COVID-19 is the biggest crisis of the jetliner era, and attention is justifiably focused on air traffic, airline viability and production rates—with jetliner unit output likely to plummet 40-50% over the next two years. However, lurking beneath the surface are enormous supply chain risks that extend well beyond supplier viability and attrition. What are these risks?
Beginning with the OEMs, managing major rate reductions is an incredibly complex undertaking for supply chain organizations. Ordering and scheduling assumptions go out the window, and OEMs must negotiate with hundreds of suppliers—many already under financial duress thanks to the Boeing 737 MAX shutdown—to determine fiscal responsibility for work in process and inventory. Moreover, OEMs need to monitor the viability of thousands of suppliers several tiers down the chain to identify potential failure points. They need to avoid the crisis that hit the global automotive supply chain in 2011 when a single paint pigment supplier went offline following the Fukushima earthquake in Japan.
Communicating accurate and credible information to suppliers during a crisis is crucial. Lack of OEM supply chain function credibility will lead suppliers to develop their own production assumptions and capacity plans, which means they may not be ready when jetliner demand returns. Or they could overorder, weakening their financial position. OEM supply chain organizations are often caught between the company’s desire to present an optimistic outlook to financial markets and reality. Transparency and frequent communication are of paramount importance.