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Best Procurement Practices for the Aerospace Industry

In the fast-paced and dynamic environment of the aerospace industry, effective procurement practices play an important role in ensuring its success and sustainability. Supplier pre-qualification involves a thorough assessment of suppliers capabilities to ensure that they meet industry and organization standards. Robust risk management strategies help to identify and mitigate potential risks to safeguard against supply chain disruptions. Supplier relationship management fosters collaboration, communication and long-term partnerships with suppliers. Procurement process automation reduces manual errors and provides valuable insights for making data-driven decisions. Regulatory compliance is key in the aerospace industry. It requires a thorough understanding of and adherence to aviation standards and requirements. This article delves into these key aspects of procurement in the aerospace sector.

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Supplier Pre-Qualification

Supplier pre-qualification is a process of screening suppliers based on a set of pre-determined criteria. This is a fundamental step in aerospace procurement. It ensures that only reliable and competent suppliers are invited to bid for a particular project or request. Part of the evaluation criteria includes financial stability, technical capabilities and supplier track records. The pre-qualification process may involve in-depth assessments and audits of suppliers to ascertain their adherence to aerospace industry standards. However, suppliers that meet the pre-qualification criteria are not guaranteed a contract. They are usually kept in the database of the procuring organisation. When the need arises, the buyer reviews the offers submitted by the pre-qualified suppliers. An effective supplier pre-qualification process helps to make the aerospace procurement process more efficient. It minimises contract failure by removing unreliable and non-compliant suppliers.

Risk Management

Procurement in the aerospace industry is inherently exposed to various risks. This includes geopolitical issues, natural disasters, regulatory changes, supplier insolvency and transportation disruption. All these risks may have an impact on the supply chain. It is therefore vital to identify potential risks and develop strategies to mitigate them. Effective risk management includes risk identification, risk categorisation and impact analysis, as well as risk mitigation strategies. Firstly, a thorough assessment is conducted with cross-functional teams to identify possible risks. The identified risks are categorised and analysed based on their potential impact and likelihood of occurrence. This will allow the organization to prioritize the risk in terms of urgency. Strategies are then developed to mitigate or minimise the impact of identified risks. This may include establishing contingency plans, supplier diversification, and stockpiling of critical components. Effective risk management ensures that aerospace organisations build their resilience in the face of unforeseen challenges.

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Supplier Relationship Management

Supplier relationship management (SRM) in procurement is the process of managing interactions with suppliers. It is an important aspect of successful aerospace procurement. A strong and collaborative relationship can lead to closer partnership, better quality, and timely deliveries. An open and transparent communication helps to identify opportunities for process improvements and cost savings. Regular performance evaluations is crucial in identifying areas for improvement in addition to recognizing accomplishments. Organizations that provide suppliers with the proper training and support will help them achieve their quality standards and expectations. Joint improvement initiatives can be carried out to allow both sides to identify areas for improvement in the supply chain. An effective supplier relationship management goes beyond facilitating smoother procurement processes. It fosters partnerships that are built on trust and a commitment to mutual success. Aerospace companies can improve supply chain resilience and gain a competitive edge by cultivating strong supplier relationships.

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Procurement Process Automation

Automation has emerged as a transformative force in streamlining aerospace procurement processes. Technologies such as Robotic Process Automation (RPA) and Artificial Intelligence (AI) can be used to automate time-consuming tasks. This includes order processing, data entry, and document processing. Automation can reduce manual errors, increase accuracy, and improve overall efficiency. This allows employees to focus on strategic tasks. Artificial Intelligence can offer opportunities for real-time insights into procurement processes involving extremely complex and large sets of data. This allows aerospace companies to make data-driven decisions and identify areas for improvement, giving them a competitive advantage. Artificial Intelligence used in procurement includes machine learning spend classification, capturing supplier or market data as well as anomaly detections. Automation not only improves operational efficiency but also allow companies to position themselves to navigate challenges in the rapidly evolving aerospace industry.

Regulatory Compliance

The aerospace industry is one of the most highly regulated industry. It connects the world, with millions of passengers flying worldwide every day. Adherence to safety standards and regulation is paramount in safeguarding the lives of passengers and crew. The operations of the aviation sector are overseen by aviation regulatory authorities. This includes the United States Federal Aviation Administration (FAA) and the European Union Aviation Safety Agency (EASA). These authorities set very stringent and detailed procurement standards to ensure the safety and airworthiness of the aircraft. It is mandatory to comply with these standards. Therefore, procurement professionals must be able to navigate a complex landscape of regulations, including quality standards and export controls. Compliance maintenance requires a comprehensive understanding of these regulations and a commitment to adherence. Failure to comply can expose organizations to financial penalties and reputational risks. Adoption of technology can help in maintaining compliance. It helps to automate procurement processes and reduces the level of human error in the process. Regulatory compliance in the aerospace industry is non-negotiable and it guides every aspect of aerospace procurement.

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Sustainable Practices

As the world faces the challenge of mitigating climate change, the aerospace industry plays an enormous role in tackling this problem. Aviation has contributed to about 4 percent of global warming and about 14 percent of greenhouse gas emissions from transport. The International Air Transport Association (IATA) is committed in achieving net-zero carbon emissions by 2050. As the demand for air transport increases, adopting sustainable procurement practices in the aerospace industry is vital in meeting the target. Such practices include evaluating suppliers based on their environmental practices and commitment to environmental sustainability. For instance, Delta Airlines collaborated with business sustainability ratings provider, EcoVadis. This collaboration ensures that their suppliers align with their strategy of net-zero emissions by 2050. Procurement of new fuel such as Sustainable Aviation Fuel (SAF) can significantly reduce carbon emissions. However, supply constraints are hindering long-term deployment. During fleet renewal, procuring environmentally progressive aircraft can help to improve fuel efficiency. Delta Airlines took delivery of 69 new aircraft in 2022. This contributed to a fleet-wide fuel efficiency improvement of 4.2 percent as compared to 2019. Sustainable practices in aerospace procurement is not only about aligning with global trends. It also enhances the reputation and resilience of the organisation in the face of evolving environmental regulations.

Conclusion

Successful procurement practices play an integral role in the aerospace industry. These procedures, which range from careful supplier pre-qualification to putting risk management plans into action, support the supply chain as a whole. In order to ensure adaptability, it is important to build robust supplier relationships and employ efficient procurement process automation. As the aerospace landscape continues to evolve, adherence to regulatory compliance remains non-negotiable. While the world tackles climate change, sustainable aerospace procurement practices are crucial to reduce or even reverse greenhouse gas emissions. A commitment to these procurement practices positions aerospace organizations at the forefront, ensuring sustained growth and success.


References

KPMG. (2023). Sustainability in the Aerospace and Defense industry. Available at https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2023/06/sustainability-in-a-and-d-report-final-web.pdf (Accessed: 2 March 2024).

Perry, N. (2024). How Procurement is Helping Delta to Sustainable Travel. Available at https://procurementmag.com/articles/how-procurement-is-helping-delta-to-sustainable-travel (Accessed: 2 March 2024).

Rosalind Ngo Su Sian. (2021). Key Factors to Consider in Suppliers Selection. SIPMM Publications. Available at SIPMM: https://publication.sipmm.edu.sg/key-factors-consider-suppliers-selection/ (Accessed: 2 March 2024).

Samani, N. (2023). Six Essential Steps to Effective Procurement in Manufacturing. Available at https://www.deskera.com/blog/effective-procurement-manufacturing/#supplier-relationship-management (Accessed: 2 March 2024).

SecuritySenses. (2023). Regulatory Compliance in Aviation Procurement: Navigating the Complex Landscape. Available at https://securitysenses.com/posts/regulatory-compliance-aviation-procurement-navigating-complex-landscape (Accessed: 2 March 2024).

Sievo. (2023). AI in Procurement. Available at https://sievo.com/resources/ai-in-procurement#useofaiinprocurement-section (Accessed: 2 March 2024).

Skylink. (2023). Optimizing Procurement Processes In The Aviation Industry. Available at https://www.skylinkintl.com/blog/optimizing-procurement-processes-in-the-aviation-industry-strategies-for-increased-efficiency-and-cost-savings (Accessed: 2 March 2024).

Tan Lay Kim. (2023). Essential Criteria for Prequalifying and Selecting Vendors. SIPMM Publications. Available at SIPMM: https://publication.sipmm.edu.sg/essential-criteria-for-prequalifying-and-selecting-vendors/ (Accessed: 2 March 2024).

Xiang Yu Tan
Xiang Yu Tan
Tan Xiang Yu has extensive engineering and procurement experiences in the aerospace industry. He holds a Bachelor degree with major in Aerospace Engineering from Nanyang Technological University. Xiang Yu is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM), and he completed the Diploma in Procurement and Supply Management (DPSM) on March 2024 at SIPMM Institute.
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