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The Aerospace Supply Chain

From Aerospace OEM’s to Parts Suppliers

Written by ATC Aerospace

The aerospace industry is constantly seeking solutions for the needs of today’s global economy. The industry faces the same challenges plaguing many of the world’s industries: costly raw materials, increasing energy costs, and inflation of the U.S. dollar. In an effort to hurdle these obstacles, companies on all levels of the aerospace supply chain—from aerospace OEM’s to parts suppliers—are developing ways to benefit from the rapid globalization of the industry. From the implementation of new technologies in component design to manufacture of aerospace parts, more and more elements of the aerospace industry are being outsourced across the world.

This increase in outsourcing will ultimately benefit the companies who prove able to adapt, but will without a doubt leave companies that lack in innovation out to dry. Those companies that are willing to change with the industry, and aren’t afraid to take advantage of this rapid globalization, will revolutionize the industry and remain or become integral parts of the aerospace supply chain.

The very nature of the aerospace business has always made for a constantly evolving industry, but rapid innovations in technology in the last few decades have expedited the process. The aerospace industry utilizes a tiered supply chain, with “tier one” companies supplying parts directly to OEM’s, tier two companies supplying parts to tier one suppliers and so on.  This is a common supply chain structure for an industry in which the final product is composed of many sophisticated components, subcomponents, and assemblies. In the past, traditional aircraft manufacturers would specifically define exactly what they wanted tier one aerospace suppliers to produce. Now, we are seeing more and more powerful tier one suppliers, who have integrated design and manufacture, leading to increased reliance on tier one suppliers. Essentially, Tier One suppliers are now providing aerospace consulting as well. Overall, this has proven to be beneficial for the aerospace industry. The industry has become more transparent. Perhaps the most notable side effect of this change in the industry has been an increase in risk sharing. Tier One suppliers, with a larger role in more and more aspects of the supply chain, have an increased incentive to see the entire industry prosper.

Aviation parts suppliers exist on three tiers in the aerospace industry; Tier Three, Tier Two, and Tier One. Tier One suppliers are the most important tier of the industry. They supply airframe and aircraft manufacturers with the final parts needed to assemble an aircraft. Typical Tier One suppliers provide aero structure, avionics systems, engines, aircraft interiors, landing gears, actuators, and other complex components and assemblies made up of many subcomponents or subassemblies. Tier Two suppliers create many of the same types of parts as Tier One, but rather than supplying them directly to the manufacturer, supply them to tier one suppliers instead. They rely on Tier Three suppliers to supply them with parts, just as Tier One suppliers are dependent on Tier Two.

The aerospace industry is moving away from this multi-tiered system and relying more and more on Tier One suppliers to be a one-stop shop of sorts. Aircraft manufacturers have gone from utilizing hundreds of suppliers to sometimes as low as 20 or 30 aerospace suppliers to complete a finished aircraft. Essentially, the industry has been relying on the tier one suppliers to fulfill the role of tier two and three suppliers. This dependence has led to the thriving of Tier One suppliers, who relish their more prominent role in the supply chain.

With great change often comes great resistance, and the aerospace industry has been no exception. Companies comfortable with established practices are hesitant to adapt. Increased outsourcing has led to a many fears and employee tension. Many workers worry outsourcing compromises job security and diminish their company’s ability to be in control of the entire development process.  What many of these workers fail to realize is that outsourcing can lead to better job security. It can also lead to more control over development, as the entire process is increasingly transparent, with collaborating companies taking equal parts risk with equal potential for reward. This risk sharing ultimately provides incentive on almost every level of the supply chain, leading to happier, productive workers striving toward a common goal.

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