GLOSSARY OF TERMS
AECMA: European Association of Aerospace
Industries
EDI: Electronic Data
Interchange, the transfer of data between different companies
using networks, such as the Internet. As more and more companies get connected
to the Internet, EDI is becoming increasingly important as an easy mechanism
for companies to buy, sell, and trade information
E- RFx: e-request for qualification
ERP: Enterprise Resource Planning. An
amalgamation of a company's information systems designed to bind more closely a
variety of company functions including human resources, inventories and
financials while simultaneously linking the company to customers and
vendors.
FAA : Federal Aviation Administration
FAR: Federal aviation requirements
ISO: International Organization for
Standardization OEM or PRIMES: Original equipment
manufacturer
OTHER PARTIES: Independent organisations
engaged in audit and certification activities that are under control and
oversight of aerospace industry. They are industry managed
SECOND SHARED PARTIES: European association
called ASD EASE in charge of assessing Suppliers QMS, applying the same
assessment rules, and sharing the assessment results between its members. They
are industry managed
THIRD PARTIES: Independent organisations
engaged in audit and certification activities that are not under control and
oversight of aerospace industry. They are not industry managed
XML: Extensible Markup
Language is a specification developed by the W3C. XML is a
pared-down version of SGML, designed especially for Web documents. It allows
designers to create their own customized tags, enabling the definition,
transmission, validation, and interpretation of data between applications and
between organizations.
GENERAL INTRODUCTION: Supply chain
management
"As the economy changes, as competition becomes
more global,
it's no longer company vs. company but supply chain
versus
supply chain."
Harold Sirkin, VP Boston Consulting
Group
Recently, the global market schemes have generated new
concepts and mechanisms in various economic and industrial sectors. In the
complicated global market place, "Core Competencies" of each enterprise empower
their competitive advantages. Thus, the focus of various organizations is
directed to their core competencies. For this reason, they try to manage their
internal and external resources comprehensively. This orientation to
integrating different parts of a business or a production process causes each
industry to move initially toward Computer Integrated Manufacturing (CIM).
Thereafter, they have evolved into Computer Integrated Business (CIB). More
recently, they have grown into Extended Enterprise (Browne et al.,
1996).
As a result, modern managers are engaged more and more in the
processes of Decision Making (DM) and are forced to consider all factors within
the walls of their factories, as well as external factors with a holistic
perspective. This led to Supply Chain (SC) systems or more generally, Value
Chain (VC) and Value Stream (VS) approaches. SC, VC and VS concepts and
definitions, as a total system, have been investigated by many researchers at
universities and academic centers, as well as by professionals in
industries.
The first concern of a supply chain and a value chain is
generally the purchasing process. In such cases, the focus is on the supplier
selection, supplier evaluation and relational activities with sellers. In a
larger perspective, upstream suppliers are considered as a part of a
manufacturing/ buyer enterprise. Buyers usually plan and control their systems
and link them to their suppliers. Tiers or levels of suppliers form a supply
network, with the buyer managing and leading it in an integrated way.
Finally, supply chain management leads to a value chain
approach, in which all the affecting elements related to the customer(s) are
considered and analyzed in a broader view. In this approach, manufacturers and
distributors are included in the chain. In general, a supply chain is defined
as follow: "A supply chain is the network of facilities and activities that
performs the functions of product development, procurement of material from
vendors, the movement of materials between facilities, the manufacturing
products, the distribution of finished goods to customers, and after-market
support for sustainability."
Based on this definition, such a network in a system contains
a high degree of imprecision. This is mainly due to its real-world character
and its imprecise interfaces among its factors, where uncertainties in
activities from raw material procurement to the end user make the SC
imprecise.
· Main Aspects and Characteristics of the
Supply Chain
SC systems can be studied and analyzed from several
viewpoints. There are three major perspectives of SC systems: (1) "Material
Flow", (2) "Information Flow", and (3) "Buyer-Seller Relations". Apart from
these three aspects of SC systems, there are some other building blocks for
these systems, such as raw material suppliers, manufacturers of parts,
assemblers, Original Equipment Manufacturers (OEMs), distributors, retailers,
customers, etc. It should be noted that these aspects examine the SC and all
its components in an integrated way.
· Material Flow
Manufacturers should manage their supply resources to meet
customer needs. As a matter of fact, today an integrated management of the
material flow through different levels of suppliers and distributors is
challenging for managers.
Production planning in different sections of a manufacturing
enterprise and planning its upstream and downstream activities in a harmonized
way are two of the main tasks of managing the flow of materials in an SC.
Synchronizing production planning of each entity and, in a
more detailed way, scheduling production lines or job shops in these components
of the SC are very complicated and often intractable. This complication can be
highlighted if we investigate this chain from a product-oriented point of
view.
Consider a product structure or a tree. In the real world,
each level of the product tree is assigned to a supplier. A production plan for
such a product , which uses, e.g., the MRP approach, determines a due date for
each level and each component. When all of these components are produced in one
factory, the problem is easier to solve. However, when these levels expand
through a chain of suppliers, synchronizing them is usually very complicated,
while this synchronization is an obligation in Customer-Driven Manufacturing
(CDM). Clearly, a successful plan critically needs supportive logistics.
Transportation planning, inventory management and quality assurance activities
are some logistics in the smoothing flow of materials through the SC. These
logistic activities should be managed in an integrated way.
· Information Flow
The managing and control of each system comprise several
parts. In an SC system, information management is an essential sector.
Complexities in business planning activities occur in four areas: (a)
technological revolution, (1) product changes, (2) research and development,
and (3) information explosion. The SC system could be seen as a business
enterprise with a high level of data transaction. As a matter of fact, a
well-organized information system is a foundation for a proper material flow in
the SC.
· Buyer-Seller Relations
The buyer-seller relation is the main aspect of an SC. While
traditional approaches to the buy-sell process focus on factors like the price
in the buyer-seller relation, the SC draws attention to quality, R&D, cost
reduction, customer satisfaction, and partnerships. In an SC, both external and
internal resources are important. Consequently, the relations are not
established based just on the price and cost.
In the design of new products, for instance, Early Supplier
Involvement and Concurrent Engineering are new concepts, which are applied to
the SC and lead it to a holistic and comprehensive approach. Some other aspects
of the SC, which make it different from traditional approaches are long-term
contracts with suppliers and distributors, emphasizing the value adding
activities, strategic alliances and information sharing.
· The Organization Goals
Definition
Designing and implementing a supply chain management strategy
cannot take place until an overall company business plan or strategic plan has
been determined. In the planning hierarchy, the business plan or strategic plan
is the roadmap for the direction of the company. Just as you would not begin a
car trip to a new destination without a map and directions, so too should your
company develop its own plan or roadmap as to where it wants to be in 2, 5 or
even 10 years.
1 Achieving World-Class Supply Chain Alignment: Benefits,
Barriers, and Bridges by Stanley E. Fawcett Department of Management
Marriott School of Management Brigham Young University and Gregory M. Magnan
Albers School of Management Seattle University CENTER FOR ADVANCEDPURCHASING
STUDIES2001, p8
It is important to define a company's strategy in the context
of the broader market. An examination of customer's long-range business plans
can give an indication of the anticipated market movement and what their
position will be, as well as what is necessary to be a supplier to them. This
information is usually available for those companies that are able to and
willing to take the time to meet and talk to their customers and especially
their prospective customers, those who are not yet customers but represent the
targeted market. It is also vital to keep a business plan or strategy current.
Because markets and customers rapidly change their expectations, so to must a
business plan or strategy be flexible and take into account the fluidity of the
markets. In fact, a business plan is never truly finished unless an
organization is winding up its operations.
The resources required to push the organization in the
strategic direction indicated by the business plan must be identified. The
primary resource requirements that will need to be determined are people and
human resource requirements, financial requirements, infrastructure (both
physical and technological) requirements and partner or supplier requirements.
When looking out over a period of years it will be difficult to determine
exactly what and how many resources will be required to implement a business
strategy. However, it is still important to match and plan the acquisition or
addition of resources necessary for the strategy as a check on plan credibility
and costs.
The resources identified by the company as necessary to the
strategic plan should be those sought or valued by the desired customer and
market base. For example, if a company sets aside substantial sums for adding
an Enterprise Resource Planning platform, it should be certain that the
software will improve the capability of the company to service its target
market. A company must also be certain it is providing options desired by its
current and prospective customers when adding capacity, services or products.
It is important to note that when examining the importance of resources in
executing a business plan or strategy it is necessary to look at the target
market, which may or may not include the current customer base or market.
Implementation of a business strategy requires the
understanding of supply chain management. That is the reason why it is
important to set a definition of supply chain management. Stanford University's
Global Supply Chain Management Forum states the following, "Supply
chain management deals with the management of materials, information and
financial flows in a network consisting of suppliers, manufacturers/producers,
distributors and customers".
Long-range planning for supply chain activities must be linked
with the planned activities of marketing and sales to ensure that the necessary
resources and processes are in place to support anticipated customer demand.
In order to gain efficiency, the company strategic planning
must include supply chain management at an early stage. With regard to supply
chain activities, long-range planning must link it with the marketing and sales
activities in order to support anticipated customer demand.
Sales and Operations Planning is the cohesive operational
strategy that supports the companies business strategy. It provides the means
to incorporate, both supply chain management, sales and marketing. Based on
realistic and achievable forecasts, the Sales and Operations Planning provides
the company plan. Supply chain management activities cannot be maximized if
they are conducted without long-term strategy coordination with the other
functional areas in the organization. It seems that planning is an essential
stage in supply chain management and execution.
Good forecasting is also essential as it enables the
operations function to define the best balance between the available resources
and the anticipated demand. Forecasting also allows to plan, predict and
anticipate future market demand. As customers expect more and more from their
suppliers, it is important to share schedules and forecasts with suppliers. It
should allow suppliers to use a customer's forecasted schedule and to adapt
their organizations. This forecasted schedule helps to avoid the so-called Bull
Whip Effect, which is the distortion between the end-customer demand and the
supply chain activities. The Bull Whip Effect often result from the lack of
coordinated and shared information in the supply chain which is amplified by
the forecasting of suppliers on customer's forecasts. As customer's forecasts
are rarely 100% reliable, forecasting on it should increase the Bull Whip
Effect
· Supply Chain Execution
Supply chain management enables the company to execute its
strategy through operations and process. Consequently, Supply chain management
organises the following operations:
- Production planning and scheduling
- Procurement of raw materials
- Production of goods
- Delivery to customer
Implementing supply chain management at the fist stage of the
Sales and Operations Planning allows the best use of resources. As a matter of
fact, poor asset utilization, bloated inventories, poor on time deliveries,
high shipping and storage costs and low quality often reveals poor planning
rather than poor execution.
Various tools such as Lean manufacturing, Just-In-Time, Total
Quality Management and strategic inventory management ensure the most efficient
and responsive production system, meaning that you use and have no more than
what you need at any given time. These tools focus on the reduction of change-
over times in order to produce smaller lots without substantial cost
difference.
The automotive and aerospace industries were the first ones to
lean out their supply chain. For instance, Toyota was one of the pioneers in
the Just-In-Time and lean production use within its
manufacturing systems. Toyota lowers its
production costs through the use of Total Quality Management (TQM). Total
Quality Management means that the company drives its quality principles into
its suppliers and even their suppliers' suppliers. The implementation of TQM
ensures that only quality products were delivered to Toyota assembly lines.
Therefore, the quality defects number was significantly reduced. As Toyota cars
were of higher quality at cheaper prices, Toyota was enabled to took market
share away from the American automotive companies and to develop brand value in
the United States
Boeing tried to copy the automotive model of production.
Boeing has tried to push quality up the supply chain to its suppliers. In
larger suppliers such as Honeywell Aerospace, this has even led to the
formation of on-site supplier development teams that assist suppliers in
reducing costs, lead-times and quality defects in exchange for long-term
agreements, year over-year price reductions and cost savings sharing from the
direct work of the consulting teams. The result has been that suppliers who
have participated in this program have seen higher volumes, revenues and more
predictable demand while Honeywell and Boeing, have seen lower costs, better
quality and better delivery.
Technologies such as Electronic Data Interchange
(EDI), Enterprise Resource Planning (ERP),
Manufacturing Resource Planning (MRPII) and Material
Requirements Planning (MRP) play a key role in the execution
of company operations. These technologies even change the way business is
conducted. For instance, in the automotive industry Chrysler, Ford and General
Motors put in place a common platform for EDI. In order to minimize on-floor
inventory and cash outflow, the automotive assemblers require hourly deliveries
by their suppliers. Consequently, the EDI platform main goal was to allow the
sharing of schedules both from the automotive company to the supplier and from
the supplier to the automotive company.
Being a player in the global marketplace means that the
company is enabled to access, to receive and send information. However, in
order to ensure the better use of the different technologies described, it must
be possible to automate proper internal processes meaning that they must yield
good information and results. These strategies of partnerships must be built on
trust and imply sharing of information. In addition, the exchange and
management of information must not be an undue burden for the participants.
Supply chain management cannot be considered solely as a cost
cutting tool. As a matter of fact, without direction cost cuts should impact
the services, which are valued by the customers.
· Strategic Procurement
When companies look to implement a strategic procurement
program, they should again look at what their customers should truly value and
try to shape the supply chain within their influence to meet those value
expectations as efficiently as possible.
Quite often Strategic Procurement is considered as the way to
get the lowest price from suppliers. However, it seems that the savings
generated this way are limited. As a matter of fact, companies that have
focused on developing relationships with only a few strategic suppliers have
saved significantly more in the long run.
According to the study conducted by the Golden Gate University
in California (1992) and the Mc Kinsey study (1997), purchased goods and
services could account for 50 to 80 percent of a company's
expenditure. With so much product value tied up in the costs of
procurement, the implementation of a lean supply chain strategy implies an
effective and planned partnership with suppliers.
Implementation of a strategic procurement program implies the
reshaping of the supply chain according to the value expected from the
customers. Strategic procurement allows to lower total costs, higher quality,
better delivery, fewer supplier and outsourcing of non-core operations to the
most reliable suppliers. However, this means that a narrowed supplier base may
result in less bargaining power. In addition, delivery problems should affect
operations and the functional and technical capability of suppliers should
limit the quantities and types of parts that can be purchased.
Already, many manufacturers are seeing order sizes shrink, and
frequency of delivery increase. To meet these customer requirements a company's
suppliers must be similarly aligned to meet the needs of the marketplace and
the customer. In the aerospace and automotive industries, a tier system has
been developed consisting of many levels of suppliers, assemblers and an end
assembler/marketer. Each tier works with its immediate suppliers to operate as
efficiently as possible.
In order to perform its role, a strategic procurement program
requires resources and skilled staff. For instance, the Ford motor
company's encountered a purchasing fiasco in 2002 , Ford lost about 1
million dollars in its stockpile of precious metals because of failed planning
and internal communication. As a matter of fact, the Ford's purchasing group
used the same techniques they had used in buying commodities such as steel and
copper, while Ford's procurement group was stockpiling large amounts of
precious metals. This example illustrates that a strategic procurement is
essential.
Supply chain management goes beyond production and logistics
functions. In order to support the business strategy, it is linked with
planning in coordination with sales and marketing. Several tools such as
Business Planning, Sales and Operating Planning coupled with the use of
information technology enables firms to better plan and manage their
business.
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