Market Intelligence
May 31, 2022

Seeking Supply: Aerospace Competes for Resources as Demand Increases

https://info.fusionww.com/hubfs/claudio-schwarz-a3UcFfWn8mc-unsplash.jpgfeatured image

Securing electronic components became increasingly challenging in 2020 due to global lockdowns in response to the pandemic. While other industries felt the immediate impact across their supply chains, aerospace did not. The delayed impact to the aerospace industry could be credited to the buffer stock supply management method companies employed.  

All three segments of the aerospace industry – consumer, commercial and defense – followed the buffer stock method.  

However, this method did not accommodate for nearly three years of various pandemic-related disruptions and an influx in demand from other industries for electronic component supply. The incremental strain from additional industries drawing on the component market supply, which rapidly inflated demand, resulted in added difficulty to fill supply chain needs for every industry.   

Just-in-Time (JIT) Wasn’t Always on Time 

Sectors like automotive and consumer electronics companies operated on short-term forecast timelines and used the JIT supply management method, which meant component orders were based on customer demand and did not require buffer stock surplus. Ultimately, JIT was only sustainable if supply could keep up with demand and a manufacturer had a strong supplier partnership. However, this left companies vulnerable when COVID-19, combined with additional supply chain challenges like extreme weather and unpredictable factory incidents, such as fires, adversely affected suppliers. 

The Case for Buffer Stock 

Aerospace manufacturing historically operated on long-term forecast timelines. Longer timelines meant fluctuations in short- and mid-term demand didn’t have as large of an impact on supply for part builds. Additionally, because each project build was larger and took longer to complete, acquiring buffer stock of necessary electronic components had been proven over time to mitigate supply risk.  

A typical airplane build would require chips for software systems, which did not need upgrades as frequently as a typical on-premise hardware build. Less frequent upgrade requirements translated into longer component lifecycles, and slowed down the need to transition to newer chip models to keep pace with demand. Despite this advantage amid initial pandemic shutdowns, the aerospace segments would inevitably require components to support future builds.  

Aerospace Companies Get the Squeeze 

While buffer stock protected aerospace manufacturers from early-term supply issues, the strategy did not prove to be effective through the extended supply strains yielded out of the pandemic. Stock began to deplete and supply chain challenges continued to impact logistics costs and timelines. As demand grew, companies like Airbus and Boeing struggled to navigate sourcing chip supply in a competitive market. 

This competition existed both within and outside of the aerospace sector. Consumer and commercial air carriers would often contend against defense providers for allocations. The defense segment had the advantage of larger budgets, which remained stable throughout the pandemic. 

Despite financial advantages, defense aerospace manufacturers still competed with other verticals for components, like gallium arsenide and gallium nitride-based chips, which are used for military communications and space capabilities, as well as 5G electronics. 

Among the industries that were seeking high-demand components, automakers were prioritized because of the frequency and high volume of parts-per-order from suppliers. In automotive builds, a mid-range ground vehicle required up to one thousand chips per unit, while hybrid or electric vehicles required even more. In aerospace builds, that number drops to about a hundred components needed per build. 

A Necessary Shift 

Despite being an integral part of the supply chain as shipping and freight carriers, aerospace companies found that they themselves were not immune from having to navigate pandemic-induced supply chain challenges. Long-term timelines and buffer stock helped to delay the burden early on. However, ample elasticity within those reserves is vital. The best way to future proof supply for aerospace manufacturing will require a close reexamination of management methods and supplier partnerships. If aerospace companies can formulate a proactive versus reactive supply chain strategy, it will make disruptions easier to mitigate going forward. 

Sign Up for Market Intelligence Today
By providing your contact information, you’re giving Fusion Worldwide permission to contact you about our products and services. You may unsubscribe from these communications at any time. For more information on our privacy practices and commitment to protecting your personal information, please review our Privacy Policy.
Contact Us

General Inquiry

Lead Gen Graphic
Complete this form to contact Fusion Worldwide about our products and services.
Geographic Region
Interest
By providing your contact information, you’re giving Fusion Worldwide permission to contact you about our products and services. You may unsubscribe from these communications at any time. For more information on our privacy practices and commitment to protecting your personal information, please review our Privacy Policy.