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Supply Chain Management at Airbus – Implementing Rfid Technology Essay

Airbus was the world’s leading aircraft manufacturer in 2009 going by the number of aircraft delivered during the year. The company had been using RFID in its operations since 1997 but on a lower scale and targeted at improving its internal processes. In mid-2000s, Airbus started using RFID technology more widely, starting with its spare parts supply chain. After sucessful pilot tests, Airbus came out with the ambitious plan of adopting a holistic approach by implementing RFID at its suppliers’ facilities, in its own operations, and at its customers’ operations in 2008. The plan was to achieve higher efficiencies in its operations and also to reduce costs. The mission is to take this enhanced attribute and turn it into a competitive addvantage not just in one business area, but across the scope of operations.

BACKGROUND Airbus was formally established in 1970. The Airbus A300 was commercially launched in October 1972, with a seating capacity between 250 to 350. It was the first twin-engine, twin-aisle wide-bodied aircraft in the world. From 1984 to 2002, Airbus came up with 8 aircraft families, with seating capacity up to 800 in the A380 model.

In April 2005, A380 made its debut journey and Airbus estimated that it would achieve breakeven for the project on the sales of 250 units. Deliveries on A380 were supposed to start from May 2005. However, Airbus had difficulties meeting the schedule. Because of the different versions of CATIA at its different plants, there was a mismatch in the design specifications of the A380 at these plants. CATIA is a 3D software suite that supports multiple stages of product development like conceptualization, design, manufacturing, and engineering, which is widely used in the industry. This led to Airbus having to redesign the wiring of the about 530kilometer long cable in the aircraft. The delay of more than one year cost the CEO of Airbus and the Head of the A380 project to lose their jobs, as Airbus faced the threat of losing significant market share to Boeing and had to pay penalties for late deliveries.

In February 2007, Airbus announced a restructuring program, Power8, with a target of 2billion euros annual cost savings and 5billion euros cash saving by 2010. 10,000 of the 87,000 employees across its plants will be retrenched. Airbus targeted improving the productivity of its engineering operations by 15% and reducing the cycle time of manufacturing aircraft from 7.5 to 6 years. Lean manufacturing principles will be adopted. The power8 program also had a module called Smart Buying under which Airbus aimed to reduce its supply cost base, through sharing the risks with them and make them responsible for performance of Airbus, bringing down the number of logistics centers from 80 to 8 by 2010.

MAJOR SUPPLY CHAIN INITIATIVES Airbus had sixteen sites in Europe for manufacturing and assembly, and support centre in North America, Japan and China. It procured the spare parts required for manufacturing aircraft from across the globe. Around 80% of the cost of the aircraft manufactured by Airbus came from the external sourcing of goods. Airbus leveraged on information technology to manage its supply chain and improve its efficiency. Amongst the initiatives, [email protected] and implementing RFID technology played a key role in improving efficiency and visibility in its supply chain.

[email protected] Prior to 2003, purchasing managers at different plants of Airbus and its suppliers interacted independently for various purposes like initiating tenders and assigning logistic providers. There was no standardization for parameters like supplier code, spare parts code, etc, across various Airbus facilities. Airbus realized the inefficiency in operations with its different manufacturing plants ordering the same spares from different suppliers and logistics providers. Tracking the position of components in transit was a problem which often resulted in delays in production. Hence, [email protected], a web-based collaborative tool to integrate different processes in the supply chain, was implemented in February 2003.

[email protected] had four domains including Sourcing, BuySide, eSupplyChain, andd [email protected] which could be accessed from a common portal platform, with a further dedicated portal according to the target segment – Airbus customers, employees and suppliers.

Within the Sourcing domain, potential suppliers were identified in a transparent manner, as they registered with Airbus through the Internet where they could provide details about the strengths, quality standards, etc.

The BuySide domain allowed purchasing managers in Airbus to select products to be purchased from an electronic standardized catalogue and send the product list for approval from the concerned authorities. On approval, orders were generated automatically and electronically sent to suppliers. If products are not on the catalogue, quotations from suppliers are requested. It created automation across all Airbus entities from ordering to payment.

The eSupplyChain domain. Covered the entire supply chain right from forecasting product needs, generating purchase orders, receiving and storing goods, conduct quality checks, and invoicing.

The [email protected] domain had a database which contained information about suppliers, products, past contracts, required quality standards, and information about logistic providers. This domain used data for business intelligence purposes, analyzed historical data, and supported decision makers with important information.

Before using [email protected], different Airbus entities worked at the individual plant level to improve its performance. With [email protected], Airbus focused on a collaborative approach by standardizing supply chain processes across all its entities.

In November 2003, Airbus introduced a new program called the Supply Chain Quality Improvement Program (SQIP). It aimed to join Airbus and its suppliers in various domains for process improvements. In April 2004, Airbus issued guidelines and certifications for suppliers to follow in order to comply with the SQIP initiative.

As Airbus face cut-throat competition since the late 1990s, it has been expanding the supplier base to Asian countries to benefit from cost advantage. As the geographical coverage expanded, better technologies became imperative to minimize errors in inventory control andd reduce product delays. Thus, Airbus decided to use RFID technology across its operations, including that of its suppliers and customers, to further improve the efficiency of its processes.

IMPLEMENTING RFID TECHNOLOGY Airbus started using RFID in its tool loan business way back in 1997. The implementation of RFID resulted in 25% improvement in turnaround time, acceleration of supply chain processes, and accurate data being available across the supply chain.

In September 2003, Airbus launced a test phase for implementing RFID technology to its supply of aircraft spare parts, by tagging civil aircraft spares with RFID tags. Each Airbus aircraft had average four million spare parts, and e database for spare parts had around two million unique parts. According to research, aircraft mechanics spent up to 70% of their time in locating parts. In adddition, mechanics need vital information such as date and place of manufacture, maintenance history and location of parts, before they could use them.

In January 2005, Airbus unveiled its A380 aircraft which was equipped with 10,000 RFID tags. This helped reduce time required to generate aircraft inspection reports. Also, they could use RFID to do routine checks before flight, such as a lifejacket is under each seat.

THE ROAD AHEAD According to its Power8 restructuring plan target, the number of suppliers was expected to be reduced from 1500 to 500. As Airbus hadd announced they will reduce the number of suppliers, most suppliers were not willing to invest on implementing RFID in their operations without ensuring they would remain suppliers to Airbus after the completion of the Power8 plan.

Also, an aerospace industry-wide standard for RFID technology would speed up its implementation and help both the suppliers and aircraft manufacturers. However, many suppliers supplied parts to both Airbus and Boeing, who were implementing RFID technology to improve their efficiencies. Thus, it would be expensive for suppliers to follow different RFID standards for different manufacturers, discouraging them from implementing the technology.

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