Interviews with 20 decisions makers in the supply chain

The past three years have added a new meaning to volatility. While supply chains are constantly shifting to respond to fluctuations resulting from social and geopolitical events, no one could have predicted the impact of Brexit, the Covid-19 pandemic and the war in Ukraine—to name just three examples—on manufacturing in 2023. Supply chains are undeniably under high pressure. It’s a vicious cycle, and one whose impacts are almost impossible to plan for. Uncertainty means that manufacturers are constantly balancing supply and demand, without a clear picture of how these trends will change from one month to the next.

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To better understand how decision makers in the supply chain industry are navigating such uncertainty, Pelico conducted interviews with 20 decision makers from a range of companies in complex manufacturing industries, including GE Aviation, Ariane Group, J&J MedTech France, Horiba Medical, Forvia, Alcen, Dassault Aviation, BCG, Hermès, LVMH, and Airbus. These decision makers hold critical roles, such as Head of Production Flows, Program Manager, VP Strategy, IT Manager, Head of Planning, Supply & Logistics Management, Plant Director, and Supply Chain Director. By sharing insights and best practices, these decision makers are working together to find innovative solutions to the unprecedented challenges facing the manufacturing industry.

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This article shares the learnings from these interviews.

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How supply chain is specific to each industry

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Before delving into the intricacies of the unique challenges facing each complex manufacturing industry, it is important to first gain a thorough understanding of the specificities that define the aeronautics, luxury, medical devices, and automotive sectors. By doing so, we can establish a solid foundation of knowledge that will allow us to effectively analyse and address the various hurdles that must be overcome in these particular industries.

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Similarities across industries

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During our interview with these leading companies in complex manufacturing and the consulting firms, it became clear that while manufacturing companies have recognised the importance of digital transformation, many are still lagging behind.

Typically, those companies leading the charge are those with larger factories that can justify the investment in custom-made digital solutions beyond just implementing an ERP system. A significant challenge in digital transformation projects is scaling proof-of-concept initiatives. Each factory is unique in terms of its operations, making it difficult to implement standardised solutions across an entire organisation. When deciding whether to make or buy a digital solution, it depends on how specific it is to a company's internal processes.

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The success of digital transformation projects is heavily reliant on change management. Approximately 70% of the work involved is focused on convincing both the boss and the users of the benefits, not just on algorithms and technology.

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Also, the top priority for complex manufacturing companies is resilience. With a trade-off between costs and risks, companies are increasingly focused on reshoring production and diversifying their energetic mix. The rising cost of labor in countries like China, increased material costs, and the need to recruit a talented workforce for managing processes that are increasingly automated and digital, have made reshoring production a strategic priority for many. Looking forward, manufacturing companies will need to focus on resiliency and ESG requirements, particularly in energy-intensive industries.

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Aeronautics specificities

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The aeronautics industry, undoubtedly, operates under a complex web of regulations designed to ensure safety and security. In addition to these regulatory challenges, the industry is facing mounting pressure to keep up with the growing demand for air travel, particularly in emerging markets. This pressure has forced companies to constantly seek new ways to improve efficiency, reduce costs, and enhance the customer experience, while maintaining a steadfast commitment to safety and regulatory compliance.

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Furthermore, with engine development typically spanning a period of up to 15 years and designed to endure for a further 25 years, a complete program can last as long as 40 years.

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Given the high cost of engines, airlines generally purchase them directly from manufacturers such as GE Aviation or Safran, as these represent a significant capital outlay, and their associated costs - in terms of fuel and maintenance - can be considerable. On average, airlines allocate around 5% of their expenses towards engine procurement, with 12% of these costs being attributed to maintenance. Also, airlines often purchase extra engines to prepare for engine failures as they cannot afford for their planes to be grounded.

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Medical devices specificities

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In the world of medical technology, companies such as J&J MedTech France and Horiba Medical confront formidable challenges. Given that medical device firms generally carry an extensive range of products, often numbering over 200 stock keeping units (SKUs), managing inventory effectively can be a daunting task. The medical devices industry is also subject to stringent regulation, making it arduous to identify potential suppliers.

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Luxury specificities

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In the luxury industry, companies like Hermès and LVMH face unique challenges that require careful management. There are two main risks that these luxury companies must navigate: the capacity of their craftsmen and the availability of supplies, such as crocodile skins.

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Consumers of luxury goods are willing to pay a premium for products that embody exclusivity, quality, and status. This has led to an increasing demand for luxury products worldwide, as people strive to express their personal style and taste through the brands they choose to associate with. As a result, luxury brands are under significant pressure to deliver their products consistently, quickly, and efficiently, while maintaining the high standards that their customers expect.

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Factors that contribute to volatility in the luxury industry also include changing consumer trends, which can lead to changes in product mix. Additionally, the heavy environmental footprint of some supplies such as crocodile skins can pose a significant issue for the company.

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Automotive specificities

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The automotive industry is known for its predictability due to several factors. Firstly, the industry is characterised by repetitive manufacturing processes that allow for consistent output, making it easier to anticipate production costs and manage supply chain logistics. Secondly, long-term contracts with suppliers and customers provide greater visibility into future demand, enabling manufacturers to plan and allocate resources more effectively. These factors give the automotive industry a level of predictability that is rare in many other industries, providing stability for both manufacturers and their suppliers.

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Adapting to changes: Supply chain challenges in the near future

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Now that we have gained an understanding of the specificities of each industry, it is essential to conduct a review of the changes taking place within these sectors. By taking a glimpse into these decision makers’ experience in the factories and organisations, we can have an accurate knowledge of current changes and the challenges resulting from the changes in the near future.

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Common challenges across industries

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The general challenges facing these industries are diverse and complex:

• One significant difficulty in the supply chain is that people are working on different rhythms and time horizons. This creates a need to put everyone on the same rhythm for production continuity, which is crucial for ensuring efficiency and meeting demand.
• Parts shortages are especially complicated for small players, as they typically order small volumes and have little bargaining power with suppliers. Furthermore, it currently takes up to 18 months to receive some parts such as semiconductors, and the situation is not expected to improve anytime soon.

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In order to overcome these challenges, aligning everyone across the value chain on the same data is an essential priority. The Enterprise Resource Planning (ERP) system serves as the source of this data. While the tech stack for supply chain performance seems pretty simple, not many tools are available, making it difficult to optimise operations.

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Aeronautics specificities

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The aeronautics industry is facing several challenges due to its complex industrial systems, including strict regulations, complex products, high capital expenditure (CAPEX), and long industrial cycles:

• Parts shortages are the NO.1 problem, and volatility is mostly coming from downstream suppliers and the geopolitical context.
• The industry is still struggling to recover from the impact of COVID-19, which led to many suppliers going out of business and talents being laid off.
• The industry faces difficulty in implementing efficient logistics due to multiple data sources and the need for constant communication.
• Diversification of suppliers is necessary, but limited by the sensitivity of the sector, requiring suppliers to be based in Europe.
• The production chain is very fragile, and the "zero stock" strategy is not effective.
• Electronic cards are a particular challenge due to the complexity of the manufacturing process and the number of components required.
• The impact of supply chain issues includes loss of revenue, stock increases, and frustrated customers.
• The ramp-up of production lines is crucial to meet demand, and buffer stocks in factories are currently low, which is not enough to stop the propagation effect if there is a missing part.

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Medical devices specificities

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When it comes to medical device industry, many companies are currently facing issues with their On-Time-In-Full (OTIF) which has been declining and parts shortage:

• Their current OTIF rate usually stands at 65% while their target is at 95%. They are struggling to maintain their OTIF rate for two reasons: Firstly, their operations are unable to deliver products on time, and secondly, they have ordered too much stock to compensate for a lack of parts availability, making it difficult for them to handle the volume. To improve their OTIF rate, some companies plan to prioritise customers based on their importance, moving away from their previous process of "first arrived, first served."
• Another emerging challenge is soaring energy price. In response, the supply chain leaders want to focus on cost reduction. However, the CEO may insists on prioritising on-time deliveries above everything else.
• Also, there is a shortage of parts due to the unavailability of semiconductors, and secondly, there has been a considerable increase in raw material, transport, and logistics costs. To combat these challenges, some companies are considering localising their manufacturing in different regional markets. The shortage of semiconductors has been a major issue for many medical devices companies, and the situation is unlikely to improve anytime soon. Semiconductors are manufactured primarily in China, and the available stock is shared between the US and China, with no semiconductor manufacturing in Europe. The delay in receiving semiconductors has increased, making it challenging for players who order small volumes as they are not priority customers.
• Most medical devices companies typically operates on-stock instead of on-demand, but it is not the case currently due to difficulties in acquiring missing parts.

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Luxury specificities

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The luxury industry also faces various challenges in the production process:

• The main constraint in luxury is people, specifically their training to techniques for new products and on-boarding new employees to ensure an understanding of the global flow and reacting to potential gaps between production planning objectives and actual production. It takes a significant amount of time to learn and execute the necessary 100 to 150 operations for a single product. When a product line is reduced, they must determine how to allocate the people.
• Being in control of the factory also requires constant back and forth between taking perspective and diving into the details.
• Also, some luxury brands have a large number of small series that increase the product mix, and an important KPI is the number of hours of production.

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Automotive specificities

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In terms of the automotive industry:

• Some automotive companies do planning with a daily granularity. They focus on levelling production to mitigate risks, but external factors like the war in Ukraine can disrupt their models.
• Variability is another significant cost factor for it, mainly due to direct labor.
• The entire automotive industry is actively embracing digital transformation to remain competitive. However, increasing logistics times can impact companies beyond supplies. Therefore, it is crucial to get the right people around the table and encourage them to collaborate to improve the situation.

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Key priorities to overcome supply chain challenges

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As they sensed the changes and challenges ahead, these decision makers are prioritising different initiatives to have a tighter grip on the turbulent market conditions.

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Aeronautics specificities

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Several initiatives have been identified to address the challenges faced by companies in the aeronautics industry:

• One key priority is to establish more transparency throughout the ecosystem, especially from original equipment manufacturers (OEMs) such as Airbus and Boeing, who play a crucial role in providing accurate visibility of the demand coming from them. Data continuity throughout the plane construction cycle is also crucial.
• Integrated supply chain is a vital topic in aeronautics, but it is not yet mature. To make the supply chain more robust, companies must also focus on forecasting supply needs and shortages, working with suppliers to follow up on existing orders, and finding alternative suppliers for missing parts, although this often comes at a higher cost.
• Better planning with different levels of granularity and improved visibility on the actual status of factories is another key priority, with a particular emphasis on ensuring that the ERP system accurately reflects reality.
• Establishing security buffers in stock to prevent issues related to missing parts is also important, as is working on recovery plans with suppliers by sending teams to work with them.

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Medical devices specificities

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• One of the most pressing issues in medical devices industry is the need to prioritise deliveries based on customer importance. While they have already segmented the customers, the operations team is unable to deliver the prioritisation based on this segmentation. Therefore, they need to improve the agility of their factory operations to prioritise deliveries based on the customer's importance.
• In the past, medical devices companies were focusing on being lean in their supply chain, but it was done at the cost of resiliency. They now realises that more effort should be put into building resiliency in their supply chain. They have identified three priorities to help them achieve this goal: 1) improving planning, 2) building security stocks, 3) valuing the service by making the customer pay additional fees.
  

• To ensure that they have enough inventory to meet demand, some companies have started ordering extra stock. This is not just to have a buffer in their warehouse, but also because when they order 100, they receive only 80.
• Additionally, these medical devices companies are exploring the option of double sourcing. While they try to rely on it as little as possible due to its complexity, it is an effective way to ensure supply chain resiliency. However, implementing double sourcing is expensive and takes a long time to receive the necessary authorisations from regulatory authorities, which can take anywhere from three months to three years. They are also grappling with the challenge of accurately reflecting double-sourcing in their enterprise systems.

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Luxury specificities

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• The key priorities of luxury companies to overcome challenges in supply chain management include reorganising their teams to be more specialised. By restructuring their teams, luxury companies can ensure that each team member has a deep understanding of their specific role in the supply chain. This enables them to manage their processes more effectively and make faster decisions, leading to improved efficiency and better customer satisfaction. Moreover, by having specialised teams, luxury companies can focus on creating a culture of innovation and excellence, which is crucial in the luxury industry.
• Luxury companies are also prioritising building strong partnerships with their suppliers, which is essential for maintaining quality control and ensuring timely deliveries.

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Automotive specificities

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To tackle the challenges of supply chain management in the automotive industry, companies are prioritising the creation of agile factories. This entails the implementation of flexible manufacturing systems that can adapt to real-time data, allowing companies to optimise their operations and minimise the risk of overstocking inventory. In addition, agile factories can accommodate multiple types of products, enabling companies to adjust their production lines in response to changes in market demand.

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Resolving the disconnection between supply chain strategy and factory execution

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The challenges that decision makers face are not limited to the Sales and Operations Planning  stages; they also extend to the operations within the factories. It is essential to examine the issues and solutions adopted by these decision makers in optimising factory operations.

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Similarities across industries

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Decision makers really believes that the role of factories in supply chain management is crucial. One compares it to an army where it is the people in the field who should be making the decisions. This means that the factories need to have the necessary tools and resources to make informed decisions and take appropriate action when needed.

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Aeronautics specificities

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Almost all of these decision makers mentioned that there is a disconnection between the strategy and the factories, as some industrial directors are unaware of what factory operations do, and plant managers do not have access to necessary data to oversee production. Some decision makers believe that integrated project management is needed to facilitate better collaboration between teams.

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Furthermore, although some believe their teams are already anticipating production blockers, many agree that the teams do not have the right tools to handle the problem. The estimates for factory operation performance range from 1 to 2 on a scale of 0 to 5. The major issue is the time it takes to complete tasks and the lack of necessary data to have a global overview of the problem during a crisis.

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Overall, decision makers in aeronautics factory operations agree that the sector faces significant challenges, including disconnection between strategy and factories, and lack of necessary data and tools to facilitate production.

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Medical devices specificities

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One of the problems in medical device factory operations is that they do not reorganise their production on a daily basis. Instead, they use Master Production Scheduling (MPS) to operate on-stock rather than on-demand. This approach may lead to overstocking, under stocking, or other issues.

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Factories in the medical device industry are also highly exposed to missing parts. These shortages can lead to delays in production and impact the supply chain.

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Although the data related to medical device production is stored in ERP systems, some companies have a lack of visibility into the efficiency of their parts shortage processes. It is surprising that some industrial directors are unaware of the effectiveness of their company's processes.

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Luxury specificities

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One of the decision makers in the luxury industry highlighted that a tool that could provide a list of alerts and allow for action to be taken on those alerts would be valuable to him. This suggests that the lack of timely alerts and actions based on those alerts is a problem in luxury factory operations.

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Another mentioned that urgencies pop up in the factory regularly but on a weekly basis, not a daily basis. However, it is unclear if the lack of daily urgencies is due to efficient factory operations or if the factory is not operating at its full capacity.

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They believes that their problems are very specific and cannot be improved by a generic tool. This suggests that the luxury industry has unique challenges that require tailored solutions rather than generic tools.

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Decoding Innovation in Supply Chain

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As market conditions evolve daily, outdated practices no longer suffice. Decision makers are deciphering innovative supply chain strategies in order to stay ahead in the game.

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Aeronautics specificities

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One decision maker highlighted the need to optimise working time, increase available resources, and optimise industrialisation to improve factory operations. By optimising the working time, factories can reduce waste and increase efficiency. Increasing available resources, such as adding more people to the workforce, can also improve operations by allowing for more work to be done in less time. Finally, optimising industrialisation involves streamlining the production process, reducing the time it takes to manufacture parts and components.

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Another discussed the importance of having better visibility over what's happening in factories. This requires working with existing editors to enable them to have better access to data and information. By doing so, decision makers can make more informed decisions about how to manage the supply chain and factory operations.

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Medical devices specificities

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One decision maker discussed the importance of having a dedicated task force to address missing parts, including top management. This task force meets every two days to ensure that any missing parts are identified and addressed promptly. Regular internal meetings are also held to handle missing parts, demonstrating the company's commitment to addressing this issue.

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Another area of innovation is the use of automated extracts from ERP to facilitate the analysis of data. By automating this process, decision makers can quickly identify any potential issues with parts shortages and take corrective action. This allows the company to better anticipate and manage any potential disruptions in the supply chain.

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Finally, the interviewees noted that his company had lost the ability to anticipate parts shortages when switching to a new ERP system. This highlights the importance of choosing the right ERP system to ensure that companies have the tools they need to manage the supply chain effectively.

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Luxury specificities

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One decision maker in the luxury company discussed the use of "security stocks," or extra manufactured products, in case of production issues. While this represents a cost, the company is willing to bear it as they have the financial resources to do so. This ensures that they can meet customer demand even in the event of unexpected disruptions in the supply chain.

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Another area of innovation is the use of BI tools to obtain and analyse data. This tool allows decision makers to align their teams around the same data and make more informed decisions based on real-time insights.

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He also discussed the role of a "control tower," a senior profile responsible for providing estimations on factory output, forecasting the next 3 to 12 months, and interacting with supply chain directors in different departments. The control tower is highly dependent on this individual, and based on the data and insights they provide, decisions and actions are taken to ensure efficient supply chain management.

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Finally, the decision maker discussed the launch of a new Material requirements planning (MRP) tailored to the specific needs of the company. This 3-year project, costing 5 million euros and involving Argon and IBM, is aimed at improving supply chain management and optimising production processes.

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Conclusion

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It is evident that all of these decision makers have observed significant changes occurring across various industries, including labor shortages, rising costs and logistics delays, and misalignment in data sources and teams, all leading to challenges in maintaining an efficient supply chain with high customer satisfaction. However, the good news is that solutions and innovations are available, such as utilising more powerful data software to align teams and operations and strengthening the connection between strategies and factory operations. By learning from leaders in complex manufacturing industries, supply chain professionals can take timely action and confidently peer into the future.

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