Aerospace industry supply chains had a significant event this weekend, one that will resound for years to come. The event was the Dubai Airshow, and there were two significant industry statements that will have long-term industry implications.
The first was a significant statement from certain Middle East’s Gulf airline carriers that they intend to be a dominant force in international airline travel in the coming years. That statement involved the placing of in excess of $150 billion in aircraft purchasing power with aerospace manufacturers. That is indeed a considerable statement of both intent and global customer influence.
Boeing was a major recipient, receiving what is reported to be $100 billion in new aircraft orders from four Middle East Gulf carriers. Boeing utilized the event to formally launch the development of the new 777X aircraft and by booking orders and commitments for 259 of this aircraft. Orders received involve two models of this new long-range aircraft capable of transporting approximately 350 to 400 passengers per plane. The 777x family includes two models: the 777-9X and the 777-8X. Each model of the 777x aircraft has a list price in the range of $350 million -$378 million. The orders came from three Gulf based carriers: Emirates, Etihad, and Qatar Airways. Dubai based Emirates which is already noted as the globe’s largest operator of 777 family aircraft, alone ordered 150 of the new 777x valued to be in the range of $76 billion. The orders were in addition to a previously announced deal for 34 777x planes from German based Lufthansa which was announced in September. In its reporting, the Wall Street Journal tagged the 777x announcement as “the largest product launch in commercial-jetliner history.”
Current plans call for deliveries of the new 777x to begin in seven years, around 2020, even all goes according to schedule.
Boeing further landed an order for 30 additional 787 Dreamliners from Etihad, which is reported to make this carrier the ultimate largest operator of the 787 when all are operational. Budget carrier Flydubai placed an order for 86 new 737 single aisle aircraft.
Airbus was also a recipient, landing orders for 50 of its new A350 aircraft while Emirates announced that it is buying an additional 50 of the gigantic A380 aircraft estimated to be in the range of $23 billion in order value.
Another major benefactor of this weekend’s orders was General Electric and CFM International. The consortium landed commitments for aircraft engines and services value to be $40 billion at list pricing. Among the highlights was an Emirates commitment for 300 GE9X engines valued at approximately $11 billion to power the 777x which GE describes as “the largest ever commercial jet engine award from an airline.” CFM International, the joint venture of GE and France’s Snecma (Safran) was the recipient of orders for 450 of its LEAP engines. Both aircraft engine producers now have a record backlog of orders.
Over and above the flurry of announcements regarding new equipment orders are other important implications which will collectively make up the second significant implication from this year’s Dubai airshow. The Associated Press and Yahoo Finance reported that with almost $78 billion in purchasing commitments, Emirates has cemented itself as Boeing’s and Airbus largest and most influential airline customer for years to come, one that will be favored by each of these aerospace OEM’s. Upon review of the order split among both OEM’s, Supply Chain Matters is of the believe that Emirates is also practicing proactive risk management by splitting its orders for replacing its existing fleet of intercontinental aircraft among both a yet to be designed and delivered 777x from Boeing, and more advanced staged A350 and A380 aircraft from Airbus. The A380 is already a released and operational aircraft while the A350 completed its first maiden flight in June. The industry track record for development and producing an aircraft of the size and technological complexity of the new 777x is fraught with multi-year delays from both of these global OEM’s.
The other statement coming from this weekend is what the Wall Street Journal reported (paid subscription or free metered view) as a crucial part of both the Emirates and Etihad 777x deals with Boeing. A joint venture with Mubadala, an Abu Dhabi government-owned conglomerate calls for Boeing to add its technical expertise in making advanced composite materials for jets utilized in the UAE. It is reportedly part of a broader effort to increase the presence of aerospace technology production in the region and add advanced technology manufacturing to existing economies of the region. While specific details are lacking, the effort could lead to added local sourcing of suppliers in this region, the type of deal that Boeing made with crucial Japan based airlines for the 787 Dreamliner program, that led to significant sourcing in that region.
Boeing is already in the midst of a controversial negotiation with its Seattle based labor unions over ultimate engineering and production sourcing of the 777x. The principle labor union in Seattle has already turned-down Boeing’s latest offer for a multiple-year labor agreement extension that could extend for as much as seven years. That leaves the ultimate decisions for engineering and supplier sourcing, along with final assembly up for grabs. As noted in our most recent Supply Chain Matters commentary related to the 777x, current public threats by Boeing to source major design engineering outside of Seattle along with major sourcing decisions related to the production sites provides shades of whether past supply chain related learning of multi-year program delays and snafus with the 787 program have been internalized.
November 2013 is a significant customer related milestone for certain aerospace supply chains. It represents the implications of the emerging prominence of the Middle East Gulf airlines and their growing influence on certain aerospace supply chains for many years to come.
The glitches surrounding operation Boeing 787 Dreamliner aircraft have once again landed in media. An underside body panel apparently fell off a 787 Dreamliner operated by Air India as it made a landing on Saturday, the latest glitch for the high-tech jetliner. According to officials, an eight foot by four foot (2.4 meters by 1.2 meters) section of fuselage fell from the underside of the jet as it landed landed within the perimeter at India’s Bangalore airport.
According to a posting from the Times of India, the aircraft was enroute from Delhi to Bangalore with 148 passengers on-board when this incident occurred. The aircraft itself was the ninth delivered to Air India and according to the Times report, had just recently entered service. The article includes a picture of the gaping hole which is described as the AC bay. However, by our view on just glancing at the picture, it would seem that a whole lot of fasteners would have let go. The Times article makes further mention that Air India had experienced problems with the interior electric ovens used for food preparation.
Both Boeing and Air India have indicated there was no safety risk for the passengers while Boeing continues to investigate this incident.
On July 30th, Supply Chain Matters attended the Infosys 2013 Global Analyst Summit meeting held in Boston. This is an annual event held each year with invited industry analysts representing multiple coverage areas. It was a great briefing event, held at a scenic facility overlooking Boston Harbor and filled with insightful information.
Bottom-line, we were surprisingly impressed at the consulting efforts that Infosys’s manufacturing and supply chain teams have made in the past twelve months.
Infosys itself has undergone some turbulent changes in terms of lagging growth, culminating with bringing back its founder N.R. Narayana Murthy as executive chairmen. During the opening session, Co-founder, Board Member, Managing Director and CEO S. D. Shibulal reviewed the accomplishments of the Infosys 3.0 re-alignment that has been executed over the past 18 months. He acknowledged that last year provided some challenges for the firm with growth below industry average. Since that time the firm has re-aligned both its industry and geographic organizational focus and has assembled 14 offerings around products and platforms. Last year, a significant percent of the firm’s new deals around business outcomes came as a result of the new platforms strategy with the Process and Platforms business unit reaching $725 million in Total Customer Value last quarter alone. The re-alignment and re-focus has begun to demonstrate other improved performance. Shibulal re-iterated that Infosys maintains a 98 percent customer retention rate among nearly 600 core clients. The CEO also highlighted some key client accomplishments across multiple industries and it was rather clear that he was personally involved in overseeing some of these engagements. Also made clear was the firm’s renewed focus on assisting clients in major business process transformation that extends beyond just information technology, with broader measures of engagement performance. Infosys is in the process of transforming to both a services and platform consultancy.
The remaining morning briefing sessions featured a combination of Infosys senior executives and select customers discussing areas termed Insights-Driven and Agile Enterprise, along with Cloud and IT Outsourcing implementation efforts. What we found most interesting was how these clients described their business objectives, which included:
Building a smarter organization
Digitizing the enterprise for growth
Fail fast and win faster- iterated by more than one client presentation
Harnessing the power of real-time decisions
Managing disparate global operations effectively
Enabling guest experiences
Re-architecting the entire data environment
These are terms that connote broad cross-functional and enterprise initiatives. The other common theme we picked-up on was a sense of urgency for industry change in either maintaining or up-ending industry leadership in business capabilities, or seizing business opportunities in new markets.
Our afternoon time centered on a series of dedicated briefings from various Infosys executives within the Manufacturing Industry practice business unit, chaired by Sanjay Jalona, Infosys Senior Vice President for Hi-Tech and Manufacturing, along with his associated manufacturing industry leaders. This business unit stated that it works with more than 100 global 2000 clients and that 40 percent of engagements are led from a business process consulting framework. While we are restricted from the mention of client names, we can relate that the names are impressive. Once more, the described engagements are far reaching, many with multiple-year timetables for innovation.
More importantly, Infosys has shifted to a shared-risk outcomes-based client engagement model where end results are predicated on specific client specified business outcomes. Infosys has now discovered that its core capabilities lie in combined services that span engineering, business process outsourcing and IT transformation. The firm’s broad global presence across multiple countries is further leveraged to assist manufacturers and retailers in implementing capabilities on a global scale, including needs in higher-growth emerging markets.
Five areas of investment capability and client transformation focus were described that include: Information, Digital, Infrastructure, Business and Supply Chain. Beyond IT and business consulting, the manufacturing practices have also focused on the delivery of specific services including product engineering and industry specific customer services. The firm is also developing impressive capabilities in the area of leveraging predictive analytics applied to supply chain and online fulfillment needs.
Our briefing emphasized the increasing importance that manufacturers currently place on transforming to more services focused business areas particularly in discrete manufacturing and aerospace settings. In some specific engagements, Infosys has assumed the ongoing management of a client’s legacy products that frees-up client resources to work on more innovative product offerings. Client names were again impressive, many of which Supply Chain Matters has featured in specific supply chain, B2B, and online fulfillment capabilities.
As outlined above, we were obviously impressed, and we were not the only analyst firm with that impression. The firm has clearly shifted toward delivering strategic capabilities for its clients, a theme that was candidly not the top-of-mind impression for India based firms.
One of the current shortfalls of Infosys is its ability to effectively market its broader array of capabilities for global based manufacturers and retailers and that conclusion was openly echoed by other attending analysts as well. We were informed that this will be addressed.
The takeaway for our readers is that we were impressed by the renewed focus of Infosys, particularly its Manufacturing practice area.
Disclosure: Infosys is a former sponsor and client of the Supply Chain Matters blog
This week featured two significant software company announcements related to both service lifecycle management and global supply chain planning.
Product lifecycle management technology provider PTC announced its acquisition of Enigma, a small developer of software that aggregates technical content in aftermarket service environments. The acquisition stemmed from PTC’s service lifecycle management (SLM) business and no financial terms were disclosed. Readers may recall PTC’s prior August 2012 acquisition of service lifecycle management software provider Servigistics for $220 million. That was four months prior to the Servigistics acquisition of arch rival MCA Solutions. This latest acquisition reinforces PTC’s intent to invest aggressively in the service management sector to boost its other technology offering in product design and management support.
Enigma’s technology aggregate a wide variety of service related electronic content and re-formats that content for technician or field users requiring technical and parts information. Its two main product areas are InService MRO, software supporting maintenance, overhaul and repair for aerospace and defense industry firms. Its other product family is InService EPC, software supporting electronic parts cataloging for manufacturers, dealer networks and field technicians. Among its cited customer base are Bombardier Aerospace, Goodrich, Lockheed Martin and Rolls Royce in the aerospace segment, Ford and Volvo in the automotive segment.
In the area of supply chain planning, Oracle announced the long anticipated general availability of Oracle In-Memory Applications, and specifically Oracle Value Chain Planning, Oracle In-Memory Consumption-Driven Planning and Oracle In-Memory Performance-Driven Planning. These applications have been designed to leverage Oracle’s new engineered systems architecture including the Oracle Exadata Database Machine. The principle emphasis of this new technology applied to supply chain planning is the ability to consume and quickly analyze and visualize large amounts of data and provide more predictive capabilities. Oracle In-Memory Consumption-Driven Planning allows granular consumption of transactional product demand data such as store-level point-of-sale or online omni-channel demand to facilitate optimized distribution replenishment planning.
The combination of Oracle in-memory technology applied to company’s specific supply chain planning applications is a competitive counter to rival SAP which is working to leverage its HANA based technology in supply chain planning and sales and operations planning (S&OP) support applications.
Supply Chain Matters will feature a more detailed overview and analysis of these Oracle released applications in a later commentary.
Rolls-Royce Continues to Address Extraordinary Supply Chain Business and Service Lifecycle Management Challenges
Frequent Supply Chain Matters readers are well aware of the ongoing and constantly evolving supply chain challenges facing the Aerospace industry and its associated community of suppliers.
One of the largest and perhaps most critical of these suppliers is that of aircraft engine provider Rolls-Royce. This engine-maker is planning to double its production output of wide-body aircraft engines over the next five years.
Among other areas of contracted supply, this manufacturer servers as the sole supplier of aircraft engines for the Airbus A350 and A380 aircraft as well as one of two prime suppliers for Boeing’s 787 Dreamliner aircraft. By some estimates, Rolls holds 54 percent supplier market share among the combined wide-body engine provider programs according to a recent chart featured in The Financial Times.
Rolls has joined other wide-body engine providers such as General Electric in providing aircraft power as a service, allowing airline operators to lease their power requirements by the hour, avoiding huge up-front costs for equipment allowing airline and leasing companies the option for amortizing aircraft engine costs over the life of the engine’s period of use. Aerospace engine providers thus exercise performance-based service lifecycle contracts in their business models.
Within the past two weeks, Rolls-Royce has been featured in global business media from two contrasting perspectives. Readers may recall a November 2010 incident when a fairly new Qantas A380 aircraft carrying over 400 passengers shortly after take-off out of Singapore had to make an emergency landing as a result of an uncontrolled engine explosion that narrowly avoided what could have been a tragic outcome. This aircraft experienced severe damage to its left wing, fuel tank and hydraulic systems and without the skills of a group of five augmented on-board pilots the results could well have been far more tragic. As a result of the incident reports indicated that Rolls-Royce’s total direct costs associated with this incident were $190 million, including nearly $90 million in direct costs incurred by Rolls in dealing and responding to this one incident and a $100 million settlement with Qantas for disruption of operations. Over 40 Trent series engines involving three A380 airline customers had to subsequently taken out of service and repaired causing further customer disruption.
After a thorough post-incident investigation, The Australian Transport Safety Bureau concluded last week that “uncontained engine failure” was caused by oil leaking from a cracked pipe in the affected engine. The Financial Times (paid subscription or free metered view) and other business media reported last week that Rolls admitted “it clearly fell short” of its own safety standards related to the specific manufacturing processes related to the Trent series engine. The manufacturer indicated that the engine component consisting of the failed oil pipe was produced at the Hucknall UK manufacturing facility. FT reported that there several opportunities to identify and fix the problem but were missed for a number of reasons related to non-conformance to quality procedures and specific plant culture. At the end of 2011, Rolls changed the sourcing of the high pressure intermediate hub assembly to its manufacturing site at Bernoldswick UK. The director of engineering and technology at Rolls is quoted by FT as indicating that the A380 related engine failure was a rare event “which we very much regret.” Readers should be astounded at the subsequent monetary implications as to the risks of a leaking oil pipe in one of this engine’s most critical functional areas.
Today’s edition of FT outlines (paid subscription) a second important challenge for Rolls-Royce, that of increasing product margins through reduction of manufacturing and supply chain costs over the coming years. The new head of the civil and defense aerospace business, Tony Wood, indicated to FT that his business was prepared to cope with plans to dramatically increase product rates of Trent series engines while improving operating margins. Current product margins were recorded at 11.3 percent compared with rival GE Aviation margins of 18.7 percent. Previous operating margins at Rolls were 14 percent in 2007, but that was before massive new investments in current engine technology and advanced product capability. The article describes other inflationary price pressures related to price increases in raw materials and how Rolls suppliers are investing in low-cost manufacturing regions including Asia. Rolls recently announced added investment in U.S. manufacturing capability. Mr. Wood declared that the operating unit would work on increasing profitability partly through cost-cutting and leveraging the near doubling of engine output over the next five years.
Thus, Rolls-Royce has taken on a unique set of challenges. The company has strong roots as engineering-centric and engineering-driven. From a business outcomes lens, it must scale-up complex engine product output while balancing and constantly coordinating the complexity of a globally extended supply chain. It must reduce unnecessary manufacturing and supply chain costs and insure that quality and engine reliability is increased. That adds to culture-conflict.
Continued severe economic downturn forces across the Eurozone add to supplier stress in finding cost-effective investment in working capital. There is also the previous learning from OEM experiences from Airbus and Boeing in coordinating a complex, globally-extended supply chain which have led to multiple snafus and operational setbacks in original scheduling.
“Power by the hour” airline customers increasingly expect to pay for engine up-time and long-term reliability, which in reality shifts more operating risk burden to the OEM manufacturer. This makes Roll’s upcoming production, associated supply chain and product management challenges a true balancing of expected business outcome needs with realities of today’s complex supply chain risks.
This will be a company for our community to keep an eye-out in the coming months and years since the right investments in process control, supply-chain wide analytics and intelligence, supplier collaboration and service lifecycle management (SLM) will be crucial.
These past few weeks have featured an explosion of business, general media and technology vendor recognition concerning the new era of digital manufacturing that is underway and its profound impacts of how we think about this area. The notions of additive manufacturing, smart devices and predictive analytics applied to products and services are now becoming more top-of-mind for multiple industry executives.
We are moving from an era of predominantly physical to that of digitized and software concentrated aspects of products and services. The sooner your company and organizational teams understand the implications of these trends, the better.
This week, the Wall Street Journal featured a special dedicated insert with the lead article, A Revolution in the Making. The series highlighted the profound impacts that additive manufacturing will have on global supply chains in the not too distant future. Two articles highlight efforts underway at Ford Motor, General Electric, Nike and Mattel in their current applied use of additive manufacturing techniques applied to customized manufacturing. In late May, the Financial Times published an article concluding that the digital based transformation of manufacturing is the key for European based firms to lead in a sustainable recovery from the current economic malaise, but questions if the broader aspects of manufacturing firms fare committed toward change.
Product (PLM) and service lifecycle management (SLM) technology provider PTC is conducting its PTC Live Global customer event this week. Besides reinforcing the themes noted above, this vendor also co-sponsored a research study with Oxford Economics which is titled Manufacturing Transformation. (No-cost sign-up required to download) This report surveyed over 300 manufacturing executives across six industry sectors. By our view, one of the more significant takeaways from the findings was that 68 percent of those surveyed expect to undergo a significant business process transformation over the next three years. Geographically, European based manufacturers expect more of this transformation, no doubt another reinforcement of the FT article noted above.
The survey results further uncovered that customer fragmentation is a current major concern for manufacturers which is being translated to a heightened attention to coordination of strategy and planning among engineering, manufacturing and service functions. However, nearly 70 percent of manufacturing C-level executives view talent shortages and labor costs as a critical worry.
When we developed our Supply Chain Matters 2013 Predictions for Global Supply Chains late last year, we considered a prediction on the impact of additive manufacturing but instead noted the trend in our honorable mention predictions. Our thought was that 2013 may well be the year where the momentum of adoption of additive manufacturing techniques across multi-industry supply chains would accelerate. More transformational work remains, but the momentum is clearly accelerating.
In our ten listed 2013 predictions, we identified in Prediction Four that supply chain talent retention, management and development will remain a significant problem across global supply chains. That challenge continues to manifest itself in executive and other surveys, the latest being the Oxford Economics study. Prediction Eight portended that the digitization and the building momentum toward bundled hardware, software and services would facilitate further teardown of functional walls. We believe that it will drive product development, customer fulfillment and service under a common leadership umbrella.
Yes, the keys toward industry competitiveness are quickly moving into dimensions of virtual and additive manufacturing where customer needs are individualized, where time-to-market dimensions are even faster, and where design, build and service anywhere have true meaning. The evidence is quickly building, and the needs for your organization to be prepared to take advantage of these forces are becoming far more compelling. Readiness includes not just technology but ever more important areas of organization, skills development and other enterprise transformational needs.
In the remainder of 2013, Supply Chain Matters will provide added depth to the implications of manufacturing transformation and its implications in organizational and supply chain dimensions. For the time being, we pose two questions for your thoughts:
Are you delivering these manufacturing transformational messages and their implications to your supply chain wide organizational teams?
Are plans and initiatives addressing transformational needs being identified, particularly to help people transform their skills?