GROUP-2

ANALYSIS OF SUPPLY CHAIN OF EUROPEAN AEROSPACE INDUSTRIES

Submitted by

Tushar bende(20)

Sujit Kumar naik(44)

Navu Dhillon(30)

Pravjot Gandhi(22)

Anil Kumar Soni(33)

R.Vaishakh(37)

Prashant Yadav(36)

TABLE OF CONTENTS

OBJECTIVE ABSTRACT INTRODUCTION PRESENT PICTURE OF INDIAN AEROSPACE INDUSTRIES MAJOR PLAYERS SUPPLY CHAIN LADDER VALUE CHAIN SUPPLY SIDE ANALYSIS OF THE AEROSPACE INDUSTRY IN EUROPE

1. EADS2. REGIONAL PATTERN 3. STATE IN TECHNOLOGIES

ROLLS ROYS MANUFACTURING FACILITIES AND SUPPLIERS PERFORMANCE METRICS FOR SUPPLY CHAIN SUPPLY CHAIN BUSINESS PROCESSES

1. SUPPLIER FACING BUSSINES PROCESSES2. SUPPLIER SELECTION AND SEGMENTATION3. COLLABORATIVE PRODUCT DEVELOPMENT4. SUPPLIER MANAGEMENT AND DEVELOPMENT

TRENDS IN AEROSPACE MANUFACTURING / OUTSOURCING ACTIVITIES TRENDS IN AEROSPACE MRO COMPETITION CONCLUSION RESEARCH METHODOLOGIES

ANALYSIS OF SUPPLY CHAIN OF EUROPEAN AEROSPACE INDUSTRIES

OBJECTIVE

Study and analysis of Indian Aerospace Market, current status and future prospects and a basic representation of the supply chain mechanism used.

ABSTRACT

India possesses one of the biggest markets in Asia Pacific which is evident from the fact that both the Boeing and Airbus consider this market as their priority market. It has recorded annual growth of over 41% in passenger traffic during in the last two years. These figures are indicative of the European aerospace industry presence in India. In India we have taken HAL (Hindustan Aeronautics Limited) which are into Aircraft manufactures & assembly, design, R&D, Tier-2 & 3 supplier to foreign OEM”S. HAL is one of Asia’s largest Aerospace companies.

On the other hand we are focusing on aerospace companies such as Dassault, EADS and Airbus which account for a large share of the global aerospace industry and research effort. Europe’s Aerospace turnover, accounting for over €20 billion annually alone. EAQG (European Aerospace Quality Group) sets up a platform to provide the Industry Supply Chain with services. This service platform is named API (Aerospace performance improvement). EAQG purpose is to implement initiatives that make significant improvements in Quality and reductions in cost throughout the value stream. We are basically concentration on the contrast of Supply chain mechanism used By HAL in India in contrast with the supply chain ladder with context to European Union.

INTRODUCTION:AN OVERVIEW OF INDIAN MARKET

India for the past one year had witnessed unprecedented growth during the past one year what can be even termed as growth of the century. From IT to telecom, from nuclear market to automobile India is a emerging as a growing market in all sectors, both in research as well as its market. Now India is on the threshold of entering into a new market what is deemed as one of the most challenging and that is the aerospace industry. India possesses one of the biggest markets in Asia Pacific which is evident from the fact that both the Boeing and Airbus consider this market as their priority market.

Though Indian aerospace market is dominated by military segment but it is the commercial segment which has potential for more growth. The civil aviation sector in India is growing rapidly. It has recorded annual growth of over 41% in passenger traffic during in the last two years. In fact, it has contributed significantly to the growth of international civil aviation sector. Indian players in this industry are still in nascent stage which means this industry is currently dominated by foreign player.

In the civil and the military fields of aviation, there are two competitors for business from airlines, private companies, individuals, and government agencies and that are the American and European behemoths. That business has not been just aircraft sales; other products and services include airport, aerial navigation, spares, MROs, support services as also space related products and services.

According to the DGCA website, scheduled operators in India are flying 184 Airbus and 165 Boeing airliners. These figures are indicative of the European aerospace industry presence in India. End 2009, Airbus signed lease contracts of € 2.8 billion with Air India and Jet Airways. Indigo, with a current holding of 32 Airbus aircraft, has regulatory approvals to import 150 - all Airbus A 320 as planned now. GoAir has 10 A 320 and plans to get 10 more over the next two years. Kingfisher plans to expand its fleet of 34 A320. In short, Airbus is robustly ensconced into Indian civil aviation, with a few A320 Business Jets under non-scheduled operations by Kingfisher and Reliance.

Jet Airways and Air India are both looking at additional A330 for reinforcing long haul operations. With all Indian private carriers now eligible to undertake international operations, demand for long-haul aircraft would increase further. Meanwhile, in the face of competition, from a possible Boeing 737 upgrade, new single aisle CSeries aircraft from Bombardier due to enter service in 2013 and C919 from China expected in 2016, Airbus plans to introduce the A320 NEO ( New Engine Option) powered by the next generation Pratt & Whitney’s engines with better fuel efficiency, lower carbon emissions and less noise than comparable engines. With 15 per cent lower fuel burn on the A320 NEO, savings will be significant. Airbus also plans to install large wing-tip devices known as “sharklets,” which would lower fuel consumption by at least another 3.5 per cent over long duration flights.

Moving to the military market this is one segment which is heavily controlled and influenced by the American and European manufacturers. Despite all the hype and attempts from the Indian DRDO, HAL and its associates, India is yet to produce a single indigenous fighter aircraft worth a mention. After over three decades of development, India finally succeeded to induct the LCA tejas Mk-1 in January 2011 though it was followed with dismayed order of 40 jets because according to the sources from the air force the technology is not sufficient for the current requirement. The Kaveri engine for the LCA, which has been under development for over two decades at GTRE, is not in sight. GE Aviation has won the contract to supply the F414 engine to power the LCA Mark-2, the indigenous fourth generation fighter for the IAF and the Indian Navy.

Recently Dassalt Aviation won the long running $ 12 billion MMRCA contract for supplying 126 Medium combat aircrafts and will be supplying 18 Rafael’s in fly away condition and rest will be manufactured in India.

Currently the bulk of the inventory in the Indian air force is consisted of either Russian, French or American aircrafts like Su-30 MKI, MIG -29,Mirage 2000, Phalcon AWACS and Globe master aircrafts. Even though Indian companies have limited presence in Indian market but they are making strides in this market recently. The behemoth among them is Hindustan Aeronautical Limited( HAL).

Hindustan Aeronautics Limited based in Bangalore, India, is one of Asia's largest aerospace companies. Under the management of the Indian Ministry of Defense, this state-owned company is mainly involved in aerospace industry, which includes manufacturing and assembling aircraft, navigation and related communication equipment, as well as operating airports.

Hindustan Aeronautics has a long history of collaboration with several other international and domestic aerospace agencies such as Airbus, Boeing, Sukhoi Aviation Corporation, Israel Aircraft Industries, RSK MiG, BAE Systems, Rolls-Royce plc, Dassault Aviation, Dornier Flugzeugwerke, the Indian Aeronautical Development Agency and the Indian Space Research Organization.

It is involved in a lot of International and national deals like the $ 10 billion FGFA fifth generation program with Sukhoi, the indigenous AMCA fifth generation project, Multi role transport aircraft with Russia. Multimillion $ contract with Airbus, Boeing and IAI to produce aircraft parts and composite material.It is the major player involved in the development of LCA Tejas, FGFA, AMCA, licensed production of Su-30 and the manufacturer of Dhruv helicopters.

Hal is even exporting Dhruv to a number of African and South American nations for commercial and military use. On commercial front they are developing like Saras and Indian Regional Jet in association with Saras, another aviation corporation in India. There are a lot of new players who are entering in the Indian aviation industry which include Tata, L&T, Hero group and M&M.

Most of the this players are involved in product offsets especially with corporation’s like Boeing and Airbus and are also outsourcing their work here.

PRESENT PICTURE OF INDIAN AEROSPACE INDUSTRIES

Political Influences

The commercial and defense-focused aerospace industry in India has been active for a long time; however it has only recently opened up to private sector participation through various government policies and initiatives. Overall, the following issues can be considered as key forces affecting the aerospace industry in India:

It has allowed up to 100% domestic private sector participation, although the foreign direct investment is still limited to 26% in the defense-related segment

The offset policy requirement of 30% is meant to encourage further development of indigenous production capabilities in land, air and naval defense equipments by allowing co-development and co-production of Indian companies with international manufacturers.

The federal tax structure of India imposes a range of taxes. While the Central Government levies income taxes on individuals and corporations, and indirect taxes such as customs duties, central excise and service tax, the State Governments impose other indirect taxes like a Value Added Tax (VAT). Such a multi-tiered tax structure is a disadvantage for domestic manufacturing as imported defense goods are taxed less compared to locally supplied goods. The indirect taxes on aircraft servicing present another challenges for MRO activities in India, which needs to be addressed in the coming years.

Technological Influences

With several government organizations like Hindustan Aeronautics Limited (HAL),Defense Research Development Organization (DRDO), NAL, ISRO etc. research and development in industry has progressed but at a slow pace. Considering the backlog of defense related aircrafts and technology for the near future, India still needs to invest into the future. Realizing the R&D investment needs, government has also invited domestic and foreign players for participation with an offer of 80% funding. The government is especially looking for joint production withglobal players in order to transfer technology and know-how into the country.

The availability of low cost engineers and scientists has attracted global players to build up captive R&D units in India. For example, the Airbus Engineering Centre located in Bangalore is one of the company’s key units in India which works on design tools for aircraft manufacturing and simulation too for analyzing stress, strain and other material properties. Similarly another aircraft companies such as Snecma have established their R&D centers focusing on the development of aircraft components. Other companies like Boeing have collaborated with research and technical institutes like the Indian Institute of Science (IISc), Bangalore, and the Indian Institute of Technology (IIT) Kanpur for high- end research in aircraft design. In March2009 for example, Boeing also opened its Research and Technology-India Centre whichwill focus on development of high-technology applications, particularly in the field of aerostructure sand avionics. A new trend of Public-Private-Partnerships (PPP) has alsoemerged wherein private Indian players like Mahindra & Mahindra are collaborating with government bodies such as NAL for the joint production of aircrafts.

Although less has been done in the field of research on green fuels so far, governmentagencies like DRDO and Bharat Electronics Limited (BHEL) have started working onprojects to develop Unmanned Aerial Vehicles (UAV). BHEL has, for example, collaborated with IAI-Malat for the development of similar technologies. The development of new composites for the manufacturing of aircrafts is one of the areas where the Department ofScience and Technology (DST) is currently focusing on. Such composites will not only helpin enhancing the strength of the aircraft but also in increasing fuel efficiency and lowering maintenance costs. As of now, India imports almost all material for manufacturing.Companies such as HAL or Tata Advanced Services are working on new material technologies for the development of composites. However, India has been restricted so far toa 3rd tier supplier to the industry with focus on low-tech design and engineering activities.Therefore, future research efforts in terms of R&D investment and high-technology product developments are expected to increase.

MAJOR PLAYERS

Public Sectors

Private Sector Domestic Firms

Major Foreign Players

SUPPLY CHAIN LADDER

High domestic demand of aircraft, introduction of the defense offset policy in 2006 have provided immense opportunities for companies entering this sector. Over the next five years, the Indian offset market is expected to witness double-digit growth and reach new highs over the next 10 years primarily driven by India’s procurement plans.

Low labor costs, coupled with IT competitiveness, is creating JV and partnership opportunities for Indian aerospace supply chain players with global aerospace majors such as Boeing and Airbus for various systems and subsystems manufacturing.

India’s Maintenance, Repair and Overhaul (MRO) sector is witnessing increasing interest from foreign and domestic players. Boeing has recently set up its MRO unit in India. Various others companies such as Airbus and Dassault are planning to set up MRO units in India.

The coordination and integration of supply chain practices and processes are becoming increasingly important, and requires lots of attention. Traditionally the large aircraft manufacturer would define and specify exactly what their Tier 1 suppliers should produce for them The airframe manufacturers would do the total aircraft design, and give their suppliers detailed specifications and drawings for the manufacture of sub structures and sub systems. This is changing. Airframe manufacturers and Tier 1 suppliers have become large scale integrators (“super integrators”) and coordinators of airplane production. New strategies adopted by the aerospace industry to achieve this include greater dependence on Tier 1s, increased risk sharing by suppliers, adoption of low cost region suppliers, increased aero structures outsourcing, and an increased transparency in their aircraft program plans and schedules. RFPs are shared openly, and proposal making is more a joint process between customer and supplier. There is more focus on systems integration, less internal production capability, a desire to work with a lesser number of Tier I primes, and significant reduction in direct dealings with Tier 2 and Tier 3 suppliers (except when developing such suppliers in low cost regions like India).

Airbus’s Power8 initiative, which aims to improve financial returns, reduce cycle times and increase overall efficiency, also incorporates changes in supply chain. Airbus has initiated plans to shift from seven, mostly national centers of excellence, to four transnational centers of excellence. Airbus senior management has publically stated that they are reshaping and consolidating their existing supply base, and building a network of strong Risk Sharing Partners to Tier 1 suppliers. For example, EADS’s E2S (Engineering Supplier Synergy) program reduced EADS’s more than 2000 engineering services suppliers, to just 28, of which 4 are from India. The aim is to turn Airbus into an extended enterprise, and it is expected that the A350 XWB will draw on this new business model, as Airbus assigns larger work packages to Tier 1 suppliers. Airbus has stated that about 50 per cent of aero structures work will be outsourced to risk-sharing partners, and this is expected to help address launch aid and political issues.

However, increased outsourcing gives rise to tensions and conflicts between established practices and the need to change these practices. Internal resistance to such changes, for various reasons ranging from perceived loss of job security (and thereby loss of income) to loss of control on the development process (and thereby loss of control on a program schedule) gives rise to conflicts. In the present competitive global market, major investments have to be made to enhance the innovative steps regarding design, technology and operations. These huge investments cannot be carried by airframe manufacturers alone. Therefore those high technology suppliers and Tier 1s who are able to invest in change are taken on board as risk-sharing partners with the airframe manufacture. This requires an organization-wide expansive learning process followed by development of a whole new network of next level (Tier 2/3) partners. It is a strategy that will involve major changes in aircraft production. The airframe manufacturer therefore will no longer tell the partners what to do. They will instead search the global market for the most capable and reliable suppliers as risk-sharing partners. The capacity of an aerospace supplier to appreciate, process and absorb external knowledge and learnings from past and present experiences, is important, when it comes to winning a position as a risk-sharing partner to an airframe manufacturer.

Aero structures work is increasingly viewed as non-core for aircraft OEMs. Most OEMs are not competitive in aero structures because of high labor costs and a broad array of suppliers. As a result, they are pursuing aero structures outsourcing on new aircraft programs, particularly in the air transport and rotary wing segments. Training and developing low cost region companies is a relatively low cost expenditure for the Tier 1 suppliers and the airframe manufacturer, compared to dealing with western labor costs. For players in the aerospace supply chain, the capacity to engage into these processes and benefit from them is highly dependent on a company’s position in the supply chain. Small, low technology western suppliers do not usually have the financial capacity to redesign their operations significantly. These companies are facing competition from the suppliers in the low cost regions like India.

The above gives rise to opportunities for companies in India (outside of HAL) who aspire to become players in the aerospace supply chain. Companies like who can provide engineering design services ranging from CAD (drafting, detailing and modeling), CAE (finite element analysis, computational fluid dynamics, simulation and flight physics), electrical wiring/harness design, technical publications, manufacturing engineering, avionics design, testing and integration, etc. will find buyers for their services, provided they also have the necessary process discipline that certifications like AS9100, DO178B and DO254 compliance provide. Excellent configuration management, IP security and integrity guarantee are some of the other things that aerospace OEMs and Tier 1s will look for, in India companies. But the most important factor would be aerospace domain knowledge. Given the level of domain knowledge that exists in services companies in India today, especially in mechanical engineering and avionics, a reasonably high level of work does get outsourced to India. However, OEMs and Tier 1s do not farm out very high level / complexity in large volumes to India currently – they prefer that such

work is done by existing Tier 1 companies in the west who then use Indian companies for further subcontracting, and provide the domain knowledge, guidance and hand holding necessary to ensure smooth execution of the work. For Indian suppliers to go higher up the value chain in design services, they need to have delegated authority signatories / direct engineering representatives (DERs) on board who can sign-off on designs. For this, they need to implement EFQM (European Foundation for Quality Management) systems, get EASA and FAA approved processes, etc. They need to have people with enough high level domain knowledge on board. While HAL, NAL and DRDO organizations are a source of such people, Indian suppliers should also look at tapping the pool of aerospace chief engineer level people from USA, UK, France, Germany, etc. who would be retiring from their existing jobs, but willing to work on a part time / consultancy basis, thus imparting their tribal knowledge to younger engineers.

VALUE CHAIN

The first step in the value chain involves research, design and engineering services. This is followed by high-quality component manufacturing and sub-systems manufacturing. Sub-systems include complex structures like engines and therefore also involves the assembly of a large number of components. Finally comes the final aircraft assembly and testing. The last step in the value chain, considered here, also involves MRO services.

The aerospace industry in India is mainly concentrated in ‘Design, Engineering & IT solutions’ and ‘Tier-3 manufacturing supplier’space. Of late, MRO is also emerging as a major sector with OEMs, airlines and private MRO service providers setting up their business in India. HAL and DRDO have developed capabilities in most parts of the value chain but they still struggle to master some critical high-end technologies. Hence, most of the business can be categorized so far as low-tech, low cost and low volume.

SUPPLY SIDE ANALYSIS OF THE AEROSPACE INDUSTRY IN EUROPE

EADS

EADS/Airbus, the largest European group of the AI, has been created by a concerted political initiative. These days, the company is run by its industrial owners Daimler and Lagardère. However, economic decision making is diluted by national interests and incorporates the risk of suboptimal decisions, in particular in the area of production locations. In recent years structural changes in the AI have been driven above all by actions initiated by the OEMs. The EADS/Airbus sourcing strategy follows this trend.

Four major goals have been made explicit:

• Improve market access (meet offset obligations), • Value to cost (low cost production), • Access to resources (raw materials and human capital) and • Risk management (e.g. currency volatility). As a consequence, the share of non-EU procurement has to rise and risk-sharing partners have to assume responsibility for larger subsystems and work packages. The dollarization of procurement requires suppliers on Tier-1 up to around Tier-3 to take the exchange rate risk. The structure of the EU AI is not optimally suited to meet related challenges. Compared to the US, there are fewer companies in the European AI that are able by their size, strategic orientation and their capability to allocate enough resources in order to become strong risk-sharing partners and system suppliers. The European AI faces a structural deficit in this respect that cannot easily be overcome. This is one reason why more big US manufacturers have been selected as suppliers for the more recent European aircraft programmes than before. The spin-off of production locations by Airbus has been driven by the objectives to focus on system integration and to create high-potential risk-sharing partners in the value chain with the help und new financial and industrial investors. Heavy investment has been carried out to strengthen the viability of these facilities. But due to insecure perspectives it was not yet possible to attract investors for all of these spin-offs created in recent years.

REGIONAL PATTERN

France, Germany and Spain are shareholders of the Airbus business. The United Kingdom has a big stake in the value chain for the manufacture of civil aircraft, in particular with the supply of wings. The delays and technical problems of new aircraft programmes, such as A380 and A400M have above all affected France and Germany. Moreover, these countries have started to allocate resources to the new A350 project that put additional pressure on financial performance. Spain has been much less affected by these burdensome factors. Additionally Spain – compared to for example Italy – has enjoyed a very strong development and integration into the European AI. Within these Member States there exists a certain specialization in the manufacture of parts

and components. Italy has become a stronghold in electronics for the aerospace industry and strengthened its integration in international projects. The country has fostered relationships with nonEuropean AI partners. A joint venture with Russia has been launched to strengthen the Italian position in civil aircraft.

BAE has sold its shares in Airbus and the United Kingdom’s link to the European civil aircraft activities has loosened. The British AI perceives its distance to Airbus as a detriment and fears to lose some of its competencies. In particular British smaller enterprises reported a growing competition from the new EU Member States and see few opportunities in niche strategies. The integration of the accession states (2004 and later) has made noteworthy progress. Patterns of the intra-European trade indicate that the division of labour has increased. Cost advantages and well educated technicians on all levels of education are driving factors.

STATE IN TECHNOLOGIES

Large Civil Aircrafts The recent market launch of the A380 has set new standards in the segment of very large aircraft and Airbus has taken over the position from Boeing as the manufacturer of the world’s largest civil aircraft. However, there was a delay in the roll-out caused by problems in the value chain and full pace of production has not yet been reached. For decades Airbus was leading in the application of composites in aero structures. With the “Dreamliner” B787 Boeing has leapfrogged Airbus in the application of these materials, though major difficulties have emerged with production. They have been aggravated by problems in the value chain. Outsourcing of large work packages, more risk sharing and insufficiently concerted activities have contributed to a delay of more than two years. Vi/FN97615 13. It is a challenge for future aircraft programs, such as the A350XWB, to avoid similar problems as emerged with A380 and A400M for Airbus and with the Dreamliner for Boeing in the future. The replacement of the most successful aircraft of Boeing and Airbus, the A320 and B737, is postponed to after 2017. Bombardier, in the smaller regional jet segment, is preparing its C-Series, which is an advance in the same, profitable segment. Bombardier will have some leeway for the market launch of this aircraft based on the latest propulsion technology and broad application of composites.

Propulsion

In the propulsion segment the major two competing future concepts are the Geared Turbofan (of P&W and MTU) and the unducted fans or Open Rotor (of GE and Rolls Royce). Both are quite promising concepts in terms of emission reduction and fuel efficiency, but the Geared Turbofan concept seems to be closer to its market launch in Japanese and Canadian Regional aircraft. Most important players in propulsion technologies for large civil aircraft (LCA) are part

of transcontinental consortia, for instance SNECMA with its 50/50% joint venture with GE in CFM is by far the leading player in the market of engines for large civil aircraft. A decision whether the US or Europe is in the lead in related technologies cannot be clearly made.

Air traffic management systems

The US has been in the lead with its Global Positioning System (GPS). Its NAVSTAR GPS was introduced between 1985 and 1995 and provides comprehensive services Worldwide. The European ATM will be based on EGNOS and the certification procedure for the application of EGNOS for air traffic will be concluded mid-2010. The co-operation of Boeing and Airbus on this issue contributes to this objective. Flight Mechanics, Navigation, Control and Avionics .Avionics, or aviation electronics, comprise electronic aircraft systems like fly-by-wire (or even fly-by-light) flight controls, system monitoring, anti-collision systems and pilot assistant/interface systems like communication, flight-management systems, navigation, or weather forecast systems. Traffic alert and Collision Avoidance System (TCAS) or the fly by wire technology. Airbus and Eurocopter were the first companies worldwide to introduce this technology in civil aircraft and helicopters. Big European Tier-1 and Tier-2 manufacturers are major EU vendors of flight avionics into the global market.

ROLLS ROYS

Rolls-Royce procures 70% of the components used in its final products, and onlymanufactures 30% of the most value added components. It operates manufacturing facilities across the globe, and follows a strategy where each purchasing and manufacturing business unit services all four business segments.

Rolls-Royce has a tiered supply chain, which delivers structured build packages for the engines. The focus in the company is on reducing the number of suppliers, and Rolls-Royce in 2003 had 765 suppliers, down from 900 in 2002. On the other hand, they are adding suppliers in emerging low cost countries, and have added 37 new suppliers in those geographies in 2003. Over the years, the focus on cost reduction and increased collaboration with suppliers has led to significant dependence on suppliers for success of cost reduction efforts finished in such components as sub-assemblies.In 2003, Rolls-Royce reduced its costs by 5%. Different manufacturing facilities are at different levels of progress on this front. For example, The Indianapolis facility has reduced the supplier base from 1300 suppliers in 1999 to 300 suppliers in 2004. Rolls-Royce has learnt from and taught best practices to its supplier base.

Aerospace industry shares a common supplier base for all engine manufacturers. Hence, the suppliers are in good position to learn best practices of one customer, and initiate such practices in their customers. Rolls-Royce shares its suppliers with successful companies such as GEAE, and has used this captive knowledge from suppliers to establish certain best practices related to supplier management. Supplier collaboration has made Rolls-Royce responsible for maintaining, supplying spares and aftermarket services for parts that are not manufactured by itself. Hence, the focus on cost reduction, quality and performance has shifted from Rolls-Royce's manufacturing to include the entire supply chain. RollsRoyce has negotiated flexible terms with its workforce to achieve such flexibility.

MANUFACTURING FACILITIES AND SUPPLIERS

Rolls-Royce has a strategy where they use each manufacturing facility to service all four business units. However, some facilities are primary producers in each category. The primary facilities for aircraft engines manufacturing are listed below, grouped by the customer segments they service.

Civil Aerospace :- The primary facility is in Derby, UK, which makes engines that serve the airlines. It manufacturers the RB211 family of engines, which are used in Boeing 747/ 757 aircrafts. It also makes the Tay and heavier Trent family of engines, used in Fokker, Airbus 66 60A330/ A340, A380 and Boeing 777 aircraft. . The regional and corporate aircraft are manufactured in Dahlewitz, Germany and Indianapolis, IN, USA. This includes the AE 3007 engines for commercial aerospace and those with their partnership with Williams International.Defense, Aerospace. The primary facilities are in Filton, Bristol, UK and Indianapolis, IN. All turbofan and turboshaft engines meant for military applications are

manufactured here, though the production at Filton facility is primarily turbofan engines, while in Indianapolis they primarily manufacture non-turbofan engines.

Maintenance, Repair and Overhaul (MRO):- The MRO, engineering and support activities for the military and commercial customers are done at Derby and East Kilbride in UK. Each of Rolls-Royce divisions derives about 50% of their revenues through service contracts, and hence this facility is a very strategic for Rolls-Royce' revenue growth and profitability. Rolls-Royce outsources extensively to its key global suppliers such as Alcoa (airfoils), BF Goodrich (measurement sensors), L-3 Communications (engine test beds), Northstar Aerospace (gear boxes), Sumitomo (heat management systems for fuel and oil), Kawasaki Heavy Industries (key engine parts), JJ Churchill (turbine blades), Whittaker Controls (fluid controls), Accuron (ceramics), Hindustan Aeronautics Ltd (gas turbine components), Intertek Caleb Brett (metallurgical analysis), Texas Composite (guide vanes), Hispano-Suiza (power transmission components) and Fern Engineering (joints/ coupling sections for energy systems).

PERFORMANCE METRICS FOR SUPPLY CHAIN

The key metrics used by Rolls-Royce to measure its supply chain performance are Quality of the delivered

* On-time delivery

* First pass test yields

* Past due receivables

* Cost of manufacturing and return on Invested Capital.

The single most important metric used by the engine manufacturing industry is quality of the product, followed by on-time-delivery to the end customer. In a cyclical market for aircraft deliveries, any time lost in an industry up-cycle is directly proportional to lost revenues. Hence customers are extremely sensitive to delayed deliveries.

SUPPLY CHAIN BUSINESS PROCESSES

The supply side, inside and customer side business process in the company's supply chain are described below. These are followed by description of the 40-day engine supply chain initiatives at Rolls-Royce which demonstrates the application of the business processes.

Supplier facing business processes:-The supplier facing business processes studied are:

• Supplier selection and segmentation

• Collaborative product development

• Procurement

• Supplier Management and Development

Supplier selection and segmentation .:- Rolls-Royce uses a global base of suppliers and it shares this supply base with its competition. Since the aerospace industry has few large suppliers, Rolls-Royce uses all the large suppliers in the industry with no dedicated suppliers. It has a varied supply base, and (for example) its purchases from its supply base in the US ranges from $1 million for smaller suppliers to $40 million from the larger ones (for Indianapolis facility).

The supplier base has been drastically reduced, and the exercise is expected to continue. For example in the US, the goal of the exercise is to reduce the supply base to 30 tier 1 suppliers from the current base of 300 suppliers. These suppliers would create sub-assemblies from tier 2 and tier 3 suppliers, and supply 30 sub-assemblies to Rolls-Royce, who would then assemble them to create an engine. The rationale behind the exercise is that Rolls-Royce has a higher cost of labor than its suppliers and hence outsourcing would result in lowering the overall cost of the final engine.

Collaborative Product Development.

The company uses its primary suppliers to jointly finance and co-develop new products. Such suppliers are called Risk and Revenue Sharing Partners (RRSP's).

Under the partnership, the suppliers invest capital in development of a new engine, as well as provide product development engineers. This reduces Rolls-Royce's investment in the project, and also reduces the critical development time (typically 3-4 years), since more resources are now being used to develop an engine. Therefore, the payback period for investment is also lesser than a typical period of 10 years. Rolls-Royce writes revenue sharing contracts with the RRSP's, giving them more responsibility as business partners.

Procurement:- Rolls-Royce distinguishes between items supplied by its suppliers and classifies them as A, B or C class item. Any item less than $100 of cost is considered a C-class item. In North America, Rolls-Royce has outsourced the handling of C-class items (5000 items). Yearto Wesco, a company based in California, USA. The agreement with this company is to establish a 2-bin Kanban, and quantity bands for control measures.Wesco is responsible for product availability and it does so using UPS as a logistics provider. For procurement of these parts, Wesco is authorized to negotiate the procurement, stocking and delivery of these parts and deals directly with Rolls-Royce's chosen suppliers to do so. Fog the industry portal called Exostar. It was a founding member of Exostar and uses it extensively to communicate the demand and supply information with all of its 700+ suppliers. This has replaced earlier processes which were manual and paper based to a new process which is automatic, real-time and provides visibility to all suppliers who can track the status of purchase orders and receipts in the supply chain. The demand for all suppliers is communicated through Exostar, which is updated once each week. The payments are also electronic and the system uses SAP data which is well integrated with Exostar and enables the suppliers to see the data in RollsRoyce systems in the format that they would want.

Supplier Management and Development.

Rolls-Royce has established a Supplier Council which meets for 3 days twice each year- once in US and once in Europe. The goal of the council is to forge management level relationships and invite and share suggestions for supply chain improvements. This council is a core part of Rolls-Royce's strategy to reduce its costs and complexity in the supply chain and improve its efficiency. It uses these meetings to create functional working groups consisting of engineers from Rolls-Royce as well as suppliers, who then share ideas and practices related to these functions between themselves. It also provides its suppliers with its own engineers who study the supplier's processes and their effect on Rolls-Royce's supply chain. It visualizes the bottlenecks of its suppliers as a bottleneck in its supply chain, and hence invests in developing the supplier's ability to deliver on time, at lowest cost and highest quality. The purpose of the exercise is to improve suppliers' processes, and mitigate the risk that their operations might put on Rolls-Royce's ability to deliver. This exercise is a data driven exercise using tools such as root-cause analysis, and results in score-cards being given to suppliers to track their progress on improvement initiatives. The suppliers are encouraged to develop complementary capabilities by sharing knowledge and transferring technology. They are then certified for process capability and are delegated more responsibility such as managing the Tier-2 suppliers. These practices insure that lean manufacturing practices trickle down all through to lowest levels of the supply chain.

TRENDS IN AEROSPACE MANUFACTURING / OUTSOURCING ACTIVITIES

Prior to 2000, aerospace manufacturing and outsourcing activities were strictly limited to global companies due to India's low technology expertise and its inability to meet global standards. But with private sector encouragement in the sector with 100 percent FDI on automatic route in all areas except air traffic services, this industry is open for Indian companies as well.

Aerospace manufacturing business in India is targeted towards Indian defence services requirements with HAL, being the leader for producing and servicing defence aircraft and helicopters. However, HAL has started contracting for OEMs - Airbus and Boeing. Due to low production costs, the manufacturing of various commercial aircraft components (panels and beams) is being outsourced to India. Export of aerospace components from India has also seen a dramatic growth in the past few years. Many Indian companies in the aerospace industry are successfully participating in delivering locally produced components.

Most of the aircraft components like aero structures, assemblies, composite components and parts are being developed and produced under public-private partnerships. According to the Centre for Asia Pacific Aviation (CAPA), more than US$1 billion of aerospace manufacturing work is expected to be brought to India by the Boeing Company by 2017.

Most of the Indian private companies have entered into aerospace manufacturing business by setting up joint ventures with foreign players. For example, Tata Group's JV with Augusta Westland for assembling helicopters; and Mahindra & Mahindra's JV with Aerostaff Australia and Gippsland Aeronautics for building aerospace components and aircraft manufacturing. This will eliminate the high import duties that are incurred in buying an aircraft from foreign manufacturers.

TRENDS IN AEROSPACE MRO

Maintenance, Repair and Overhaul (MRO) activities in India provide competitive advantages to various global and local players with rapidly growing aircraft fleet and the increasing age of Indian aircrafts. Aerospace MRO segment attracts less investment in technology and facilities as compared to other aerospace sub-segments. The MRO sector is typically divided into four major segments, which include Airframe heavy maintenance and modification, Engine maintenance, Line maintenance and Component maintenance.

Airlines in India outsource MRO work worth $700 million to international firms every year. According to media reports, global MRO firms such as SIA Engineering and Lufthansa Technik generate 35-45 percent of their revenues from their MRO verticals and are expanding their reach in India. MRO services see great potential in the Indian market with a continuous growth of 15 percent on an annual basis.

Indian aerospace MRO market is dominated by independent service providers that focus only on aircraft maintenance activities. However, these companies may face tough competition with the entrance of major Original Equipment Manufacturers (OEMs) such as Boeing, Lockheed and General Electric.

Airlines in India spend close to about 13 to 15 percent of their revenues on maintenance. In terms of cost, engine maintenance constitutes a major portion of the MRO chain. Most of the India aircraft fleet consist of Airbus and Boeing aircrafts manufactured in Europe and USA, which are flown outside India for maintenance mainly to the UAE, UK, Singapore and Malaysia.

COMPETITION

To restructure the supply chain and to address issues like increasing raw material prices, rising lead times, and changing global and economic conditions; global aerospace OEMs are eager to maintain a strong supplier base across the globe and to work with low-cost manufacturers in emerging markets (India, China and Brazil). These OEMs use various selection criteria for deciding whether or not to outsource. These include the supplier expertise to reduce cost, buying capabilities, scale of business, labor cost, technological investments and many more. With their low technology expertise and low scale of business, Indian aerospace industry is facing competition from various other countries.

The table is listed below:-

Further, these countries (China, Japan and Russia) are also giving competition to Indian aerospace industry by attracting regional aircraft market leaders (ATR, Bombardier and Embraer) to invest in these countries with strong supplier base.

CONCLUSION

Indian aerospace industry has undergone significant changes in the last few years; however, its maintenance and manufacturing activities have not kept pace with overall aerospace industry development. This is driven by business complexity, cost-plus mentality and other traditional business practices. Most Indian companies provide services in one particular area of the value chain (design/ manufacturing/testing/repair). Indian aerospace market faces various challenges in technology, funding, certification processes, infrastructure and various tax structures that need to be bridged in the next few years. Government help is required to ease the regulatory requirements and increase private sector participation.

Most aerospace activities are highly labor intensive and require huge technological investment. Thus, there is a need to create the human and technology infrastructure to offer services from design to maintenance of aerospace products. Further, the Indian aerospace industry is required to follow global quality management systems, ISO, QS, and TS; these would help Indian companies position themselves in the global aerospace arena.

RESEARCH METHODOLOGY

Secondary data used

Internet:

Indian Defense Review

Defense-Aerospace.com

Flightglobal.com

Nasscom.in

Researchandmarket.com

MIT Press Journels

Ec.europa.eu

Aviation week

Bharat Rakshak