1. ES4C9 Supply Chain Management
Lecture 3: SCM and Procurement Strategies
Case Study: Filton Aerostructures
Lecturer: Alexa Kirkaldy
Icons used in this set of presentation slides are made by Freepik from Flaticon and is licensed by Creative Commons BY 3.0.
Graphics arrangement and layout by Vance Tan.
Slide presented by Ginny Watsham (slides 2-5 and 11), Nicholas Karakoullis (slides 6-10), Avishka Karunaratne (slides 12-13), Vance Tan (14-16) and Eckardt Gladman (17-20).
Case Study: Filton Aerostructures
Lecturer: Alexa Kirkaldy

2. Filton Aerostructures: An overview
British Aerospace sister companies
Airbus
Filton Aerostructures, a Bristol-based company created in 1993, was a second-tier supplier to British Aerospace sites (primarily the Airbus programme for the manufacture of aircraft wings).
ES4C9 Supply Chain Management | Filton Aerostructures

3. The Procurement Function
Bonding
Machining
Assembly
Fabrication
Manufacturing
The Filton Aerostructures organisation can be seen on this slide. The procurement function (which is the focus of the case study) liased with all 5 manufacturing departments, although currently this might be as little as just one person from procurement overseeing one department of Manufacturing.
Procurement
ES4C9 Supply Chain Management | Filton Aerostructures

4. Filton Aerostructures: An overview58 38
Company created to supply parts to British Aerospace
Strategic changes in the aircraft industry
The case study describes the company’s supply chain during a period of rapid change (early 1995).
All was going well and good, then there was a recession (early 1990s) and as a result less people were flying, as this is a luxury, so there was lower investment in aircrafts. The Gulf War also affected this as there were less transatlantic flights.
As a result BA underwent reorganisation and faced disruption – e.g. redundancies, closure programmes
Many smaller companies went out of business as a result of this, and BA became a leading partner within European Airbus.
Lots of the aggressive targets and redundancies passed on to Filton, for example the procurement team downsized from 58 employees in 1993 to 38 by the end of 1995.
ES4C9 Supply Chain Management | Filton Aerostructures

5. 66% 75% 35% Improvement Targets Reduction in overheads within 4 years
Production lead times to be reduced by
75%
35%
Reduction in unit costs in 2 years
Airbus had over 50% of market share in 1994, so seemed to be doing well. To mirror this success, Filton had to set targets for improvement and to streamline their processes to become a more efficient supplier in the Airbus supply chain, as otherwise they might become redundant. These were the targets they set. However, they had some problems meeting these targets, as there were a lot of problems in the company, which Nick will now talk more about.
Stock-turn ratios: How many times stock/inventory is being sold/purchased.
Stock-turn ratios to be improved from 4 to 12
ES4C9 Supply Chain Management | Filton Aerostructures

6. Issues faced by the company
Poor communications (both internally and externally)
Poor communications – internal and external
This was the main problem concerning Filton Aerostructures. Because of the structure of Procurement, internal communication was often poor because other departments such as manufacturing didn’t know who to address their problems to and this usually resulted in disruptions in supplies.
This lack of coordination coupled with poor forecasting meant that raw materials were often overstocked and up to half of the stock was redundant.
ES4C9 Supply Chain Management | Filton Aerostructures

7. Issues faced by the company
Bad relationship with suppliers
Historically poor supplier relationship
Filton didn’t use the expertise and advice offered by suppliers in the past. Also, last minute changes to schedules and specifications by Filton made it difficult for suppliers to perform-only 60-70% of deliveries were on time.
ES4C9 Supply Chain Management | Filton Aerostructures

8. Issues faced by the company
Large numbers of suppliers
Several thousand suppliers so any positive change would involve a lot of parties.
ES4C9 Supply Chain Management | Filton Aerostructures

9. Issues faced by the company
Low morale of employees
Low morale of Filton employees – future job uncertainty
To cut costs, 1/3 of the staff was laid off between 1993 and Throughout this time there was also continuous reorganisation within Filton in a bid to improve which meant that job descriptions and day-to-day tasks of employees changed regularly. These factors resulted in low employee morale as employees didn’t know how much longer they would have their jobs and weren’t quite sure what exactly their job was at points.
ES4C9 Supply Chain Management | Filton Aerostructures

10. Issues faced by the company
High demand uncertainty
High demand uncertainty
Filton were receiving last minute changes to specifications and schedules which were then passed on to suppliers.
ES4C9 Supply Chain Management | Filton Aerostructures

11. Recommendations
Use less suppliers, build relationship with preferred suppliers
Implement early decoupling points
Integrate processes using ERP
These were our suggested improvements that could be made to meet each of the problems Nick mentioned, which we will now talk about in more detail.
Change shape of BOM from ‘X’ to ‘T’
Implement pull postponement
ES4C9 Supply Chain Management | Filton Aerostructures

12. Recommendations
Moving the manufacturing team and the procurement team physically closer to one another
The use of electronic data interchange (EDI)
Have a committee with selected members from all departments
Integrate processes using ERP
Physically moving the procurement team closer to the manufacturing team would help bring down the barrier of poor communication.
The use of electronic data interchange would allow each department to understand the real time situation of each team, this would help each team understand the challenges each team face, helping build relationships.
A committee with all the departments would help reduce the animosity within the departments as well as reducing the isolation faced by satellite members.
360º
ES4C9 Supply Chain Management | Filton Aerostructures

13. Recommendations
Existing X configuration: uncertainty in terms of volume, time and level
Implement JIT by changing to ‘T’ configuration
Late customisation
Change BOM shape
Finished product
(Aircraft wings)
Filton Aerostructures are producing a large variety of products, and they have a large number of suppliers, causing the shape of the configuration to be X-shape.
This causes a lot of uncertainties when considering, volume, time and level of service.
Therefore implementing a JIT system if possible to make the configuration more of a T shape structure would be more suitable. This may be possible by having an assembly line which caters to the variety of the products towards the end of the supply chain.
Raw materials
Reference: Slack et al., Operations Management, 4th Edition, Prentice Hall, 2004, pp as cited in Kirkaldy, A., 2015
ES4C9 Supply Chain Management | Filton Aerostructures

14. Fabrication Team Leader
Recommendations
John Ramsay
(Procurement
Manager)
Core Team Leader
Fabrication Team Leader
Machining Team Leader
Bonding Team Leader
Assembly Team Leader
Manufacturing
Team Leader
Forge relations with customers and suppliers
Improved forecasting and accuracy of order schedules
Build relationships with preferred supplier
Another strategy that Filton Aerostructures can adopt to improve its Supply Chain is to evolve from a traditional organisational structure to a more customer-focused structure, as shown on this slide.
In our new proposed structure, we can see that each division works as a team of 4 to 5 people, plus one team leader instead of manager, ensuring a free-flow of communication.
These customer focused teams can then be relocated closer to the internal customers, so staff can become more agile to changes and more responsive to customers’ demands, as they would have a clearer view of who they are working for (and to whom they are selling to).
By sharing knowledge internally/externally and up/down the supply chain, it allows the Procurement function to forge relationships with both the customers and suppliers. It also means that the Procurement function is able to gain the capability to improve forecasting and accuracy of their order schedules.
ES4C9 Supply Chain Management | Filton Aerostructures

15. Customer order-driven
Recommendations
INFORMATION FLOW
Filton suppliers
Filton Aerostructures
Airbus
End customer
The Bullwhip Effect on Filton’s Supply Chain 80 40 20
160 units
80 units
40 units
= stock level
CASH FLOW
, Pull postponement & customer order decoupling points
Engineer
Fabricate
Assemble
Deliver
Make-to-stock
Assemble-to-order
Make-to-order DP
Forecast driven
In order to meeting 100% of their customer demands, instead of just 60% to 70% as mentioned earlier by Nick, the Procurement function need to adopt the pull postponement strategy which means that orders are moving towards make-to-order, based on customer specifications instead of less accurate forecast.
A model which links pull postponement strategies to customer decoupling points was proposed in 1984 by Sharman, whereby the Decoupling Points are as upstream as possible within the supply chain, allowing orders to be customer driven.
Decoupling point: “the point that indicates how deeply the customer order penetrates into the goods flow” (Donk, 2001). DP
Customer order-driven DP
Reference: Sharman, G. (1984). The rediscovery of logistics. Harvard Business Review, 62(5), 71–80
ES4C9 Supply Chain Management | Filton Aerostructures

16. Customer order-driven
Recommendations
INFORMATION FLOW
Filton suppliers
Filton Aerostructures
Airbus
End customer
The Bullwhip Effect on Filton’s Supply Chain 80 40 20
160 units
80 units
40 units
= stock level
CASH FLOW
, Pull postponement & customer order decoupling points
Engineer
Fabricate
Assemble
Deliver
Make-to-stock
Assemble-to-order
Make-to-order DP
Forecast driven
In order to meeting 100% of their customer demands, instead of just 60% to 70% as mentioned earlier by Nick, the Procurement function need to adopt the pull postponement strategy which means that orders are moving towards make-to-order, based on customer specifications instead of less accurate forecast.
A model which links pull postponement strategies to customer decoupling points was proposed in 1984 by Sharman, whereby the Decoupling Points are as upstream as possible within the supply chain, allowing orders to be customer driven.
Decoupling point: “the point that indicates how deeply the customer order penetrates into the goods flow” (Donk, 2001). DP
Customer order-driven DP
Reference: Sharman, G. (1984). The rediscovery of logistics. Harvard Business Review, 62(5), 71–80
ES4C9 Supply Chain Management | Filton Aerostructures

17. Conclusion: Achieving strategic fit
Understand customer demand uncertainty 01
Understand the supply uncertainty 02 03
Understand supply chain capabilities
Because of the booming air transport market in the early 1990’s followed by a recession and lack of governmental funding, Filton Aerostructures had a lot of pressure to achieve strategic fit in its new environment. 04
Achieve strategic fit
ES4C9 Supply Chain Management | Filton Aerostructures

18. Conclusion: Achieving strategic fit
Understanding Filton Aerostructures’ customer demand uncertainty
Service level
Lead time
Variety of products
(remains unchanged)
Volume
Price
Rate of innovation
Volume - Initially during the boom in the market, the focus was on capacity, rather than cost or quality. There were little competition during this time.
Rate of Innovation, Lead time & Price- After the recession, many smaller manufacturers had to merge or go out of business. At this point the remaining competitors in the industry were at making plans for huge improvements in the design, time to market and cost of aircraft. Boeing was the leading company at the time in this move. In order for British Aerospace and their Airbus partners to continue to gain market share, they had to at least match the improvement targets that Boeing had set out for themselves.
Service Level- The pressures involved with improving the previous variables, coupled with an inadequate communication system between Filton Aerostructures and its suppliers is what caused a problem with its service level. The redundancies, the overtime, and resulting frustrations, due to bad communication with suppliers, reduced the morale of the employees.
ES4C9 Supply Chain Management | Filton Aerostructures

19. Conclusion: Achieving strategic fit
Supply uncertainties within Filton Aerostructures
Stable SC
Evolving SC
Less breakdowns
Vulnerable to breakdowns
Stable and lower yield
Variable and higher yield
Less quality problems
Potential quality problems
More supply sources
Limited supply sources
Reliable suppliers
Unreliable suppliers
Less product changes
More product changes
Less capacity constraint
Potential capacity constraint
Dependable lead time
Variable lead time
Flexible
Inflexible
Reliable Suppliers- The suppliers of Filton Aerostructures had an on-time delivery performance of 60-70%. But this was mainly due to the lack of transparency in the SC. FA’s decision making resulted in last minute changes to order and schedules. This meant that they kept their suppliers at an arms length and were basically making things harder for themselves.
Less product changes- In the industry, as airoplanes become more advanced, FA would have to change the parts they produce but at this point in time, there was no big change to their product.
Less capacity constraint & Dependable Lead Times- The metal stores were considered the bottleneck, which created a problem for manufacturing. This delay to the internal customer as well as the inadequate communication between these two department meant that manufacturing often over-ordered which caused a huge backlog, sometimes of up to seven weeks or 900 items waiting for processing. This is an example of the bullwhip effect.
Flexibilty- The lack of communication between the organisations in the SC, reduced its flexibility to change.
ES4C9 Supply Chain Management | Filton Aerostructures

20. Conclusion: Achieving strategic fit
Demand uncertainty
Low
High
Responsive supply chains
Low
Efficient supply chains
Supply uncertainty
Risk-hedging supply chains
High
Agile supply chains
Despite the poor communication, FA’s supply uncertainty was quite low.
Initially during this period of change in the industry as well as BA’s resulting improvements, the demand uncertainty was relatively high. In order for BA and its partners to remain in the market and achieve a strategic fit, they now had to become an Efficient SC. But to do this they first had to be a Responsive SC.
So to conclude, the poor communication and lack of integration of information in the SC meant that they weren’t as Responsive as they could have been.
Reference: Lu, D., MSc SCM module, Warwick Manufacturing Group as cited in Kirkaldy, A., 2015
ES4C9 Supply Chain Management | Filton Aerostructures

21. Questions?
ES4C9 Supply Chain Management | Filton Aerostructures

22. Supporting Slides Electronic Data Interchange EDI Challenges
What is Electronic Data Interchange? Details the process of EDI.
EDI Challenges
Challenges that Filton might face in its implementation
ES4C9 Supply Chain Management | Filton Aerostructures

23. Buyer creates Purchase Order Purchase Order is faxed or posted
Electronic Data Interchange
What is Electronic Data Interchange? Details the process of EDI.
“Computer-to-computer exchange of business documents in a standard electronic format between business partners.”
- GXS Inc.
Buyer creates Purchase Order
Purchase Order is faxed or posted
Supplier enters order into internal system and generates invoice
Buyer enters invoice into internal system
Invoice is faxed or posted via mail
Invoice is generated
ES4C9 Supply Chain Management | Filton Aerostructures

24. Buyer’s Internal System Supplier’s Internal System
Electronic Data Interchange
What is Electronic Data Interchange? Details the process of EDI.
“Computer-to-computer exchange of business documents in a standard electronic format between business partners.”
- GXS Inc.
Purchase Order
Invoice
In EDI, business documents can be safely and securely exchanged between Filton Aerostructures, their suppliers and customers up/down the supply chain.
Unlike traditional approaches to Purchase Order and Invoices, no paper is involved in EDI systems.
Buyer’s Internal System
Supplier’s Internal System
NO PAPER INVOLVED!
ES4C9 Supply Chain Management | Filton Aerostructures

25. 01 03 02 Confidentiality and trust Aligning incentives
Electronic Data Interchange
Challenges that Filton Aerostructures may face in its implementation
Confidentiality and trust
The confidentiality of shared information creates some risk to Filton Aerostructures and its suppliers. It is therefore important that all organisations sharing the information have mutual trust and exercise their judgement on commercial information. 01
Varying standards and requirements
Different industries will have varying requirements in terms of the EDI system adopted. Filton Aerostructures could adopt an EDI via VAN to mitigate the need to support varying protocols required by suppliers. 02
Aligning incentives
Filton Aerostructures should be wary of sharing too much information that may cause conflict between suppliers such as the alignment of incentives and privileges. 03
ES4C9 Supply Chain Management | Filton Aerostructures