Cessna works to streamline supply chain, reduce costs

News source: Kansas.com

Keeping it moving

BY MOLLY MCMILLIN
The Wichita Eagle

On the shop floor on the Citation jet line at Cessna Aircraft Co., a green flag sits on top of a kit of parts. The flag signals that the parts needed to assemble the lower tail cone of a CJ3 business jet are there and ready for the operator.

In the midst of several kits sporting green flags, however, is a kit with a red one: Two parts are missing.

Production increases and changes in manufacturing make parts shortages more glaring today. And late or missing parts make it more difficult for planemakers to get their aircraft to customers on time.

While it's meeting its demand schedules, Cessna is working with suppliers to reduce and eliminate shortages as part of a larger effort to streamline its supply chain operation and bring costs down.

"We are certainly committed to and are going to make our (delivery) schedules," said Don Beverlin, vice president for supply management at Cessna.

Of the 160,000 different parts that go on Cessna's fleet of aircraft, the company buys 60,000 of them from 850 suppliers -- everything from engines to rivets.

Next year, Cessna expects to spend $400 million more on parts and materials -- an increase of 36 percent -- than it did in 2005, Beverlin said.

Cutting costs

As an industry, planemakers found themselves needing to hold or reduce the price of their aircraft while their own costs were rising.

"We found ourselves in a position where our airplanes were too expensive because we had let the cost get out of control internally and externally -- and that's our supply base, too," Beverlin said.

"Then we had to roll up our sleeves and really go to work and drive costs out."

For example, Cessna has cut costs and reduced the price of a Citation X while making a number of options standard equipment, Beverlin said.

It has put in lean manufacturing practices to raise productivity and become more efficient. It adopted a "just-in-time" method of inventory so it doesn't keep an abundance of costly parts on the shelf.

And it worked with suppliers to lower their costs as well.

"We went in and we squeezed on that excessive margin," Beverlin said.

"Once you get that margin to an acceptable level, we collectively have to make money," he said. "Now how do you drive out costs?"

Complications

Planemakers' abilities to improve the supply chain has been complicated by a number of issues.

A stronger economy and new products have reawakened the aircraft market. Orders and deliveries are up.

Shipments of general aviation aircraft were up 38 percent in the second quarter of 2005 over the same period a year ago, according to figures from the General Aviation Manufacturers Association (GAMA.)

Cessna's order backlog, for example, is a healthy $6.4 billion. As orders increase, so does the demand for parts.

"The supply base is of limited size," Beverlin said. He said most planemakers do business with the same suppliers.

"There is a whole lot of overlap there," he said.

Cessna felt the impact of the economic downturn after the Sept. 11 attacks later than other planemakers and rebounded sooner, Beverlin said.

"The supply base has been chasing us ever since," he said.

Suppliers were slower to ramp up than planemakers, Beverlin said. They wanted to make sure that the economy's improvement was not temporary.

Now, suppliers are hiring and competing for a limited pool of skilled workers, Beverlin said.

In addition, demand for raw materials, such as titanium and aircraft-grade aluminum, is high. That increases the cost and extends the time it takes to receive them.

"Supply is not meeting the demand of the industry," said David Steiner, manager of operations at Plastic Fabricating, a Cessna supplier. "We have to wait for material. As we wait, our lead time goes out."

GAMA spokesman Jens Hennig said members of the Washington trade group have talked about the situation for several months.

With orders and deliveries on the rise, "we're working our way through getting everybody back to have a balanced supply chain," Hennig said.

A hands-on approach

Cessna is working with suppliers to help them bolster their operations, reduce delivery times and streamline operations to meet the growing demand for airplanes.

Cessna can't continue to improve productivity without bringing suppliers along, Beverlin said.

"What was good enough in 2001, isn't good enough now," he said.

For example, some suppliers now deliver parts directly to the shop floor next to the operators who use them. Cessna wants to increase that practice.

It also requires suppliers to keep a certain number of parts on Cessna's shelves, never letting that number go below or above a set amount.

"Once they draw it down, I've got to be ready to ship to fill the bin," said Ron Ross, president of Globe Engineering, which makes metal components for Cessna.

With the forecasts Cessna provides in its long-term agreements, "that's not a problem," Ross said.

Two years ago, Cessna started meeting with suppliers in an effort called a "supplier value improvement process," Beverlin said.

Together, they analyze the process to find any "pinch points" that could delay deliveries, he said, and work to find solutions.

Cessna has helped suppliers find ways to become more efficient, provided tooling, acted as an advocate to get raw materials and provided materials to train workers.

At times, Cessna has assisted Plastic Fabricating with getting needed materials, Steiner said.

"They'll call the vendors, or they'll find an alternate material," he said.

Sometimes, Cessna engineers have redesigned a part to use another material that's easier to get.

In the last 60 days, Cessna has focused on working with suppliers on delivery schedules, Beverlin said. During that time, it identified 35 suppliers with the most parts shortages and has met with 27 of them so far.

As they looked at the causes of shortages, Cessna officials discovered that their own processes were responsible formost of them, Beverlin said.

"It has been enlightening for us," he said. "The good news for me: We can fix it."

There is more communication and follow-up now between Cessna and its suppliers, said Excel Manufacturing vice president and general manager Marwan Hammouri. He said Cessna is more open-minded about making changes.

Excel, which makes precision parts for Cessna, was chosen to help give the planemaker input on improving its processes.

Cessna's "supply management is definitely a lot better than what it used to be," Hammouri said.

Beverlin is pleased with the results of the effort to improve the company's supply management.

"I think the journey that we've been on since 1997 reflects a continual improvement to our supply manufacturing process and a maturing of that process," he said.

The results suggest that the company is doing the right thing, he said. "And the supply base is performing better."

But there's always room for improvement.

"And that's what we'll do," Beverlin said.