Operations Management Assignment: Supply Chain Analysis Report Of Airbus
Prepare a operations management assignmentpresenting a supply chain analysis report of 3000 words investigating supply chain issue of AIRBUS due to multiple reasons/factors, for example, shortage of spare parts/components, manpower, quality lapses, climate, politics, etc. The analysis of the supply chain issue must reflect critical thinking, i.e. the issue should be analyzed by applying a selection of operations management frameworks/concepts, and deriving some conceptually supported changes that could improve the performance of the supply chain operation of AIRBUS.
Note: Use proper graphs, tables, and diagrams to support the analysis.
The international business organisations are operating significantly in the global market and increasing their revenue rates for a better future of their overall business process. This operations management assignmenthas been based on analysing the supply chain issue of Airbus that it faces in the current business market for which it is in a difficult spot.
Background of the investigation
Since the advent of Covid-19 pandemic Airbus has been facing a significant supply chain issue due to which its brand reputation is getting somewhat degraded. The onset of the pandemic has been an issue for the company and the chief executive officer of Airbus Guillaume Faury has mentioned that proper business travel recovery is unlikely to be normal like 2019 levels due to the international lockdowns by the different governments (Reuters.com, 2022). It has been identified that the organisation has been lacking in its logistics services due to a destabilised international logistics system.
Purpose and objective of the report
Guillaume Faury mentioned that the global supply chain will need the next 12 to 18 months to be in complete working condition. The main purpose of the report is to analyse the supply chain issues Airbus is facing for understanding the current complexities of the organisation that is failing the organisation to deliver proper service to its customers at the time of requirement. The objective of the report is to highlight the different supply chain oriented issues that Airbus is facing encompassing labour oriented issues, spare parts shortage issues due to high logistics cost in the current pandemic period. Along with that, the report by analysing the issues also tries to provide productive recommendations that Airbus can consider in order to improve its business process by strengthening its supply chain issues.
2. Justification for the selection of supply chain issue
The condition of Airbus after the Covid-19 pandemic has been degrading to a significant extent depending upon which it is facing major supply chain issues. Supply chain is the heart of any manufacturing organisation and in the case of Airbus constantly faults in supply chain have been prominent that is creating lack of customer satisfaction in the international market. Airbus encountered a loss of €1 billion and also a large number of job layoffs amounting to 15,000, due to the advent of covid-19 which created massive issues for the company to keep its supply chain operations running amid the current complexities (Theguardian.com, 2022). Business stability of any organisation is completely dependent upon its supply chain and fulfilment of the customer demands in the market. On the contrary, Airbus has been constantly facing issues in order to deliver its products as it delivered only twenty A320neo’s, nine A321neo’s and only one A320ceo at the third quarter of 2021 comprising total 30 aircrafts that was initially planned to 45 (Airinsight.com, 2022). Along with that, the constant rival Boeing has been posing immense threats to its business process leading to a future compilation in business process based on lack of logistics support. According to the Line of Fit Model the sustainability of any organisation is dependent upon the demand fulfilment factor based on which the reputation of an organisation is dependent. The factor of “Fit” in the line of fit operational model stresses on maintaining a similarity between the market requirements and the demand fulfilment that is backed by the operations resource capability.
Figure 1: Line of Fit Model
(Source: Hernawati, 2020)
Implementing the line of fit operational model in the case of Airbus, it can be seen that the company has been inefficient in fulfilling the market requirements based on lack of strength of the operational resources capability. As stated by Seyedan and Mafakheri (2020), focusing on demand forecasting and proper inventory management based on taking the advantage of current big data analytics tools can be effective in order to ensure proper flow of production leading to demand fulfilment in the market. Airbus faced increased complications mainly associated with increased logistics costs and lack of labours that has been hampering the organisation to deliver the right amount of aircrafts to different airlines. Airbus has been capable of providing only 33 aircrafts where the demand initiated has been 43 (Airinsight.com, 2022). Thus, the organisation is unable to fulfil the demand that is present in the international market due to ineffective supply chain processes. Airbus is incapable of maintaining the “line of fit” as the operations resource capability rate of the company is far behind from the market requirement rate based on which the line of fit cannot be developed leading to dissatisfied customers and negative reputation development of the age-old business brand. Airbus can focus on this model and try to develop its condition, through which better demand fulfilment can occur as maintaining stable supply chain operations is the main responsibility of any organisation for ensuring long term stable business in the international market.
3. Factors causing the issue
Covid -19 pandemic
Covid-19 has been a complicated issue in the current timeframe as the production of Airbus has been facing complicated issues due to the covisd-19 pandemic. It has been identified that the supply chain of Airbus has been facing constant threats of disruptions in logistics based on which the company is facing trouble in providing proper service to the different airlines. The company explained its issue about feeling its deliveries by 50% due to the rise of the pandemic. The company lost around €1.9 billion at the initial quarters of the 2020 and engaged in a significant loss as the profit for 2019 had been €1.2 billion. (Economictimes.indiatimes.com, 2022). Thus, the Covid-19 pandemic has been an important factor leading to a significant loss for the company based on which it is unable to provide proper support to its partners.
Shortage of spare parts
The shortage of spare parts has been prominent in the case of Airbus as major airlines have been grounding their jetliners due to shortage of spare parts and complicated issues in their engines. India’s biggest airline Indigo has grounded 7 jetliners as it requires fixes from balky Pratt & Whitney Engines (Economictimes.indiatimes.com, 2022). The company has stopped the use of one A320neo aircraft and 12 airlines in the world have stopped the use of A320 neo’s due to engine upgrades as they are outdated. Due to these issues the company engaged in upgrading their engines with Rolls Royce Trent 900 jet engines that are mainly used by the Singapore Airlines, Qantas Airlines, Lufthansa Airlines (Nytimes.com, 2022). These airlines demanded a replacement in the specific turbine components due to certain faults that were prominently exposed. An incident occurred where an oil fire had been determined to have caused an engine to explode in a Qantas flight leading to emergency landing in Singapore. On the contrary, there have been lacks of spare parts issues due to which the companies are taking a long time to upgrade their engines. Qantas operates six of the four engine super jumbo aircrafts and they need to remove 14 engines after its recommended checkups that the company is taking time to provide leading to disruption in their services (Nytimes.com, 2022).
Increased logistics costs
The international travelling has decreased to a major extent due to the Covid-19 pandemic and the price of international logistics has been increased due to which the different organisations are facing current logistics issues from Airbus. The suppliers of the Airbus are incapable of providing the spare parts for the jetliners due to the government lockdowns and complete sealing of the international borders. The company has been trying to provide aircrafts belonging to mainly the A30 family that are mainly used for short and medium flights (Business-standard.com, 2022). On the contrary, it is mentioned by the company that the order of wide bodied two aisle planes will take increased time for completion and they can expect slower international flights. The company in 2021 faced a backlog of 7082 aircrafts as the company was unable to get the spare parts that are required to produce the aircrafts which led to a significant reputation loss for the company in the international market (Business-standard.com, 2022). However, in this year the company is trying to cope up with the existing issues it had been facing as the risk of Covid-19 pandemic has slightly decreased resulting in lifting of the international government lockdowns. The company is optimistic about the fulfilment of its orders in this year due to decreased international travel restrictions and gradual opening of the international borders.
It has been mentioned by both the competitors Boeing and Airbus that a deficit of labour is a big issue for the airline industry. It is estimated that demand for maintenance technicians is to be on a rising scale in the international market due to the factor of ageing global society. The rate of increasing older population internationally has jeopardised not only Airbus but also other competitors in the international airline industry (Poentetechnical.com, 2022). It is expected that due to the shortage of labourers the maintenance costs of the airliners have increased from the previous years. On the other hand, the German employees of Airbus have participated in a strike under the leadership of IG Metall due to which the company is also facing a significant loss of labour for increasing the maintenance pace of its aircrafts (Reuters.com, 2022). The main issue of the suppliers have been huge employee layoffs which backfired the organisation during the Covid-19 period.
Impacts and risks associated with the stakeholders
Impacts and risks associated with the stakeholders
The aircraft business is competitive at the same time includes big investment and so the risks associated are high. Mistakes from any one partner impacts business performance of all the stakeholders included. For instance Airbus had to cut off labourers during the pandemic period as the manufacturing and demand for aircrafts came to a sudden halt. Sudden upsurge in the market with high demand for maintenance of and new orders has again raised tension and the management is facing labour shortage issues. The Bullwhip effect much resembles where sudden demand exaggerates production leading to price fluctuations of the components (Skills, Management and Chain, 2022). After the pandemic period the management is further facing to acquiring essential components required in the manufacturing along with orders for special modifications made in new models are delayed. The company is facing challenges with new partnerships and changed international politics impacting the business agreements made earlier and stakeholders demanding review of business contracts.
Figure: The Bullwhip Effect
(Source: Singh et al. 2022)
4. Necessary changes required to resolve the issue and improve performance of supply chain
Airbus needs optimization in the inventory section and reduced purchase of components that are easily available or locally made with ones that are imported from other regions. It is seen that the company has suffered shortage of spare parts and at times has to purchase those at high costs when in demand. The internal inventory human resource required to check, control and replenish spare parts at the same time avoid excessive order of parts in demand. International market price fluctuates and the aircraft business is already seeing competition with China’s Comacgrabbing attention (Katz, 2021). The aircraft business will take time to roll on after the pandemic and this is the time for Airbus management to examine and optimize the internal inventory.
Regulating logistics cost
The management must involve an information system to optimise the logistic process and make collaboration with corporations that operate in the logistics to make the system more frequent. The company can use the TCE concept (Transaction Cost Economy), co-operation with other big giants in the industry is another way to assure production and supply on minimal costs. The concept allows purchase of spare components at reasonable rates, competitive with the market along with regular supply. The transaction policies are made for long terms and regular supply so that both the parties are benefited. For instance, Dassault aviation, Safran and Thales jointly made BootAerospace to make roots in the soaring competition (Kachelmaier, 2017). Such collaboration if made by airbus will enhance business performance at the same time will reduce logistics and spare purchase costs. Partnering with larger groups in the same field increases the potential at the same time market reach, further delivery and order supply becomes smoother.
Filling technical skills
The aircraft business is huge in terms of scale with which a product is required to accomplish and sell. In recent times the industry has seen a shortage of skilled labourers and so airbus need to act differently for maintaining competitive edge in the market. The organisation can make use of AI robotics and automated machines for handling heavy duties. This will scale the business high. Further, the company can invest to upgrade present workforce inhibiting learning of modern technology in the working process. The company can further take a holistic approach and involve employees by making part of company profits.
The company is struggling to align around changing market conditions and the foremost reason is weak business forecasting upon which the strategies made are not working as desired. As per Schuurman (2021), Airbus is facing difficulties in the supply chain as the forecast of orders was not estimated relating to shortage of production. Use of modern tools to integrate working of all the departments will help the central administration to have a closer look on the inventory position. Further, when the supply demand chain becomes functional where new tools provide charts and graphs to help the management forecasting future sales precisely.
Maintaining healthy relation
Airbus focuses to cultivate the relationship with suppliers and that is where the company makes earnings with a strong reputation of quality after sales service. Integrating high standards and transparent working functions to maintain a healthy supply chain is one big task that the company has to work on. As the company has failed on several times to deliver orders at times required. As per Ferrari (2021), the CEO of Airbus GullaumeFaury admits supply chain challenges will take another 12 to 18 months for recovery after the pandemic period. Vertical integration concept will allow Airbus to meet the challenges of supply and demand conflict over the years it is facing. As the company has strong financial strength the internal management can upscale direct manufacturing of spare components that are frequently asked. The company can use it as another market for earning and sell spare parts to competitors. Own production will meet the scarcity of components and at the same time increased production speed will meet the market demand.
The supply chain management of Airbus must review the business contracts at a regular period as the market situation changes with time. Global demand for certain components may be high at a time that has become obsolete and is now not in demand. Further increase of competitors in the spare market will allow the management to purchase at reduced prices and the same follows for logistics where the dispatch rates and service charges differ. Further regular review will help to avoid bottlenecks in the supply chain, improve management functions through better handling of human resources if their performance is reviewed at regular periods. Regular review provides the chance to point out loopholes in the business functions which helps to mitigate those mistakes.
Fostering green initiatives
Aircraft industry in recent times is much concerned for the environment and regular initiatives are being made to reduce carbon footprints. Airbus has worked hard on the subject and the A380 allows 20% less fuel consumption with Zero noise experience and is one of the successful products recognised in the market. However, such efforts are not enough and the company will have to look for options in which zero carbon emission projections are fulfilled as Rolls-Royce is approaching (Rolls-royce.com. 2022). Close inspections over the use of chemicals at the same time review of the production process making sure that low wastage and chemicals used are regulated thoroughly. The management of Airbus has committed to compensate on CO2 emissions with enhanced prototypes of the airbus which are in the design process and by 2050 will close the Net Zero Emission target of the Paris 2050 Agreement .
Figure: Airbus Towards Zero Emissions
(Source: Airbus.com. 2022)
The company has made partnerships with various organisations to tackle climate change. The ATAG, Clean Sky, CORSIA and IAEG are some of the prominent functionary bodies which are looking for sustainable growth benefitting the society. The company, on the other hand will have to work on the safe handling of critical substances used in manufacturing.
5. Recommendation and conclusion
Global supply network in the aerospace
The company can work on the global supply network partnering with local giants to make the market presence powerful at the same time bringing deeper reach and demand for the product. High cost involved in the maintenance and after sales service issues can easily be solved if the networking is strong and the company makes partnerships with aircraft maintenance companies or builds self MOU’s (Maintenance Operation Unit) in prominent airports around the world.
Safe handling of regulated substances
The aircraft manufacturing includes several substances that comes under regulatory control and are harmful for environment. The substances are used in refurbishment, painting of materials, Ozone depleting sources, carbon fuel used, gas for combustion. The company is required to make usage as per industry norms to further take notice of substances that are banned. Innovative efforts are required to replace harmful substances in the environment.
Bringing innovation in the working with automation to assembling section Automation of the assembling section will increase the production of units. High production speed will meet market demand at the same time cost of production will impact. Use of automation will further reduce human involvement, reducing the cost involved in production and the chance of errors being eradicated.
From the report it is concluded that Airbus supply chain is facing difficulty to meet the market demand especially after the pandemic period. The report enlightens that the supply chain has disrupted following a halt during Covid19 period with a loss to encounter of €1 billion bringing scarcity and job layoffs. Sudden upsurge in the market has now created labour shortage issues. Thus proper forecasting of business is required when making plans for the long term.
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