Continued Volatility in 2024 and the Supply Chain Response
Industry Event
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September 26, 2024
A Summary of Alex's Speech at the ACG LA A&D Forum
Managing Director Alex Krutz joined ACG in Los Angeles for the annual Aerospace and Defense Leadership Forum. Alex addressed industry stakeholders on the supply chain, it's current performance compared with historical data and where the industry is headed.
OEM and Tier 1 Priorities
Airframe OEMs are focused on certifications of their derivatives, Entry into Service and quality systems improvements. Also, top of mind is inventory reductions as continued demand volatility persists and is creating misalignment of needed components and excess on hand for other components.
Engine OEMs and Tier 1s are prioritizing reducing inventory while seeking dual-sourcing to accommodate. Both situations are contrary in nature, but nonetheless are activities and initiatives underway. Continued part shortages and delays are further adding to inventory and dual-sourcing efforts to reduce risk.
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Supply Chain Issues​
Boeing and the IAM are working through a strike, adding to the many challenges Boeing has had in recent years. The supply chain is being affected as cash preservation issues at Boeing are underway, impacting the supply chain with pushed out or cancelled orders in the near term as the strike continues. This will also continue to add to the production skepticism for Boeing production rates in the near future. It may be years before there is a supply and demand equilibrium. Other topics discussed was the reshoring to Mexico and favoring India outsourcing versus decades of China low-cost preference. Lastly, commercial agreements were reviewed and the terms and conditions both for pre-COVID and post-COVID contracting.
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Segment Health
Continued challenge in the Tier 4 small businesses, metal components Tier 3s, sub assembly tier 2s, and Tier 1 structures are most affected by supply and demand misalignment and current strike impacts. The wheel of costs was presented with a focus on liquidity was reviewed. High inflation along with increased interest rates have significantly increased the cost of borrowing for companies. As OEMs and Tier 1s are not taking orders at previously specified timelines, these smaller companies throughout the supply chain are forced to carry inventory longer than planned, increasing expenses to the businesses, shrinking profit. To add onto this, material costs are still elevated due to geopolitical turmoil, inflationary conditions and continued contributor of the Russian invasion of Ukraine
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​​Key Takeaways and Finding the Competitive Advantage
Value-based pricing is still an opportunity for suppliers. Another key focus for business success is executing on the basics and doing productivity projects which will help companies differentiate themselves and find the competitive advantage.
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Feel free to click on the "Contact Us" button if you'd like to get in touch with and speak with Alex or the Advisory Team.
