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Summary
In this thesis the supply chain of Fokker Component & Material Services (CMS) is studied. As a part of Fokker Services and mother company Stork B.V., Fokker CMS is active in the aerospace aftermarket industry. The aerospace aftermarket consists of companies that provide Maintenance, Repair and Overhaul (MR&O) or deliver spare parts support and sales to aircraft owners and operators.
Fokker CMS is a trader and supplier of spare parts for especially Fokker aircrafts. It has a broad assortment of parts on stock, which ensures fast availability of spare parts. This is important in the aftermarket industry since availability sells. Keeping the right parts on stock, understanding demand and having reliable and short lead-times from vendors is then essential.
The current issue at Fokker CMS is, however, that the outbound supply chain process to the customer shows long and unreliable lead-times. This low performance in On Time Delivery and lead-time should be improved to increase customer satisfaction and revenues. Since the internal handling process of spare parts is optimized by an improvement project at Fokker CMS and the high cost and risks associated with extra stock are unfavorable, Fokker CMS is forced to solve the problem at the source. This means improving the performance of vendors in On Time Delivery and lead-time. The main research question is therefore defined as follows:
“How can Fokker CMS improve the performance of their vendors and procurement organization to increase On Time Delivery to 90% without increasing the lead-time?”
Literature has provided relevant best practices, theories and methods in the procurement and aftermarket industry. Based on the theory and outcome of an internal project, there is decided to use the Design for Six Sigma (DFSS) approach. The main reason to choose for this approach is that the gap between the current performance in On Time Delivery of 71% and targeted performance of 90% is too big for a normal Six Sigma-approach. Secondly, Fokker CMS is familiar with the DFSS approach. Of the several DFSS roadmaps discussed, DMEDI (Define, Measure, Explore, Develop, Implement) is used.
With a clear research question as outcome of the Define-phase, an analysis is made of the in- and outbound stream of spare parts within the supply chain of Fokker CMS. In this Measure-phase, the characteristics of this supply chain are determined by analyzing all sales orders sold between July 2007 and June 2008. It showed that customers demand is diverse and focused on short lead-times. Secondly, there is concluded that Fokker CMS is very dependent on their key-vendors. 96% of the partnumbers have only one registered vendor that is approved to supply the part.
The same sales order data is used to measure the performance of the outbound stream of spare parts. The three delivery processes are studied. The delivery processes of stock or transferred stock parts, showed relatively good delivery performance. Delivery performance is defined as the performance in lead-time and On Time Delivery. The Non-Stock delivery process, which delivers parts that are not on stock when ordered, showed poor performance on both aspects of the delivery performance. Since, the process delivers it parts directly from the vendors, it is expected that they are the main reason for this unsatisfying performance.
To verify this expectation, the delivery performance of the inbound stream of parts is measured with the use of all purchase orders ordered between July 2007 and June 2008. Within the inbound stream two processes can be distinguished. These are the Stock replenishment and Non-Stock receiving process. This last process fulfills the demand for parts that are not on stock. It followed, however, that there is no difference in the delivery performance of these two inbound processes.
Further study showed that the real reason behind the poor performance of the Non-Stock delivery process in On Time Delivery is caused by an unreliable calculation of the promise date to the customer. The long lead-time of the Non-Stock process compared to the other processes is caused by the fact that the lead-time of the parts delivered by the Non-Stock process includes the lead-time of the vendors; while parts delivered from Stock or Transfer Delivery Process do not. So, the conclusion that the Non-Stock delivery process shows poor performances on lead-time is based on an unfair comparison of the processes. In fact, since the performance on lead-time for both inbound streams is the same, there can be concluded that the lead-time of the Stock and Transfer processes is just as bad when vendor lead-times are added. This leads to the conclusion that delivery performance of the vendors over the total inbound stream is not satisfying and should be improved as a whole.
ix These insights provide the motivation for a closer look at the procurement organisation. Five issues are found that play an important role in the low delivery performance of vendors. A sixth issue is found in interviews with sourcing experts.
At firstly, there is too little regular communication within and between the procurement and Inventory Control department (1). Secondly, the departments do not know, understand and respect each other’s activities, which leads to very little cooperation (2). Both the procurement and the Inventory Control department complain about the high number of vendors and order lines to manage; there is not enough focus on the key vendors (3). Furthermore, the procurement organization does not have the right tools in place to assess vendor performance (4). The fifth issue is that it seems that Fokker CMS misses the right perception, skills and knowledge to manage vendors from an underdog position (5). In the Explore phase the findings of the measurements are discussed in interviews with in- and external experts in the field of aftermarket procurement and sourcing. From the interviews with sourcing experts, it followed that Fokker CMS has a passive attitude towards (re)sourcing of parts that have long lead-time or become obsolete (6). This has a negative impact on the delivery performance and is appointed as the sixth issue.
To resolve the six issues and improve the delivery performance of the inbound stream, the Develop and Implement phase recommend a four-stage roadmap. The first stage ensures that Fokker CMS installs the right basics to manage and improve vendor performance. Four actions should be taken. 1. Introduction of a week-rhythm and schedule for in- and external communication
Communication between the two departments is the basis of the inbound stream of spare parts and therefore essential for good performance.
2. Development of a clear and united focus on key vendors
This research has selected a Top 100 of vendors. Improving performance of these vendors will have the most impact on the overall performance of the inbound stream.
3. Data-driven assessment of internal and vendor performance
To create a more performance driven culture at Fokker CMS, this research developed a dashboard of Key Performance Indicators (KPI’s) to assess internal and vendor performance. 4. Implementation of the Kraljic Method
To change the perspective and attitude towards vendors and give the Account managers strategies to approach vendors, this research applied the Kraljic method to the Top 100 vendors. Since these four actions are already defined and for a great deal worked out by this research, Fokker CMS should also get started with stage 2. To improve communication, cooperation and sourcing, a cross-functional organization should be implemented. The last two recommended actions are:
5. The implementation of a new cross-functional organizational structure
Fokker CMS should start Performance Improvements Teams (P.I.T.’s) with account managers and buyers to improve the cooperation between the procurement departments.
6. The adaptation of a proactive approach towards sourcing
It is needed that Fokker CMS starts to search for new ways, like trading, disassembly of planes and redesign of parts, to supply parts that have a structural long lead-time or become obsolete. Both stages can and should be implemented before March 2009. It is expected that, within a year, the delivery performance in On Time Delivery will improve from 71% to 76%. Furthermore, the average lead-time of vendors will decrease with 2 days, from 68 to 66 days.
Three financial benefits are attached to faster and more reliable delivery of vendors. These are the reduction of the Stock costs, labor costs and extra revenues due to less stock-out situations and higher availability. The reduction of lead-time due to a proactive approach towards sourcing will also lead to higher revenues. From a financial analysis it follows that the improvement in delivery performance will lead to minimal €200.000 and maximal €430.000 extra Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA). This is an EBDITDA improvement of maximum 2,6%. Only when the first 6 actions within stages 1 and 2 are successfully implemented, Fokker CMS should make a decision on how to deal with suggestions like the creation of a center-led procurement organization and vendor benchmarking given in stage 3 and 4. When carrying out the four-stage approach, it is strongly believed that by 2012 Fokker CMS should achieve 90% On Time Delivery without having longer lead-times. Constant attention of higher management will be crucial in achieving this target.
