstone of this supply chain risk management project.
Moreover in our analysis we have to distinguish two different environments: The Serial
Production environment where processes have already reach an interesting level of maturity
and the NPI/NPD environment (New Product Introduction and Development).
Our two main objectives are the following:
•
Defining accurately what we call supply chain only in a Serial Production context
•
Building pragmatic tools to manage supply chain risks and thus implementing a
proactive management philosophy
15. Methodology
In the following section we will describe the methodology used to conduct this project. The
main difficulties are to define an appropriate scope, to understand the existing risk
management processes and to implement our results in a constantly evolving organization.
15.1. Integration phase into the Supplier Development Team
The first step of this project was to understand the environment in which we will conduct this
supply chain risk analysis. Therefore we have analyzed the core competencies of the Supplier
Development Team.
These are:
•
A capacity to implement continuous improvement methodologies at the suppliers’
place
•
A capacity to conduct Business Process Reengineering projects
•
A capacity to provide an engineering support to projects conducted by quality or
logistic managers
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December 2007
15.1.1.Supplier Development processes
The main supplier development processes could be described by the following figure:
Strategy
Supplier’s Development Strategy
Communication Policy
Airbus’ Procurement
Strategy
Diagnosis
Reengineering
Current status
Future status
Action Plan
Figure n° 1: Supplier Development processes
•
A diagnosis is first realized in order to know the current status of the organization. The
purpose is to bring out a clear picture if the organization. This diagnosis is based on
the following topics :
Ö Human Resources Management
Ö Warehouse, in bound and out bound logistics
Ö Manufacturing management
Ö Maintenance
Ö Informational and Physical flows, planning activities, load/capacity
analysis
Ö Sourcing and order management
Ö Customer orientation
Ö Continuous improvement
Ö Process Improvement and Monitoring
•
The supplier development team analyzes the strategy of the firm. They try to improve
the strategy and to communicate this strategic thanks to relevant objectives from
executives to the shop floor
•
Then, a Business Reengineering Process is established in order to improve the weak
components of the organization. In most of the cases a flow reengineering process is
established thanks to the VSM (Value Stream Mapping) method. There are for sure
other problems and methods.
•
An action plan is established in order to reach new objectives. To do so, this action
plan must involve multi-functional team from executives to shop floor employees.
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15.1.2.An example of an industrial Diagnosis
During this project I participated in one industrial diagnosis in order to start to collaboratively
work with one supplier and to make a first diagnosis of the organization. Our internal client
was the purchasing department that is now trying to rationalize the suppliers’ panel.
Therefore, it was necessary to get a better understanding of this interesting supplier
organization in order to know if they can work with Airbus and thus face the following
challenges:
•
Ramp-up production
•
Implementation of Supply Chain Best practices in collaboration with Airbus
15.2. Understanding the clients needs of the project
Our purpose is to move from a reactive supplier management philosophy to a proactive
supplier management philosophy. Indeed supplier development mission were triggered when
a supply chain risk occurred. The organization has developed a relevant reactivity. This
reactive philosophy is also a good thing in a fast evolving environment. However if we want
to reach the upper level that will enables to get a competitive advantage, a proactive
management philosophy must be implemented.
We will try to develop supply chain risk management tools and frameworks:
•
To clarify the supply chain concept in order to harmonize processes
•
To provide the clients’ project a simple tool that enables to prevent the organization
from supply chain risks and to work in advance with suppliers to mitigate risks
One of the biggest difficulties in this project is that the Airbus’ procurement organization is
now constantly evolving. For instance, the supplier development team will not exist in the
future organization. The executives put forth an organization were “Field Engineers” will
build this partnering relationships with the suppliers. Their role will be relatively the same.
The field engineers will be the direct clients of this project. Therefore we understand that we
should integrate this context in our project. Communication could be the key to reach our
goals.
15.3. Theoretical approach to have a deep understanding of the project
The main challenges in the implementation of new solutions in an important organization are:
•
to understand a complex organization
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December 2007
• to know what have been already done concerning this project
•
to communicate our solutions
15.3.1.Theoretical approach
In parts one & two, we have provided a strong theoretical background in order to have a deep
understanding of the project.
The purpose was:
•
To understand the current state of the aerospace industry and the place that our client
Airbus is playing there
•
To present the evolution of this industry in order to know the future context in which
our project will be implemented. The objective was to bring out the main stakes that
Airbus will have to deal with; This step corresponds to a proactive philosophy
•
To get the recent state-of-the art concepts concerning the management of risks in a
supply chain. This steps enables to bring out the research areas that haven’t been
really investigated and also to use best practices, if any
As stated above, the main difficulties in that kind of projects are to know what have been
already done (in the organization and in the academic environment).
We have worked with the Quality department in order to understand the procedures used to
manage risks. Here, we have a short list of the procedures:
•
AP2186 Procured Products and Services Risk Management (The most
important)
•
AP 2131 (Module 2) Sourcing market evaluation
•
AP2190 General Requirements for Aerostructure & Material Suppliers
•
AP2131 (Module 6) Order and receipt products
•
AP2131 (Module 4) Monitor suppliers panel & contract management
•
AM2409 Project risk management
•
AP2131 Procurement process
•
AP2131 (Module 1) Define Procurement Strategy and Policy
•
AH0010 Suppliers Guide to Procured Products and Services Risk management
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December 2007
Airbus procedures present how risk management could integrate a sequence of activities in
the purchasing process.
Our scope
Risk Management Activities
Risks
identification
Risks
estimation
Risks
identification and Management
Supplier sites audit
and Risks
Supplier Selection process
Supplier
identification
RFI
RFP/RFQ
Supplier
Selection
Shortlist
1. Creation of the register and
2. Registration of 3. Registration of
registration of risks
identified risks
identified risks
Risk register update
Product Design
and Development
Mature product
manufacturing
4. Registration of further Risks to
future supply
Risk Action Closure Report
Supplier review record
Figure n°2: A sequence of activities in the purchasing process
15.3.2.Define a common supply chain framework
In order to define the scope of the project and to provide a common supply chain framework
expressed in the same language, we have used a business process modeling tool: The IDEF
tool (Integrated DEFinition Modeling technique). In order to provide a common supply chain
framework, we have used the SCOR model (c.f. Part 2) and we have implemented at the same
time the MRP II philosophy (Manufacturing Resource Planning).
IDEF:
The IDEF methodology was initially intended for use in systems engineering. In the 1970s,
the system design and analysis domains were in need of supporting modeling methods. The
IDEF initially contained an activity (function) modeling method, called IDEF0, a conceptual
modeling method called IDEF1 and a simulation model specification method-the IDEF2.
Since then, other developments saw several constructs added to these models to give birth to
other models. For instance, IDEF 3 has an object-state component that can be used to model
how objects undergo change in process.
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December 2007
To model our supply chain framework we mostly used IDEF3. We can present here a generic
IDEF0 diagram.
Control
Input
Function or Activity
Output
Mechanism
Figure n°2: IDEF0
Concerning IDEF3, this language appeared as a response to new needs in the enterprise
modeling domain. This model could help for a process flow description. In that case, the
process knowledge captured with IDEF3 is organized with a scenario. The basic IDEF3 unit
in this case is an UOB (Unit Of Behaviour). UOBs may become functions, activities,
processes, etc. An UOB may be decomposed in other UOBs and may also be cross-referenced
with IDEF0 activities.
A process flow diagram is shown in the following figure.
Figure n°3: Process Flow Diagram
SCOR model: (part 2)
MRP II:
When people try to define the term supply chain, the definition could be focused on logistic,
I.T. systems, purchasing, or manufacturing. We decided in this project to be focused on
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December 2007
operations management processes. That means that our point of interest is operations
management, but we will try to describe the links between manufacturing operations with
sourcing, inbound and outbound logistics.
Why have we decided to do so?
Our goal is to set up proactive management tools thanks to a risk management approach.
However a risk management approach is not sufficient. Indeed a risk management
approach must be supported by a relevant operations management philosophy that
enables to implement at both a strategic and operational levels a proactive philosophy.
According to us the MRP II (Manufacturing resource Planning) is the best practice to achieve
our goals.
Business Plan
Forecasts
Step by
step
planning
Step by step
capacity
check
Sales & Operations
Resources Requirements
Plan
Plan
Master Production
Rough-Cut Capacity
Schedule
Plan
Material Requirement
Capacity Requirements
Planning
Plan
to suppliers
Order Entry
&
Promise
MRP
MRP is a calculation method
that gives what we need to
manufacture
the
products.
MRPII is a business approach
to decide and plan what to
produce. It’s a real decisionmaking tool. The strategic
business plan incorporates the
Purchase
Production Activity
Orders
Control
Input / Output Control
plans of marketing, finance,
and
Figure n°4: MRP II system
production.
Marketing
must agree that its plans are
realistic and attainable. Finance must agree that the plans are desirable from a financial point
of view, and production must agree that it can meet the required demand. The manufacturing
planning and control system, as described here, is a master game plan for all the departments
in the company. This fully integrated planning and control system is called the MRPII. The
idea is that the MRPII system provides the mechanism for coordinating the efforts of
marketing, finance, production, and other departments in the company. MRP II is a
method for the effective planning of all resources of a manufacturing company.
15.3.3.Define the scope of the Supply Chain framework
In Part 2 we explained how we can describe the supply network thanks to a recursive
relationship.
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December 2007
“There are two key concepts in a Lean environment: Standardization and multi-tiered
supply network. According to this, we can see one entire supply chain as a recursive
relationship. Indeed if we consider that the relationship between the OEM and the tiers 1 are
described by a set of processes, rules and best practices: Xn, thus we can assume that the
relationship between tiers 1 and the tiers 2 can be described by almost the same set of
processes, rules and best practices at a lower rank: Xn-1. Therefore it will be interesting to
build supply chain risk tools and frameworks based on a succession of dyadic relationships.”
Therefore in that case study, we will try to describe the dyadic relationship between the OEM
(Airbus) and a tier 1.
15.3.4.Conduct interviews to identify objective and mostly subjective risks
Once, the supply chain framework has been defined thanks to many interviews. Our goal was
to identify risks.
As we explained in part 2, for a given step of the process there are objectives risks and
subjectives risks. Therefore objectives risks were considered as a deviation from the best
practice.
For instance one of the process functions that we described was: “Define the vision and set a
mission statement with hierarchy of goals”. Thus we identified the objectives risks as a
deviation from this process function, as illustrated in the table below.
After that, in order to identify subjective risks, we have conducted several interviews with our
clients and knowledgeable people from:
•
Quality Management
•
Purchasing Management
•
Logistic Management
•
I.T. management
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December 2007
Moreover after each diagnosis the Supplier Development Team write a report concerning one
industrial diagnosis at the supplier. These documents were a good source of subjective risks.
Process Function/ Requirements Potential Failure Mode: RISKS
The SC vision is not defined
A1.1
Define the vision and set a mission
statement with hierachy of goals
Potential Effect(s) of Failure
Supply Chain executives have no vision on
how the Supply Chain should operate in order
to compete
The Business Strategy is not operationalized
and supported
There is no long-term vision, therefore it will
be difficult to reach the business objectives
This lack of vision affect not only the company
that doesn't make the effort to build this vision
but also all the stakeholders of the entire supply
chain
Deviations
There is no mission statement
with hierarchy of goals
SC executives don't know which area they have
to improve firstly
The project management tools developed to
analyse the current state of the organization are
not relevant
The SC strategy is not
consistent with the Business
strategy
Business strategy is not executed through the
operational components of a company
Inability to respond the customer ever-changing
requirements: Develop flexibility and
responsiveness
Confusing or conflicting communications to the
organization where objectives may be
contradictory
15.3.5.Building a Risk Management tool: FMEA
We decided to use a famous risk management tool: a FMEA (Failure Mode and Effects
Analysis). In FMEA, Failures are prioritized according to how serious their consequences are,
how frequently they occur and how easily they can be detected. An FMEA also documents
current knowledge and actions about the risks of failures, for use in continuous improvement.
FMEA is used during the design stage with an aim to avoid future failures. Later it is used for
process control, before and during ongoing operation of the process. Ideally, FMEA begins
during the earliest conceptual stages of design and continues throughout the life of the product
or service. The purpose of the FMEA is to take actions to eliminate or reduce failures, starting
with the highest-priority ones. It may be used to evaluate risk management priorities for
mitigating known threat-vulnerabilities.
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December 2007
In most formal systems, the consequences are then evaluated by three criteria and associated
risk indices:
•
Severity (S),
•
Likelihood of occurrence (O), and (Note: This is also often known as probability (P))
•
Inability of controls to detect it (D)
The overall risk of each failure would then be called Risk Priority Number (RPN).
RPN = S × O × D. The RPN is used to prioritize all potential failures to decide upon actions
leading to reduce the risk, usually by reducing likelihood of occurrence and improving
controls for detecting the failure.
We have only defined the severity of the risks. To do so, we defined the following grid:
Severity
12
Very High:
The failure is identified at the Final Assembly Line. The
organization is not willing to implement Supply Chain Best Practices at all. It
could affect the delays (> 45days)
9
High: The failure is identified at the OEM' site. The organization is willing to
implement Supply Chain Best Practices but there are no resources (human and
financial). It could affect the delays (< 45days)
4
Low: The failure is identified at the supplier' site. The organization is
implementing Supply Chain Best Practices, but there is no strong collaboration
with the suppliers’ network. It could affect the delays (< 15days)
1
Minor: The failure is identified far from the Final Assembly Line (Early
Development
phase,
Contract
Negotiation,
etc).
The
organization
is
implementing some Supply Chain Best Practices and collaborates strongly with
its supplier’s network. It could affect the delays (< 5days)
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December 2007
16. Results
16.1. Supply chain processes
Thanks to the SCOR model, the MRP II philosophy we decided to describe the supply chain
framework as illustrated in the following figure.
Plan Supply Chain A1
SUPPLIER
Plan Supply A2
AIRBUS
Plan Supply A7
Plan Make A2 Plan Deliver A3
Supply A4
Supply A8
Deliver A6
Make A5
The model could be found in the appendix 2.
16.2. FMEA
The FMEA could be found on attachments of this report in Excel format. We decided to add
two columns to the FMEA framework. Indeed we decided to bring out the Input and the
Output of the processes. The most important is the input. That could be a source of risk.
Indeed if we need a given input to realize a function, and if this input is not existing or awry,
therefore this could represent a risk.
Input
Output
Current
Design/
Process
Controls
Prevention
Figure n°5: FMEA criteria
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Current
Design/
Process
Controls
Detection
Recommended
Action(s)
RPN
Potential
Cause(s)/
Mechanism(s)
of Failure
DET
Potential
Effect(s) of
Failure
OCC
Potential
Failure
Mode
SEV
Process
Function/
Requirements
December 2007
16.3. Communication stakes
We presented our supply chain framework to a department in charge of describing the internal
processes of Airbus. We try to implement our supply chain framework into their systems in
order to describe the processes until the suppliers operations.
Once we had almost built his risk management tool, we tried to communicate our results. We
discovered that a team of supply chain managers from Germany, France, U.K. and Spain were
working since the beginning of September 2007 on a supply chain risk management project.
Their goal was to build a standard risk register between all the Airbus entities. Their risk
register was not validated, and thus it was difficult to integrate my solutions to this project.
The risk register was almost based on a FMEA too. However I presented my project as a
relevant input to their project. Indeed the risk register project enables to have a common tool
to analyze suppliers’ risks, but it doesn’t solve the problems with risk identification issues.
Once the risk register project will be validated, our project could play an important role.
Finally I worked regularly with a field engineer. Hopefully this field engineer will implement
our solutions.
17. Conclusion
We reach our goals. We have defined a relevant supply chain framework that will support our
risk management tool. Thanks to this case-study we succeed to illustrate, in an industrial
environment, how we have answered the research question: What are the implications of the
subjective-objective debate regarding the nature for development of tools and frameworks for
(lean, agile and leagile) supply chain risk management?
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Slack N. and Lewis, M. (2001), Operations Strategy, 3rd ed., Prentice-Hall, Harlow.
Smith D.(2005), Exploring Innovation, McGraw Hill Education- Europe
Smeltzer L., Siferd S. (1998) Proactive Supply Management: The Management of Risk,
International Journal of Purchasing and Materials Management.
Spira, L.F. and Page, M. (2002), “Risk management: the reinvention of internal control and
the changing role of internal audit”, Accounting, Auditing & Accountability Journal, Vol. 16
No. 4, pp. 640-61.
Tapping, Don and Tom Shuker (2003), Value Stream Management for the Lean Office: 8
Steps to Planning, Mapping, and Sustaining Lean Improvements in Administrative Areas,
New York: Productivity Press.
Tayur S., Ganeshan R., (1999) Quantitative Models for Supply Chain Management, Kluwer
Academic Publishers, 2000
90
Quirino Barbosa
December 2007
Tchankova, L. (2002), “Risk identification – basic stage in risk management”, Environmental
Management and Health, Vol. 13 No. 3, pp. 290-7.
Williamson, O.E. (1975), Markets and Hierarchies: Analysis and Anti-trust Implications, The
Free Press, New York, NY.
Williamson, O.E. (1979), Transaction Cost Economics: The Governance of Contractual
Relations, The Free Press, New York, NY.
Wind, Y. and Webster, F.E. (1972), “Industrial buying as organizational behavior: a
guideline for research strategy”, Journal of Supply Chain Management, Vol. 8 No. 3, pp. 516.
Womack James P., Daniel T. Jones and Daniel Ross (1990). The Machine that Changed the
World: the Story of Lean Production. Rawson Associates, Macmillan, New-York
Wu, Yen-Chun Jim (2002), "Effective Lean Logistics Strategy for the Auto Industry,"
International Journal of Logistics Management, Vol. 13, No. 2, pp. 19-38.
Yates, J.F. and Stone, E. (1992), “The risk construct”, in Yates, J.F. (Ed.), Risk-taking
Behaviour,Wiley, Chichester.
91
Quirino Barbosa
December 2007
19. Web links
Airbus www.airbus.com
Boeing www.boeing.com
Composites bring Boeing's buyers, engineers and parts suppliers closer
http://www.purchasing.com/article/CA6419134.html
Environment, Safety, and Health considerations-Composite Materials in the Aerospace
Industry
http://ntrs.nasa.gov/archive/nasa/casi.ntrs.nasa.gov/19950016608_1995116608.pdf
La filière composite à l'Aérospatiale
http://www.w3architect.com/static/people/fgaillard/these/Aa-FiliereCompo.html
L’industrie française des matériaux composites
92
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December 2007
20. Appendixes
20.1. Appendix 1: State of the art definitions
State-of-the art definitions: RISK
Topic
Author
APM PRAM
Guide
Berntein
Dickson
Fone and Young
Frosdick
Frosdick
Grose
Hood and
Young
Kähkönen
Kendall
Knight
Lowrance
March and
Shapira
Mitchell
Moore
Parr
PMI PMBOK
Rowe
Schtub et al.
Simon et al.
Slack and Lewis
Snider
Steele and
Court
Tchankova
Yates and Stone
Zsidisin
Downlin &
Staelin
Risk
Risk and
Risk
Definition Uncertainty management
x (2004)
x (1996)
x (1989)
x (2000)
x (1997)
x (1997)
x (1992)
x (2005)
x (2007)
x (2007)
x (1921)
x (1980)
x (1921)
x (2007)
x (2003)
x (1987)
x (1999)
x (1983)
x (1997)
x (2004)
x (1980)
x (1994)
x (1997)
x (2001)
x (1991)
x (1994)
x (2001)
x (1996)
x (2002)
x (1992)
x (2004)
x (1994)
x (1994)
93
Quirino Barbosa
December 2007
State-of-the art definitions: Supply Chain Management (1/3)
Topic
Author
Antonette et al.
Bernstein
Burnes and Dale
Burnes and New
Cachon & Fisher
Carr and Smeltzer
Chopra & Sodhi
Christopher
Christopher & Towill
Christopher et al.
Cousins and Pekman
Cousins et al.
Eisenhart
Ericson
Faisal
Faisal, Banwet &
Shankar
Feldman and
Cardozo
Finch
Ford
Frosdick
Gadde and
Hakansson
Giunipero & Pearcy
Giunipero &
Eltantawy
Goldsby and GarciaDastugue
Gregory
Hahn et al.
Hallikas et al.
Handfield and
Nichols
Harland
Helo
Helo and Szekely
Hendricks and
Singhal
Hines and al.
Hoffman
Risk and
Purchasing
Risk
concerning
the
relationship
between
Supplier
and
Customer
Supply chain
risk
management
x (2002)
Transparency
information
x (2002)
x (1996)
x (1998)
x (1996)
x (2000)
x (1997)
x (2004)
x (2000)
x (2001)
x (2004)
x (2000)
x (2000)
x (2004)
x (2003)
x (2004)
x (1989)
x (2001)
x (2005)
x (2005)
x (2006)
x (1975)
x (2004)
x (1980)
x (1997)
x (2001)
x (2000)
x (2004)
x (2003)
x (2000)
x (2002)
x (2002, 2004)
x (1999)
x (2003)
x (2004)
x (2005)
x (2005)
x (1999)
x (1998)
94
Quirino Barbosa
Lean, Agile
Risk:
& Leagile SC
Objective vs
management
Subjective
& Risk
phenomenon?
Management
December 2007
Topic
Author
Hollweg
Jiang, Baker &
Frazier
Johnson
Karjalainen and al.
Kendall
Khan & Burnes
Koh
Koh and Saas
Kraljic
Landmark
Larson &
Kulchitsky
Lee et al.
Lengnick-Hall
Levitt
Lewis
Lupton
Macintosh
MacKinnon
Mariotti
Mason-Jones and
al.
Mentzer and al.
Mitchell
Moore
Naylor and al.
Naylor, Nairn, and
Berry
Norrman &
Lindroth
Ohno
Peters and
Venkatesan
Philling and Zhang
Puto et al.
Ragatz
Robinson et al.
Sheth
Simchi-Levi and al.
Singh
Appendix
Risk and
Purchasing
Risk
concerning
the
relationship
between
Supplier
and
Customer
Supply chain
risk
management
Transparency
information
Lean, Agile
Risk:
& Leagile SC
Objective vs
management
Subjective
& Risk
phenomenon?
Management
x (2002)
x (2007)
x (2001)
x (2003)
x (2003)
x (2003)
x (2007)
x (1983)
x (2004)
x (2004)
x (1983)
x (1960-70)
x (1998)
x (1997)
x (1998)
x (1965)
x (2003)
x (2000)
x (1999)
x (2002)
x (2002)
x (1999)
x (2000)
x (2001)
x (1995)
x (1983)
x (1999)
x (1997)
x (2002)
x(1998)
x (1973)
x (1967)
x (1992)
x (1985)
x (1997)
x (1967)
x (1973)
x (2002)
1
x (1998)
95
Quirino Barbosa
December 2007
Topic
Risk and
Purchasing
Risk
concerning
the
relationship
between
Supplier
and
Customer
Supply chain
risk
management
Transparency
information
Lean, Agile
Risk:
& Leagile SC
Objective vs
management
Subjective
& Risk
phenomenon?
Management
Author
Singh & GomezMeija
Sinha, Whitman &
Malzahn
Smeltzer and
Siferd
Souter
Spira and Page
Stratton and
Warburton
x (1998)
x (2004)
x (1998)
x (2000)
x (2003)
x (2000, 2001,
2002)
Svensson
Van der Vorst and
al.
Van Hoek and al.
Van Landeghem
and Vanmaele
Van-Hoeck
Walker & Alber
Williamson
Wind and Webster
x (1998)
x (2001)
x (2002)
x (2000)
x (1999)
x (1975, 79)
x (1972)
x (1979)
Wiseman &
Gomez-Meija
Womack et al.
Yates and Stone
Zolkos
Zsidisin
x (1998)
x (1990)
x (1992)
x (2003)
x
(2000,2003,
2004)
x (2000, 2004)
96
Quirino Barbosa
x (2002)
December 2007
State-of-the art definitions: Lean applications
Topic
Product
Logistics development Purchasing
and launch
Author/Source
Ahlstrom and
Karlsson
Hyer and
Wemmerlov
Jones, Hines
and Rich
MacDuffie and
Helper
Tapping and
Shuker
Wu
Office
Demand
environments Management
x (1996)
Bowersox,
Stank, and
Daugherty
Disney, Nairn,
and Towill
Goldsby and
Martichenko
Accounting
x (1999)
x (1997)
x (2003)
x (2202)
x (1997)
x (1997)
x (2003)
x (2002)
97
Quirino Barbosa
December 2007
State-of-the art definitions: New Product Introduction
ESI: Early
Supplier
Involvement
Topic
Author/Source
Balasubramanian&
Baumgardner
Barata
Burkett
Calvi & Le Dain
Carbone
Fujimoto
IAQG
(International
Aerospace Quality
Group)
SAP White paper
collection
Shister
Stevens
Twigg
Wynstra
Zsidisin & E.Smith
X (2004)
x (2004)
X (2006)
x (2007)
x (2007)
x (1995)
x (every
year)
x (2006)
x (2007)
x (2004)
x (1996)
x (1998,
2000)
x (2004)
98
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December 2007
20.2. Appendix: Supply Chain Framework. IDEF model
Node A1: Plan Supply Chain
A1
Tier 2
Tier 1
Airbus
99
Quirino Barbosa
Used at:
PMQA-SD
A1.1
Context:
Date:
Project: Supply Chain Risk Analysis
Define the vision and set a
mission statement with
hierarchy of goals
Node:A1
Reader:
Date: 01/09/07
Author:
SWOT analysis
According to the desired
goals conduct analysis
A1.2
Formulate actions and
processes to be taken to
attain these goals
A1.3
Title: Serial Production- 1st Tier Suppliers
Implementation of the
agreed upon processes
A1.4
Plan Supply Chain
Monitor and get feedback
from implemented processes
to fully control the operation
A1.5
Number: 1/3
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Assess external situation :
Markets, Competition,
Technology, Supplier
markets, Labour markets,
The economy, The
regulatory environment
A1.1.1
Classify the product
range according to
the strategic
objectives
A1.1.2.1
Node:A1
Identify Sales
objectives
A1.1.2.2
Mission statement :
Vision statement :
It tells what the company is
now; it defines the
customer(s), the critical
processes and the desired
level of performance
It defines where the
company wants to be. It
provides clear decisionmaking criteria.
Make or Buy decision
Identify
Inventory
objectives
A1.1.2.3
2
Title: Serial Production1st Tier Suppliers
Quirino Barbosa
A1.1.3
A1.1.2
Identify
Production
objectives
A1.1.2.4
Identify
Delivery
objectives
A1.1.2.5
Plan Supply Chain
Number: 2/3
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Internal Analysis
External Analysis
Strengths Analysis
A1.2.1
A1.2.3.1
Quirino Barbosa
A1.2.4
A1.2.3
A1.2.2
Competitive
Rivalry within the
industry Analysis
Node:A1
Threats Analysis
Opportunities Analysis
Weakness Analysis
Bargaining Power
of suppliers
Analysis
A1.2.3.2
Title: Serial Production- 1st Tier Suppliers
3
Bargaining
Power of
Customers
Analysis
A1.2.3.3
Threat of
New Entrants
Analysis
A1.2.3.4
Plan Supply Chain
Threat of
substitute
Products Analysis
A1.2.3.5
Number: 3/3
Node A2: Plan Supply & Make
December 2007
A2
Tier 2
Tier 1
4
Quirino Barbosa
Airbus
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Identify Long Term Needs
Identify
Technical
Requirements
A2.13
Receive
Aircraft
Program
Check the
Demand
historic
Firm Orders
Analyze
Trends
A2.2
&
A2.3
Analyze
Forecasts
accuracy
A2.4
Identify
Functional
requirements
Aggregate
Manufacturing
needs according
to :
A2.1
Establish
Demand
forecast
A2.6
•Products
• Clients
Long Term
needs
A2.14
&
Identify
Timing
Requirements
&
A2.15
• Factories
A2.12
Identify
Quality
Requirements
Receive Demand
Forecast from
Airbus
A2.16
A2.5
Manage configuration
conformity
and Documentation
A2.17
Identify Short Term Needs
Receive Firm
Order
Identify
Technical
Requirements
A2.7
A2.13
Receive Spare
Needs
(A.O.G)
A2.8
Receive
Repair
Needs
&
Identify
Functional
requirements
Aggregate
Manufacturing
needs according
to :
&
•Products
• Clients
A2.9
&
Identify
Timing
Requirements
A2.15
• Factories
Identify
back-orders
A2.12
A2.10
conformity
and Documentation
A2.17
A2.11
Quirino Barbosa
Identify
Quality
Requirements
A2.16
Identify NonQuality
Problems
Node: A2
Title: Serial Production
– 1st Tier Suppliers
5
Short Term
needs
A2.14
Plan Supply & Make
Number: 1/5
&
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
S&OP Level
LONG Term: Every Month (Horizon Plan =1 to 3 years; for Products families)
Resource requirements planning
Business plan
objectives
Assess
NPD/NPI
Programmes
A2.22
Coordinating plans of the
various departments
&
S&OP
&
A2.23
Load / Capacity
Analysis
Long term needs
Sales/Demand
Plan
A2.29
Identify critical
materials
A2.24
S&OP updated from the Forecast
Consumption Analysis
&
Compare the actual
demand with the
sales plan
Identify critical
labour
A2.18
A2.25
&
Communicate the updated
marketing plan to manufacturing,
engineering,and finance
Identify
bottleneck
operations
&
A2.26
Identify Tool
capacity
A2.19
A2.27
Assess
Investment
capacity
Manufacturing, engineering, and
finance adjust their plans to support
the revised marketing plan
A2.28
A2.20
&
MPS
Control the overall
coherence between S&OP
and the strategic business
plan
&
A2.21
SOP
Node:A2
6
Quirino Barbosa
Plan Supply & Make
Number: 2/5
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December
2007
MPS Level
Every Week (Horizon Plan =3-6 Months; for End products)
Rough-Cut Capacity Planning
Assess
NPD/NPI
Programmes
A2.38
&
Inventory levels
objectives for individual
end items
Load / Capacity
Analysis
&
A2.39
A2.44
MPS
Production Plan
Sales/Demand
Plan
Identify critical
materials
A2.40
Short and Long
term needs
&
Forecast demand
for each item in the
product family
Identify critical
labour
A2.41
A2.30
S&OP
&
Integrate
Customer’s orders
Identify
bottleneck
operations
&
A2.42
A2.31
Devise a preliminary
plan to
fit the constraints
Assess
Investment
capacity
A2.32
A2.43
Forecast
Consumption Analysis:
ATP & PAB calculation
A2.33
Resolve differences between the
preliminary MPS and capacity
availability
A2.34
S&OP
&
Update the S&OP thanks to
the Forecast Consumption
Analysis
A2.35
MRP
Control the overall
consistency between MPS
and the S&OP
A.O.G
Short Term
&
A2.36
MPS
Manage Spare
needs (AOG)
(Urgent Order)
A2.37
Node:A2
Quirino Barbosa
7
Title: Serial Production – 1st Tier Suppliers
Plan Supply & Make
Number: 3/5
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
Project:2007
Supply Chain Risk Analysis
December
MRP Level
Short term (Horizon Plan= 1 month; for components)
Capacity requirements planning
Planning factors: Order
quantities, lead times,
safety stock and scrap
Alter the load
A2.55
Inventory record file: How much
is available, how much is
allocated and how much is
available for future demand
Identify labour
capacity
0
Change the
capacity
available
MRP
Load / Capacity
Analysis
&
A2.50
A2.54
&
Identify machine
capacity
A2.56
A2.51
Short term needs
&
A2.45
MPS
Identify labour
requirements for each
time period at each
work centre
Determine
what, how much
and when to order
&
A2.52
&
Identify machine
time period at each
work centre
Keep priorities
current
A2.46
A2.53
B.O.M.
Check component
availability
A2.47
Release orders
A2.48
Plan Supply
&
& Plan Make
Control the overall
coherence between MRP
and the MPS
&
A2.49
A.O.G
MRP
Short Term
Manage Spare
needs (AOG)
(Urgent Order)
A2.37
Node:A2
Quirino Barbosa
8
Title: Serial Production – 1st Tier Suppliers
Plan Supply & Make
Number: 4/5
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Plan Supply
Net Needs
Integrate
NPI/NPD
programs into
supply plans
Load/Capacity
provisional
analysis
A2.58
A2.57
Maintaining
close contact
with Production
activities
&
A2.60
Improve the
collaboration
with the
suppliers
LONG Term
A2.59
Communicate
Quantity
requirements
A2.61
Set
procurement
objectives
A2.66
Communicate
Functional
requirements
Communicate
Price
requirements
A2.63
A2.62
Establish
relevant
KPI’s
Measure
Procurement
Performance
A2.67
A2.68
Collaborate
with the
suppliers
Risk
Identification
and Recording
A2.64
A2.65
Risk
Prioritization
Action Plan
A2.70
A2.69
Launch
Purchase Order
A2. 71
&
MEDIUM Term
Risk Action
closure
A2.72
Manage
Spare needs
SHORT Term
A2.37
Plan Make
Gather information
needed by the shop
floor
A2.73
Check tooling
and material
availability
A2.74
Check capacity
requirements and
availability
(schedule and load)
A2.75
Rank the shop
orders in desired
priority sequence
by work center
Choose the most
suitable Dispatching
rule
A2.76
PLAN
A2.77
Net Needs
Establish a dispatch
list
Control order
status
Node: A2
Quirino Barbosa
EXECUTE
A2.79
A2.78
A2.80
Release orders to the
shop floor
Weekly input/output
control by
department or work
centre
A2.81
Gather Exception
reports on scrap,
rework, and late
shop orders
A2.82
Check Inventory
status
A2.83
9
Establish performance
summaries on order
status, work centre
efficiencies
CONTROL
A2.84
Plan Supply & Make
Number: 5/5
Node A3: Plan Deliver
December 2007
A3
Tier 2
Tier 1
10
Quirino Barbosa
Airbus
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Plan Outbound
Logistic
Monitor
transportation
performance
A3.1
Establish
Logistic
Strategies
A3.1.1
Node: A3
Quirino Barbosa
A3.2
Reserve Extra
Long Load
(WP only)
A3.1.2
Check
transportation
resources
availability
A3.1.3
Communicate
transportation
planning
A3.1.4
11
Title: Serial Production1st Tier Suppliers
Gather
transportation
documents
Check
transportation
resources
A3.2.1
A3.2.2
Assess
transportation
conditions
A3.2.3
Plan Delivery
Monitor
Transportation
KPI’s
Communicate
transportation
performance
A3.2.4
A3.2.5
Number: 1/2
Used at:
PMQA-SD
Date: 01/09/07
Author:
Reader:
Context:
Date:
December 2007
Plan Delivery
A3.3
Gather Delivery
planning
demand
A3.3.1
Communicate
Delivery
information
Plan
Deliveries
A3.3.3
A3.3.2
12
Node: A3
Quirino Barbosa
st
ProductionTier Suppliers
SupplyTitle:
ChainSerial
Risk analysis
in the1 aerospace
industry
Plan Delivery
Number: 2/2
Node A4: Supply
December 2007
A4
Tier 2
Tier 1
13
Quirino Barbosa
Airbus
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Transfer Raw Mat.
or S.P.
to a Control Area
A4.9
Receive
Raw material
or sub parts
Collect
Delivery
Certificates
A4.1
Reception
Registration on
ERP
A4.4
A4.2
&
&
Authorize
Supplier
Payment
Edit Reception
Note
A4.5
A4.6
O
O
Archive
documents
&
O
Transfer Raw Mat. or
S.P.
to Warehouse
A4.10
A4.8
Collect
conformity
documents
A4.3
Send Raw Mat. or S.P.
to a Control Area
if administrative
non conformity
Transfer Raw Mat.
or S.P. directly
to the Production Line
A4.7
A4.11
Control Inventory
obsolescence
A4.12
Node: A4
Quirino Barbosa
1st Tiers Suppliers
14
Supply
Number: 1/2
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Stock out from
Warehouse
Stock In raw
material or S. P.
in Warehouse
A4.15
A4.13
&
&
&
&
&
Stock In
Registration on
ERP
Stock Out
Registration on
ERP
A4.14
A4.16
Dispatch
A4.18
Control inventory
obsolescence
A4.17
Node:
A4
Quirino Barbosa
15
1st Tiers Suppliers
Supply
Number: 2/2
Node A5: Make
December 2007
A5
Tier 2
Tier 1
16
Quirino Barbosa
Airbus
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
Stock Out
Stock In
Elementary
Parts
A5.7
A5.5
Sub contractors
products & Raw
Material Transfer
from Warehouse
&
&
A5.1
&
&
Manufacture
Elementary Parts
Elementary parts
transferred to
Sub-assembly
Unit
A5.2
Test and Attach
Q-docs
&
A5.3
Transfer
O
Stock In
Registration on
ERP
Stock Out
Registration on
ERP
A5.6
A5.8
A5.4
Control inventory
obsolescence
A5.9
Transfer directly to
the point of use
A5.10
Node:
A5
Title: Serial Production- 1st Tiers Supplier
Make
Number: 1/2
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Stock Out
Stock In
Sub-Assembly
A5.16
A5.14
Manufacture
Sub-Assembly
&
&
A5.11
&
&
Test and Attach
Q-docs
Transfer Subassembly parts to
Final assembly
unit
A5.12
Transfer
A5.13
O
&
Stock In
Registration on
ERP
Stock Out
Registration on
ERP
A5.15
A5.17
Dispatch
A5.20
Control inventory
obsolescence
A5.18
the point of use
A5.19
Node:
A5
2
Quirino Barbosa
Make
Number: 2/2
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Stock In Final
Assembly
Unit
A5.24
&
&
Final Assembly
Unit
A5.21
Test and Attach
Q-docs
A5.22
Transfer
O
&
A5.23
Stock In
Registration on
ERP
A5.25
Control inventory
obsolescence
A5.26
the point of use
A5.27
Node:
A5
Quirino Barbosa
3
Make
Number: 2/2
Node A6: Deliver
December 2007
A6
Tier 2
Tier 1
4
Quirino Barbosa
Airbus
Used at:
PMQA-SD
Date: 01/09/07
Author:
Reader:
Context:
Date:
December 2007
Stock out Final
Assembly Unit
A6.2
Edit Delivery
Note and QDocs
&
&
A6.1
Prepare Material
for distribution
(kits, etc…)
Pack Product
A6.4
A6.5
Shipment
A6.6
Stock Out
Registration on
ERP
A6.3
5
Node: A6
Quirino Barbosa
Supply
Chain
RiskProductionanalysis in the
industry
Title:
Serial
1staerospace
Tiers Supplier
Deliver
Number: 1/1
Node A7: Plan Supply & Make
December 2007
A7
Tier 2
Tier 1
6
Quirino Barbosa
Airbus
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Identify Long Term Needs
Identify
Technical
Requirements
Receive
Aircraft
Program
A7.13
Check the
Demand
historic
Firm Orders
A7.2
Analyze
Trends
&
A7.3
Analyze
Forecasts
accuracy
A7.4
Identify
Functional
requirements
Aggregate
Manufacturing
needs according
to :
A7.1
Establish
Demand
forecast
A7.6
•Products
• Clients
Long Term
needs
A7.14
&
Identify
Timing
Requirements
&
A7.15
• Factories
A7.12
Identify
Quality
Requirements
Receive Demand
Forecast from
Airbus
A7.16
A7.5
conformity
and Documentation
A7.17
Identify Short Term Needs
Receive Firm
Order
Identify
Technical
Requirements
A7.7
A7.13
Receive Spare
Needs
(A.O.G)
Aggregate
Manufacturing
needs according
to :
A7.8
&
Receive
Repair
Needs
Identify
Functional
requirements
&
•Products
• Clients
A7.9
&
Identify
Timing
Requirements
A7.15
• Factories
Identify
back-orders
A7.12
A7.10
conformity
and Documentation
A7.17
A7.11
Node: A7
Quirino Barbosa
Identify
Quality
Requirements
A7.16
Identify NonQuality
Problems
– Airbus
7
Plan Supply & Make
Short Term
needs
A7.14
Number: 1/4
&
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December
2007
S&OP Level
LONG Term: Every Month (Horizon Plan =1 to 3 years; for Products families)
Resource requirements planning
Business plan
objectives
Assess
NPD/NPI
Programmes
A7.22
Coordinating plans of the
various departments
&
S&OP
&
A7.23
Load / Capacity
Analysis
Long term needs
Sales/Demand
Plan
A7.29
Identify critical
materials
A7.24
S&OP updated from the Forecast
Consumption Analysis
&
Compare the actual
demand with the
sales plan
Identify critical
labour
A7.18
A7.25
&
Communicate the updated
marketing plan to manufacturing,
engineering,and finance
Identify
bottleneck
operations
&
A7.26
Identify Tool
capacity
A7.19
A7.27
Assess
Investment
capacity
Manufacturing, engineering, and
finance adjust their plans to support
the revised marketing plan
A7.28
A7.20
&
MPS
Control the overall
coherence between S&OP
and the strategic business
plan
&
A7.21
SOP
Node: A7
Quirino Barbosa
Title: Serial Production – Airbus
8
Plan Supply & Make
Number: 1/4
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
MPS Level
Every Week (Horizon Plan =3-6 Months; for End products)
Rough-Cut Capacity Planning
Assess
NPD/NPI
Programmes
A7.38
&
Inventory levels
objectives for individual
end items
Load / Capacity
Analysis
&
A7.39
A7.44
MPS
Production Plan
Sales/Demand
Plan
Identify critical
materials
A7.40
Short and Long
term needs
&
Forecast demand
for each item in the
product family
Identify critical
labour
A7.41
A7.30
S&OP
&
Integrate
Customer’s orders
Identify
bottleneck
operations
&
A7.42
A7.31
Devise a preliminary
plan to
fit the constraints
Assess
Investment
capacity
A7.32
A7.43
Forecast
Consumption Analysis:
ATP & PAB calculation
A7.33
Resolve differences between the
preliminary MPS and capacity
availability
A7.34
S&OP
&
Update the S&OP thanks to
the Forecast Consumption
Analysis
A7.35
MRP
Control the overall
consistency between MPS
and the S&OP
A.O.G
&
A7.36
Short Term
MPS
Manage Spare
needs (AOG)
(Urgent Order)
A7.37
Node: A7
Quirino Barbosa
– Airbus
9
Plan Supply & Make
Number: 1/4
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
MRP Level
Short term (Horizon Plan= 1 month; for components)
Capacity requirements planning
Planning factors: Order
quantities, lead times,
safety stock and scrap
Alter the load
Identify labour
capacity
A7.55
Inventory record file: How much
is available, how much is
allocated and how much is
available for future demand
0
Change the
capacity
available
MRP
Load / Capacity
Analysis
&
A7.50
A7.54
&
Identify machine
capacity
A7.56
A7.51
Short term needs
&
A7.45
MPS
Identify labour
time period at each
work centre
Determine
what, how much
and when to order
&
A7.52
&
Identify machine
time period at each
work centre
Keep priorities
current
A7.46
A7.53
B.O.M.
Check component
availability
A7.47
Release orders
A7.48
Plan Supply
&
& Plan Make
Control the overall
coherence between MRP
and the MPS
&
A7.49
A.O.G
MRP
Short Term
Manage Spare
needs (AOG)
(Urgent Order)
A7.37
Node: A7
Quirino Barbosa
– Airbus
10
Plan Supply & Make
Number: 1/4
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Plan Supply
Integrate
NPI/NPD
programs into
supply plans
Load/Capacity
provisional
analysis
Net Needs
A7.58
A7.57
Maintaining
close contact
with Production
activities
&
A7.60
Improve the
collaboration
with the
suppliers
LONG Term
A7.59
Communicate
Quantity
requirements
A7.61
Set
procurement
objectives
A7.66
Collaborate
Functional
requirements
Communicate
Price
requirements
A7.63
A7.62
Establish
relevant
KPI’s
Measure
Procurement
Performance
A7.67
A7.68
Collaborate
with the
suppliers
Risk
Identification
and Recording
A7.64
Risk
Prioritization
A7.70
A7.69
Launch
Purchase Order
A7.65
Action Plan
A7. 71
&
MEDIUM Term
Risk Action
closure
A7.72
Manage
Spare needs
SHORT Term
A7.37
Plan Make
Gather information
needed by the shop
floor
A7.73
Check tooling
and material
availability
A7.74
Check capacity
requirements and
availability
(schedule and load)
A7.75
Rank the shop
orders in desired
priority sequence
by work center
Choose the most
suitable Dispatching
rule
A7.76
PLAN
A7.77
Net Needs
Establish a dispatch
list
Control order
status
Node: A7
Quirino Barbosa
EXECUTE
A7.79
A7.78
A7.80
Release orders to the
shop floor
Weekly input/output
control by
department or work
centre
A7.81
Gather Exception
reports on scrap,
rework, and late
shop orders
A7.82
Check Inventory
status
A7.83
11
AIRBUS
Establish performance
summaries on order
status, work centre
efficiencies
CONTROL
A7.84
Plan Supply & Make
Number:3/4
Node A8: Supply
December 2007
A8
Tier 2
Tier 1
12
Quirino Barbosa
Airbus
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Transfer Raw Mat.
or S.P.
to a Control Area
A8.10
Receive
Raw material
or sub parts
Collect
Delivery
Certificates
A8.1
Reception
Registration on
ERP
A8.4
A8.2
&
&
Authorize
Supplier
Payment
Edit Reception
Note
A8.5
A8.6
O
O
Archive
documents
&
O
Transfer Raw Mat. or
S.P.
to Warehouse
A8.11
A8.8
Collect
conformity
documents
A8.3
Send Raw Mat. or S.P.
to a Control Area
if administrative
non conformity
Transfer Raw Mat.
or S.P. directly
to the Production Line
A8.7
A8.12
Control Inventory
obsolescence
A8.17
Node: A9
Quirino Barbosa
13
Title: Serial Production- Airbus
Supply
Number: 1/2
Used at:
PMQA-SD
Reader:
Date: 01/09/07
Author:
Context:
Date:
December 2007
Stock out from
Warehouse
Stock In raw
material or S. P.
in Warehouse
A8.15
A8.13
&
&
&
&
&
Stock In
Registration on
ERP
Stock Out
Registration on
ERP
A8.14
A8.16
Dispatch
A8.18
Control inventory
obsolescence
A8.17
Node: A9
Quirino Barbosa
14
Title: Serial ProductionAirbus
Supply
Number: 2/2