3 Costly Supply Chain Risks for A&D Manufacturers

  • 26 September 2018
  • CTND

3 Costly Supply Chain Risks for A&D Manufacturers

Supply chains for aerospace and defense (A&D) manufacturers have been reshaped by digital transformations. Access to real-time data enables manufacturers to streamline end-to-end planning, warehouse management, and decision making. Predictive analytics allows for better forecasting of demand and supply. Automation tools enable manufacturers and their suppliers to increase efficiency of production and reduce lead times.

These benefits can all be realized by digitizing your supply chain with the use of an advanced ERP system. Research from McKinsey suggests that digitizing your supply chain can boost your company’s annual growth of earnings by up to 3.2%. Here are three key risks associated with modern A&D supply chains, and examples of how a modern enterprise resource planning (ERP) system can help manage them.

Risk 1: The Volatility and Security of Raw Materials

The origin sites of the raw materials you use may vary greatly, and the associated risks depend on factors ranging from global politics to physical security. A supplier that loses an international contract, or has been the victim of inventory theft, could be costly for your business. At best, it may cost you time and money to adjust to an inflated price for materials. At worst, an inventory breach or other disruption of materials in your supply chain may result in missed deadlines, lost business deals, and time spent securing new suppliers for your needs.

Supply chain risk management is becoming more complex for A&D manufacturers thanks to increased digitization. To help manage risk, inquire about the location of each of your suppliers’ factories (and their suppliers’ too, where relevant). Find out what security measures your suppliers take to keep your raw materials safe – guard gates, window locks, perimeter fencing and lighting, security systems, and even the materials used to construct your suppliers’ factories all play a role in risk assessment. Manage contracts with a selection of secondary suppliers in addition to your primary suppliers.

Treat raw materials procurement as a service-oriented process that considers consumer needs at the earliest stages of the supply chain. By anticipating required materials that are scarce (or volatile on the marketplace) early on, you can collect them early on and lessen the chance of customer dissatisfaction down the line.

An advanced ERP system can create a top-down dashboard that monitors security procedures and inventory levels. With real-time tracking software, your ERP solution can give you the visibility needed to plan orders, create smart schedules, and stay ahead of market fluctuations.

Risk 2: The Integrity of Your Suppliers

The internal processes and policies of your suppliers can also affect your bottom line. Do you know how your suppliers handle on-site visitors or secure sensitive data? Are you aware of how they remove toxic chemicals, or if they are in compliance of child labor laws? What about their creditworthiness? Company policies, such as maternity leave, paid time off, and employee background checks, all have an effect on the security of your supply chain.

ERP systems are perfect for interpreting mass amounts of data and creating operating models that account for the variability of suppliers. Incorporating the scope of suppliers’ risks and potential points of failure into a supply chain is one of the chief benefits of an agile ERP system.

Risk 3: Supplier Management Tactics

The old linear path — wherein original equipment manufacturers (OEMs) would manage all of their hundreds of suppliers simultaneously — has shifted to a tiered system. Today, OEMs deal only with major Tier 1 suppliers, who in turn manage smaller Tier 2 suppliers, who similarly manage the even smaller suppliers beneath them.

Because OEMs have less supplier oversight with this approach, Tier 1 suppliers take on a larger role, acting as partners in the business relationship between OEMs and small suppliers. OEMs provide KPIs and business goals, and Tier 1 suppliers offer design and operations support.

ERP systems improve upon this management strategy by enabling all members of the supply chain to enter information digitally, improving inter-supplier communications. Furthermore, the cloud-based capabilities of modern ERP systems translate to instantaneous access to this information, producing greater collaboration. The use of mobile applications also give workers the flexibility needed to research data anywhere, anytime.

The Takeaway

Custom ERP systems are hardwired with your organization’s best practices and key metrics. Predictive analytics and advanced algorithms can help identify the volatility in your supply chain and gauge how each link affects your bottom line. Integrating this level of risk management into every step of a workflow creates an environment where supply chain decisions can be understood holistically, not just in piecemeal.

Since risk can never be totally eliminated, only mitigated and managed, nimble ERP systems that can process vast quantities of data and provide bird’s-eye visibility in real time are essential to lean, competitive manufacturers in the A&D industry.

Agile ERP systems reduce risk across key points of your supply chain and help improve your bottom line. Contact Cre8tive Technology and Design to speak with our expert team about how a cutting-edge ERP solution can boost your business’ success.

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