My office is in the downtown core of Montreal and last week I attended a briefing session by two aerospace companies, Pratt and Whitney (PW) and Bombardier, at a hotel up the street. The subject was about a new initiative by PW and Bombardier to improve supplier performance. What this involved was explanations of the impact late deliveries have financially on both companies and to their supply chain process. Following an introduction to the topic by Bombardier, PW continued for the balance of the session. To overcome these problems and to streamline business processes, PW introduced a new procedure allowing suppliers to input data via a portal before items are shipped, as opposed to shipping master waybills and packing slips with the material. Aerospace requires more than just a PO number and line number; it requires a complete set of inspection approvals, and sometimes custom export or import papers. Their new system also accommodates this.
We watched a movie and saw a very informative set of PowerPoint slides. The presentation showed how critical the on-time delivery of every supplier’s part is and how these deliveries become part of the manufacturing process. The lateness of a part is very expensive to PW, so much so that PW charges suppliers up to $1,000 for a late shipment or for poor quality. Interestingly, an entry on the PowerPoint slides showed that one of the late deliverers of engine parts to PW was another PW shop.
The reason for such penalties is that a missing part for an engine, for example, results in changes to its manufacturing sequence and red-flags the engine. When the part arrives, it is finally destined to the engine that was red-flagged; however the engine has to enter a rework shop where the assembly may be partially disassembled, in order to allow for the part to be installed. In other situations, the engine’s assembly is stalled because the part is internal to the engine and there is no point in continuing without it. After rework, there is a doubling up at the next production stations because of the backlog.
In regular routings (assembly sequences), the part and its serial number would be entered by the inventory pick list crew, and would be part of the build-kit. Rework is very costly as the part’s serial number is not known until the last minute when it arrives at the rework station. The late arrival of the part may also cause additional delays because of need for quality assurance inspections. In either case, it is entered at the last minute. Loss of time and potential loss of control add to record keeping and QA expenses.
Benefits mentioned of the New System
To support its new system, PW provided a day of training on the use of the portal, and explained future business incentive rewards to suppliers. To qualify, suppliers must be able to deliver daily (lean manufacturing), and it is the suppliers responsibility to carry sufficient inventory to cover employee’s vacations, absenteeism, weekends, or even legal holidays. Lateness of delivery incurs penalties.
PW is a global industry with customers around the world. Fast turn-around means better cash flow and higher profits. Global requirements mean suppliers must be more proactive. A customer’s airplane that does not have a working engine is an expense item, not a revenue item. Customers also feel the impact of late deliveries.
Supplier on-time performance reduces back orders and allows PW to mostly deliver on time, thereby retaining customer satisfaction. PW occasionally receives penalties for late deliveries, thus the concept of sharing the supply chain delay costs downstream. Suppliers to PW, and even work units within PW, are occasionally hit with late delivery penalties.
Manufacturing planning (MPS) is done 12 weeks in advance of material requirements planning (MRP). Suppliers are required to have superb quality control for their parts and, in many cases, to have PW inspectors on site.
The remaining part of the day was geared to a PW University training. There was one laptop per student and suppliers took classroom training learning how to input supply information into the various electronic forms on the PW portal. (As I was an observer, and not a vendor, I did not stay for the course.)
. The domino impacts due to lateness when lean manufacturing (low safety stock inventories) in the supply chain environment was my educational eye-opener.