Value chain analysis for Bombardier - aerospace division

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VALUE CHAIN ANALYSIS FOR BOMBARDIER

Bombardier Aerospace has signed a long-term logistics services agreement with Caterpillar Logistics Services to provide supply chain execution services and to help restructure the company's parts logistics network.

Headquartered in Canada, Bombardier is a $16.4 billion manufacturer of regional aircraft, business jets and rail transportation equipment.

Under the deal, Cat Logistics, a wholly owned subsidiary of Caterpillar Inc., will provide an array of warehousing services, information systems and inventory management services to Bombardier. Cat Logistics will manage the distribution of aerospace components at distribution centers in Chicago and in Frankfurt, Germany.

In addition, Cat Logistics will assist Bombardier in restructuring its parts logistics network with the goal of improving availability and service to its customers.

"We are relying on Cat Logistics bringing together its warehouse management and materials planning expertise and systems into a fully integrated systems environment, enabling us to deliver aircraft-on-the-ground orders faster and improve our off-the-shelf fill rates," said Pierre Beaudoin, president and chief operating officer of Bombardier.

Mary Bell, chairman and president of Caterpillar Logistics, predicted, "I am confident that Bombardier's customers will see a significant improvement for years to come as a result of this agreement between our two companies."

The logistics services agreement recently signed will be implemented during 2004 and 2005. It will include the potential implementation of the new service parts management system currently being developed by SAP in conjunction with Cat Logistics.

Re-engineering the service parts supply chain
Situation: Bombardier Aerospace found itself with a disjointed service parts supply chain, in part due to a lack of integration between its business units and locations. Declines in customer service threatened customer loyalty, particularly in the Business Aircraft division.
Challenge: To regain the number one ranking in customer service through restoring market confidence in Bombardier Aerospace's support capabilities.
Solution: Rationalize the parts supply chains, integrate operations focusing on core competencies, and outsource other responsibilities.

Bombardier Aerospace is the third largest civil aircraft manufacturer in the world, and a leader in the regional and business aircraft markets. Bombardier grew its business rapidly through acquisition: Canadair (1986), Short Brothers, Belfast (1989), Learjet (1990) and de Havilland (1992). As the pieces came together, the parts were left behind.
"Our acquisitions were previously stand-alone companies that had their own methods of operating," says Des Bell, Vice President of Parts Logistics for Bombardier Aerospace, with headquarters in Montréal. "Over the years we had successfully integrated these companies, but we had not focused enough on service parts operations."

The new organizational structure was announced by Bombardier Aerospace President and Chief Operating Officer Pierre Beaudoin in April 2004, streamlining the organization into four business units: Aircraft Services, Business Aircraft, New Commercial Aircraft Program and Regional Aircraft. These new units will have individual responsibility for profit, cost, and quality and customer management-from order to delivery-while taking advantage of the strengths of a single company approach.
Gone is the fragmentation that created inefficiencies that hampered parts availability and customer service. "It had the potential to affect aircraft sales," Bell states. "Customers were losing confidence in our ability to support the aircraft with replacement parts in a timely manner. We knew we had to get better."

A hard look
Bombardier Aerospace began remediating the situation by looking at what it had-and what it didn't have. The company conducted various internal studies to begin understanding the complex challenges it faced. It augmented those internal studies with information compiled by a third party logistics company (3PL).
The studies showed that the company faced intense supply chain cost and performance pressures. This conclusion was not a surprise to Bell, but he now had a comprehensive, in-depth analysis of the issues to fortify his assumptions.

Bombardier Aerospace's aggressive new product development programs served to further increase the complexity of service parts logistics for the company. They have developed 15 new aircraft in 15 years-five between 2001 and 2003. Each new product had a mix of common and new parts, and supporting them consumed an enormous amount of energy and resources. Yet the success of the new aircraft made it clear that Bombardier would continue to innovate and develop more new products. Finding a way to support product expansion fell on the supply chain group.

Other challenges (see sidebar) confirmed what Bell and others increasingly understood: Bombardier Aerospace needed to rapidly re-engineer its service parts supply chain. "We already had improvement plans that provided short-term fixes, but we realized they wouldn't offer a long-term solution," relays Bell. A transformation was necessary.

The company turned to Cat Logistics to assist in developing a comprehensive approach to re-engineering the Bombardier Aerospace supply chain. The resulting partnering strategy was described in a Business Solution Definition Manual (BSDM). "The BSDM helped us define what the future will look like," Bell explains. Bombardier aspires to use the BSDM as a baseline while allowing for modifications moving forward.

Bombardier Aerospace's objective was to improve customer service levels and regain its industry-leading position. Specifically, the company pledged to:
Â? Support its current and future aircraft owners at a service level better than the competition. This would be accomplished through best-in-class fill rates, short aircraft-on-ground cycle times, and aftermarket technical information and ...