In 2020, spare parts distribution was severely and abruptly disrupted by the onset of the COVID-19 pandemic. Some global distribution centers were temporarily shut down, unpredicted shortages became ubiquitous, and supplier instability radically altered traditional business models.
The changes in supply chain management were fundamental and permanent. They exposed vulnerabilities that needed to be swiftly addressed in order to build resilience for unexpected upheavals and business sustainability for the long term. But there was little time to achieve any of that before the next string of macro-environmental challenges.
At the beginning of 2021, the provisional Brexit deal created trade flow uncertainties between the UK and the EU; the bizarre Suez Canal situation blocked the world’s busiest corridor for six days freezing $40 billion worth of trade; and now, the conflict in Eastern Europe is affecting global networks, impacting commodity prices, supply availability, firm-level export controls and sanctions, and wider geopolitical stability.
Supply chain crunch forces Rolls-Royce to reuse spare parts
Among the many original equipment manufacturers (OEMs) and companies affected by the inflation and supply chain disruption caused by the recent global events is British engine maker Rolls-Royce.
In light of recent supply chain issues and lack of spare parts availability affecting the aerospace industry, the company began repairing and reusing spare parts while other airlines became unable to fly since regular maintenance could not be carried out.
Rolls-Royce representatives revealed that “the situation is very intense in the single-aisle space at the moment”, with companies being pressured to “ramp up very steeply.” To mitigate risks, the company is working closely with its “best-performing suppliers” to ensure that they “are in the right place in the queue.” Furthermore, the company minimized its reliance on Russian suppliers and instead signed a new agreement with a titanium supplier in the United States.
Many companies, including the aerospace engine supplier Safran, believe that inflation and supply chain issues will continue to cause issues possibly until the end of 2023. And Rolls-Royce echoed the sentiment stating:
“The external environment remains challenging, with the war in Ukraine, inflationary pressures, and supply chain constraints all impacting our business. We expect these issues will persist into 2023 and have been managing our business to address and minimize the impact.”
Shortages of auto parts bringing European assembly lines to a halt
Similarly to the aerospace sector, the automotive market is likewise experiencing the impact of supply chain disruption and destabilizing the economy in turn. The European economy is significantly impacted by its dependency on Russian oil and gas, a situation only made worse by the prolonged factory shutdowns of German manufacturers in the automotive sector that support a network of suppliers around Europe.
The shortages of parts caused by the Eastern European conflict forced Volkswagen, the largest carmaker in Europe, to slow production at its main factory and several other German plants. Likewise, BMW minimized production at its sites throughout the continent and, similarly to Volvo Cars and others, even suspended production in and export to Russia.
And the industry has been further thrown into crisis as Ukrainian suppliers of wiring systems for the automotive industry have been affected by the conflict and became unable to deliver the necessary parts to carmakers.
As key raw materials for parts production are becoming widely unavailable, the global automotive industry is suffering major losses. Production volumes have been reduced, prices have increased, deliveries have slowed down, and longer waiting periods are creating challenges for buyers.
Preparing spare parts supply chain management for disruptions
The COVID-19 pandemic was an eye-opener for OEMs and spare parts distributors before the conflict erupted. Difficulties with shipping and supply chain issues have only skyrocketed since, creating market volatility. Not knowing when spare parts would be delivered and not having the necessary components on hand to complete maintenance is not a position any company wants to be in.
Beyond the issues impacting spare parts supply chains the most at the moment, there will always be risks that could disrupt the flow of business, including unplanned IT or telecommunications outages, cyberattacks and data breaches, talent shortages, transport network and logistics issues, adverse weather, political change, and new laws and regulations.
Knowing that there will always be risks one way or another, many manufacturers have started to strategize how to set up a more stable and resilient supply chain. According to Deloitte, some of the best practices for designing “a supply chain as solid and protective against risks as possible” include:
- Supply chain contingency: Understanding demand and shocks on the supplier’s side, identifying vulnerabilities and mapping out critical features, developing contingency plans for operational disruptions, and developing inventory strategies to buffer volatility risks.
- Supplier network: Diversifying the number and geographies of suppliers, making parts production flexible or leveraging additive manufacturing, and re-configuring the distribution routing and service providers network.
- Warehouse footprint: Establishing a multi-tier structure covering geographies, using balanced levels of different materials, and leveraging decoupling points.
- Transportation: Establishing agreements corresponding to delivery demands, using a diverse range of transportation providers for diverse transportation needs, and allowing partners to cover volatile business volumes when necessary.
- Material categories: Differentiating spare parts into categories according to their strategic importance, identifying risks for supply disruption for each category, creating alternatives, and ensuring the availability of critical component materials.
- Collaboration: Working with key suppliers and customers to synchronize operations and priorities, and deploying extended networks beyond tier-one suppliers.
- Supply chain finance: Balancing inventory with cash flow through agile execution, and monitoring and managing costs versus needs and lost sales or customers.
- Intelligent monitoring: Establishing control towers to predict and prescribe risk responses with a connected ecosystem of machines, suppliers, and customer demand; scaling to automated DSN solutions to improve visibility and agility, digitizing the supply chain, and planning for resilience by leveraging advanced technology that facilitates switchover alternatives.
Designing a spare parts supply chain that is stable and resilient is a process that takes time and constant effort to achieve. And, as macro-environmental challenges continue to evolve, so should supply chain management. Ongoing optimization and re-assessment can help manufacturers to build resilience which will enable them to respond swiftly when market conditions change.
But where does this process begin? How can OEMs determine if single or multi-sourcing is the best option for their business? And to what degree should they digitally transform their spare parts supply chain?
All that and more will be explored at Copperberg’s Spare Parts Conference in 2023 when experts across the industry will share their insights into digital transformation, business model innovations, optimized inventory management, and more. Stay tuned to learn more about an educational and interactive event dedicated to helping manufacturers optimize their spare parts strategies and overcome the vulnerabilities in their supply chains.