Trends and developments in aviation industry

For the third outsourcing task, the starting point will be an aircraft manufacturer. Our setting will be that developments and trends within the market have required the buying firm to assess the possibility for outsourcing the production of engines to a supplier. The air manufacturer industry features a number of distinct characteristics that differentiate it from other markets. The real life market for airplanes is constrained by it’s high entry barriers and is dominated mostly by American producer Boeing and the European consortium EADS. Interestingly Boeing has lately been under intense media scrutiny following the grounding of it’s new flagship the B787 and the fighter aircraft F-35. The experiences following the creation of the aircrafts can offer us some insights that will be useful for evaluating the appropriate supply strategy. Therefore we will use real life examples from these cases to take out lesson that can make our own case more credible. Regarding the product in hand, aviation engines, it goes without saying that an engine being a complex engineering and vital in a mechanical structure will constrain and fore limitations upon our supply strategy. These characteristics will be important for assessing the risks, benefits and which relationship we should have to our supplier.

Trends and developments in aviation industry

The manufacturing industry has changed quite a lot, this is also apparent for the manufacturing of airplanes. Not only has the manufacturing process become more complex, but the increasing pressure for specialization is evident across companies and industries. It is increasingly difficult for companies to do everything themselves, therefore manufacturing in various industries has been disintegrated to various stages (Gadde, 2010). This change was quite evident in the production of the new Boeing flagship B 787 and the F-35where as much as 80% of parts and components were outsourced to subcontractors and strategic partners. This arbeidsfordeling permits the suppliers to focus on particular parts of the production process. This development is based on network theory interdependence and trust, and Boeings role in all of this is the one more of coordinator and customer (Johnson, 2008). This development is part of the changing nature of increasingly vertical integrated supply chains (Van Weele 2010). This change gives Boeing the opportunity to focus on its core competencies, which are the design, final assembly and marketing of the airplane (Economist, 2009). This is important to keep in mind as it will give us valuable insight regarding current trends in the aviation industry and how they purchase. This can help pinpoint risks, benefits and how to structure the relationship with the supplier.

Aviation engines

In our case the task of supplying engines is very specific and will directly influence key attributes of the final product. Since the engines will have to be customized according to specifications set by the manufacturer, our aircraft manufacturer will have a certain extent of ownership to the engines delivered. Also the good is highly sensitive, it requires a highly specialized design, so the skills and assets are very specific, these skills cannot be procured from a large variety of suppliers. This constrains the scope of action for the buying firm and furthermore it influences our relationship with the supplier.

Supply strategy and relationship

Given the products and services, any businesses will have to make choices and tradeoffs according to which link they wish to have with the supplier. Which form of association is often a strategic choice; the conscious choice of affiliation can affect competition and survival of the buying firm (Van Weele, 2010: Glemte siden). To be able to assess which kind of supply strategy the good requires we will firstly use the Kraljic model as a decision tool to gain insight.

Based on the earlier discourse regarding engines and its significance in the finished product we can claim that the importance of the purchase made is high. The engine will normally be one of the most expensive components in an aircraft. Therefore the importance of the purchase will be high. Equally the access to the product is restricted as the competence for performing such a task is not easily available, there are very few independent suppliers with the necessary skills to design and develop the engines. Therefore we claim that the complexity of the market is high. According to the model the airplane engines will therefore be categorized as a strategic product. This requires the purchaser, according to the model, to seek a strategic partnership with it’s supplier. This again entails

Benefits

An airplane is a highly specialized product and in order to obtain a good product it requires extensive knowledge and high quality on a variety of activities. However, it would be difficult for any company to keep up to date and have top expertise in all areas, especially for such a product as an engine. This is a clear benefit and driver for outsourcing as it will offer the buying firm the chance to tap in to the knowledge and resource base of the supplier. This potentially allows our air plane manufacturer to be at the forefront of technological expertise in the field of engine manufacturing and it frees up resources that can be better employed elsewhere. This is in accordance with the argument behind the recommendation for companies to concentrate on their core competencies. Also the cost savings from freeing up resources from not having the production in-house can result in an improvement of the bottom line. Also it enables the company to reduce it’s own risks, it can share the financial and industrial risks with a partner. Another important argument for outsourcing that was put forward by both Aitbus and boeing was the it could potentially decrease the time

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