High expectations
Procurement uses strategic sourcing and aggressive cost control to help drive innovation.
By Susan Avery -- Purchasing, 1/12/2006 7:00:00 AM
Purchasing professionals searching for a good example of early supplier involvement in design need look no further than Eclipse Aviation, a start-up company in Albuquerque, N.M., that designs, certifies and builds very light jet aircraft. With the help of its purchasing staff, Eclipse, which plans to deliver its first jets to customers in April, has been collaborating with key suppliers almost from day one.
A very light jet has maximum take-off weight of 10,000 lb and is able to operate on runways as short as 3,000 ft. Vern Raburn, a former Microsoft executive, created the concept and founded the company in 1998.
Raburn expects Eclipse to revolutionize the small aircraft market with jets that make it possible for passengers to move directly between cities quickly, conveniently and affordably. He says that without compromising safety or performance, the company's flagship product, the Eclipse 500, has a low price tag (less than $1.4 million) and operating cost (less than $300 per hour). The company already has orders for more than 2,360 jets and plans to build 1,000 planes per year, which translates to $1 billion in annual sales. It will start production to fill these orders once it has final approval from the Federal Aviation Administration, expected sometime later this quarter.
Strong supply chain management and a world-class supply base play a big role in making all this happen.
Enter Bill Bonder. Raburn named Bonder vice president of supply chain management in August 2004. Bonder has more than 17 years of supply chain management experience—including serving as executive director of global sourcing at Gerber Scientific and senior global strategic commodity manager at Dell Computer.
As Bonder set it up, the supply chain management organization at Eclipse is clearly focused on both strategic and tactical activities, and supports production ramp-up and customer delivery. One procurement group concentrates its efforts on supplier selection, contract negotiation and supplier relationship management, while another operations group handles production planning and control and inventory management.
Purchasing learned at press time that Eclipse is pushing back FAA certification date due to production-process problems with one supplier.
Click here for a detailed report on the delay
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Start-up
Besides purchasing components of the highest quality and ensuring that there's ample supply to meet customers' growing demand, the supply chain management team is aggressively managing costs to maintain the company's value proposition of lowest acquisition and operating costs in the industry. It has a formal program that identifies cost reduction opportunities that it plans to expand to support value engineering opportunities. Perhaps most important, supply chain management at Eclipse is focused on managing the company's capital assets. "We are going to have a very high inventory turn rate," Bonder says. "So we look to suppliers for predictability in on-time delivery and velocity to tightly manage inventory and make sure product is moving."
Much of the supply base was already in place when Bonder joined Eclipse. A cross functional team of people with years of experience in the aviation industry and close relationships with key suppliers made the initial selections. For suppliers chosen more recently, the supply chain managers use a strategic sourcing process that also calls for a cross functional team to evaluate and identify potential sources. The team, which consists of individuals from engineering, supply chain, quality and program management groups within Eclipse use rigorous criteria that ensure suppliers are a good fit with the company's corporate objectives. The criteria include financial viability, required quality certifications and systems and proven business practices that are results oriented.
With his high-tech background, Bonder makes comparisons of the production of very light jet aircraft at Eclipse to that of a personal computer, clarifying that the company is an integrator, not a manufacturer. Eclipse purchases most of the components that go into assembling, testing and shipping its product. "Every major piece of the plane is tied to a key relationship," he says.
The company's biggest buys are engines, which come fully assembled from the supplier (Pratt & Whitney Canada) and are outfitted by Eclipse, and the planes' wings, which are built and outfitted by Fuji Heavy Industries. Other large components of the annual spend include systems and avionics.
Suppliers have been involved in product development from the beginning, with some closely collaborating with Eclipse on design of the jet resulting in a better designed airplane in terms of quality, cost and time-to-market. Bonder refers to these suppliers as key partners and points to Pratt as an example. "Design of both the plane and the engine are extremely tightly managed by both Pratt and Eclipse," he says.
Production ramp
Bonder and his team expect to face their biggest challenge in the months ahead. "It's going to be dramatically different," he says. "We are going from establishing an entirely new supply base and not producing any planes to producing two a day, then four, quickly and we will sustain that year over year which is unheard of in the aviation industry." His concerns are making sure that suppliers are doing the right activities not only to support initial production but also that they are making the right investments internally to sustain a very steep ramp moving forward over the next few years.
Bonder believes that Eclipse has developed "a very solid" cross-functional supply chain team that extends past the four walls of the company's facility in Albuquerque to its supplier base. "We are starting to develop some best practices internally to get ready for production that will provide us with a competitive advantage, in terms of having an effective supply chain that delivers results," he says. One is developed partnerships with key suppliers such as Pratt and Fuji that they can leverage for years to come. "They are going to help us be successful," he says. Pratt & Whitney Canada, for one, is making necessary changes in its production process to reduce the time it takes to build its engines destined for Eclipse from 48 hours to eight hours.
Another best practice is streamlining the extended supply chain. Among issues Bonder and his team are studying are the company's needs at the factory in Albuquerque, its needs regarding components in transit and the inventory suppliers have at their sites whether located in North America or Asia. Taking it a step further, Bonder and his team look to Eclipse's subtier suppliers to determine what they are doing, in turn, to manage their own suppliers.
Although Eclipse has not yet delivered a plane to its first customer, the company has implemented Lean manufacturing processes throughout its operation. "It's the only way to get to the volume that we plan to deliver," says Bonder. The first few jets are going to take the company 30-60 days to build. In time, it will only take about five days
"Eclipse has considered everything from the way the plane is designed to its assembly with an eye toward high-volume production," he says. "Even going forward, we are looking at ways to constantly improve the layout of the factory, future designs and changes that will help us build reliable products as efficiently as possible."
Purchasing learned at press time that Eclipse is pushing back FAA certification date due to production-process problems with one supplier. Click here for a detailed report on the delay.
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