Demand and Forecasting in Aviation Industry’s Supply Chain

In today’s business environment, one cannot ignore the risks of disruption. Black swans such as a global pandemic could and will occur and the best business plans are those that anticipate and prepare for this inevitability (Handfield and McCormack,2008).

Sole-Source Supplier Strategy (Pros and Cons)

Linthorst and Telgen, (2007) suggest a single-sourcing strategy, whenever there is pressure from high costs from exchange, negotiation administration and monitoring. Nevertheless, sole sourcing makes buying firms more dependent on a single supplier and that increases the risk of supplier opportunism.

Multi-Sourcing Strategy (Pros and Cons)

According to Pfeffer and Salancik (1978) by moving from single supplier strategy to multiple suppliers, an organization can reduce its degree of dependence on any one supplier. Further, under multiple sourcing strategy, the demand of buying firm is split between multiple suppliers and this creates continuous competition among suppliers and reduces the cost of goods and risks of supply disruption (Linthorst and Telgen, 2007). However, the multi-sourcing option, increases the transaction and administration costs (Meena, Sarmah, & Sarkar, 2011).

Examples

A well known example that highlights the shortcomings of the single sourcing option is the case of Ericsson. A fire at the manufacturing plant of Ericsson supplier (Philips microchip) located at Albuquerque, New Mexico in 2000 caused Ericsson to incur a loss of about 400 million Euros (Meena, Sarmah, & Sarkar, 2011). Similarly, in 1997 Boeing incurred a loss of $2.6 billion due to the failure of its two key suppliers to deliver critical parts, etc (L.A. Times, 1997).

The above examples demonstrate that even if a small part is not provided in time by a single supplier, i.e. critical parts not delivered to Boeing, could create a significant interruption. Especially in the aviation industry, every system is interconnected with other systems; such a dependency makes all systems critical.

Discussion

Closing, I would like to switch gears and bring another perspective on the topic, based on my military background. According to the Air Force’s Basic Doctrine (U.S. Air Force, 2015), one of the tenets of air power is flexibility. Based on this principle, very often Armed Forces develop and modify their Operational Planning. Diplomatic and political factors might affect the availability for specific parts of important defense systems; for that reason the Hellenic Air Force (HAF) even though the initial order of its F-16 was installed with F110-GE-100 engines, in the late 90s its leadership decided to purchase 60 additional Vipers equipped with a different engine type, the F100-PW-229 (Lockheed Martin, 2010). That decision offered to the HAF the tactical advantage of redundancy, avoiding the grounding of the whole F-16 fleet, in case of reduced availability in one of its F-16’s engine types, either due to a severe engine malfunction or disruption on the supply chain. Therefore, Greece as a small country, in a geo-strategic location that cannot compromise the security of its homeland, has found this multi-supplier strategy to be sufficient and effective, even if it might more expensive.

References

  • Handfield, R.B., McCormack, K., (2008). Supply Chain Risk Management: Minimizing Disruptions in Global Sourcing. Series on Resource Management. Auerbach Publications, New York.
  • Linthorst, M.M., Telgen, J., (2007). Public Purchasing Future: Buying from Multiple Sources. Advancing Public Procurement: Practices, Innovation and Knowledge-Sharing. Academics Press, Boca Raton, FL. pp. 471–482.
  • Pfeffer, J., Salancik, G.R., (1978). The External Control of Organizations: A Resource Dependence Perspective. Harper and Row, New York.
  • L.A. Times. (1997, October 23). Boeing Will Post Largest Loss Ever. Retrieved June 05, 2020, from L.A. Times: https://www.latimes.com/archives/la-xpm-1997-oct-23-mn-45879-story.html
  • Meena, P., Sarmah, S., & Sarkar, A. (2011). Sourcing decisions under risks of catastrophic event disruptions. Transportation Research Part E, 1058-1074. doi:https://doi.org/10.1016/j.tre.2011.03.003
  • U.S. Air Force. (2015). U.S. Air Force Doctrine. In Volume 1 – Basic Doctrine (pp. 65-66). Maxwell AFB: Lemay Center for Doctrine. Retrieved June 05, 2020.