Aerospace Logistics: The Key to Takeoff

Why supply chain management is key to commercial aerospace growth.

The commercial aerospace industry has enjoyed steady growth and impressive profits in recent years, thanks to a boom in emerging economies that will fuel global travel demand for decades to come.

The key to seizing this opportunity in the long term, however, lies in effective supply chain management as aerospace companies increasingly source components from foreign countries in an effort to drive cost savings.

Demand for new airplanes has already generated an unprecedented eight-year production backlog for Airbus and Boeing, the world’s two largest aerospace manufacturers. In July alone, manufacturers booked nearly $100 billion in aircraft orders, according to IDC Manufacturing Insights.

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Travel growth over the next 20 years will create demand for 36,770 new planes.

This is a trend that shows no sign of abating. Boeing predicted in its 2014 Current Market Outlook that the world’s fleet of aircraft would double in size over the next 20 years as passenger traffic increases at a rate of 5 percent per year and cargo traffic increases at a rate of 4.7 percent per year. That growth amounts to 36,770 new airplanes valued at $5.2 trillion.

Driving Forces

Several factors drive this progress. Chief among them is demand in emerging markets, particularly in Asia Pacific and the Middle East where nations are investing heavily in transportation infrastructure to take part in the dynamic global economy.

Meanwhile, carriers in mature markets like North America have their eyes on future generations of fuel-efficient airplanes.

This may well be a golden age for plane-makers and their suppliers, but they need strong logistics partners to meet the stunning demand. As aircraft manufacturers boost production rates, they increasingly rely on complex global supply chains.

Now, more than ever, aerospace companies require assistance in the critical steps of the product lifecycle from pre-production through aftermarket service, where optimized parts placement, inventory and visibility are critical to ensuring the right part is always available in the right place.

Nowadays, parts come from dozens of countries. Greater distances increase lead times and challenge supply chain managers to meet narrow delivery windows.

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This may as well be a golden age for plane makers and their suppliers.

All of this elevates the role of logistics providers as manufacturers look for ways to improve efficiency and cut costs. The right supply chain partners can, in fact, drive repeat sales for aerospace companies by helping manufacturers maintain proper order fill rates, improve inventory accuracy and offer convenient reverse logistics services.

At an even deeper level, logistics partners empower aerospace companies to expand into lucrative emerging markets.
One way they do this is by helping exporters navigate the complicated customs processes involved in transporting aerospace products across international borders.

While customs compliance can be difficult for all manufacturers, it is especially challenging for aerospace companies, which sell dual-use products for commercial or military purposes. Fines soar into the millions for non-compliance. Companies also face potential revocation of export privileges and damage to their brands and reputations.

Indisputable Value

UPS’s 10-year relationship with Pratt & Whitney, a unit of United Technologies Corp., exemplifies the value a strong logistics partner can provide an aerospace manufacturer.

Last May, the two companies announced that UPS would open a 600,000-square-foot Northeast Logistics Center (NELC) in Londonderry, New Hampshire, to support Pratt & Whitney’s global aircraft engine business. UPS will operate the center, providing parts receipt, storage, kitting, packing, inventory management and freight transportation. These logistics services will enable the engine-maker to focus on its core business – making engines.

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In 2013, the aviation industry carried about 3.1 billion passengers and 49.8 million metric tons of freight

Clearly, supply chains play a crucial role in the growth of the aerospace industry, but they also spur job creation in the process. According to the U.S. Department of Commerce, aerospace exports directly and indirectly support more jobs than the export of any other commodity.

The U.S. aerospace industry continues to lead the United States in the net export of manufactured goods. The segment directly employs about 500,000 workers in scientific and technical jobs across the nation and supports more than 700,000 jobs in related fields.

Finally, the commercial aerospace industry, itself, is a driver of global economic growth. The aviation industry carried about 3.1 billion passengers in 2013 and 49.8 million metric tons of freight, according to a report published on the International Air Transport Association website. The report also noted that every dollar invested in aerospace yields an additional $1.50 to $3 in economic activity.

That’s a solid return on an investment that also is the right one to make for countless other reasons. Aviation connects nations, businesses, cultures and people to drive economic and social progress. Aerospace manufacturers and their supply chain partners produce the machines that make it possible. goldbrown2


Dave Roegge is Director of Marketing, High Tech at UPS.

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