Aviation market in Southeast Asia is one of the fastest growing in the world, and on course to become the world’s largest in the next 20 years. Fuelled by rapid economic growth and increasing popularity of low-cost carriers, there is increasing passenger traffic and aircraft demand– almost 40% of the global deliveries of new aircrafts (42,000 planes) will come from the Asia-Pacific region from 2018-2037, according to Boeing. The consequent need for maintenance as well as the technological upgrades of existing fleet is set to boost the role of Maintenance, Repair and Overhaul (MRO) services in assuring aircraft safety and airworthiness.
In this context, Singapore has established itself as one of the world’s leading and Asia’s largest MRO hubs, and is already recognised as the “Aerospace City of the Future”. The MRO sector in Singapore is growing at a healthy 8.6%, accounting for over 25% of Asia’s MRO revenues and up to 10% of the global output.
Major aerospace leaders such as Rolls Royce and Airbus have a long-term and significant footprint in Singapore. Local heavyweights such as SIA Engineering Company and ST Engineering (world’s largest MRO provider) continue to expand their operations. With over 130 aerospace players operating in the market, Singapore hosts a large and diverse ecosystem which caters to engines, components and avionics for comprehensive nose-to-tail services.
Rolls-Royce carries out activities such as engine assembly and testing, training and R&D, as well as manufacturing of the company’s titanium wide-chord fan blade in Singapore. Singapore is one of two Pratt & Whitney facilities in the world to manufacture hybrid metallic fan blades for the Geared Turbofan (GTF) family of engines. GE Aviation is set to invest $42m in a new facility at Seletar Aerospace Park (a 790-acre space which hosts a dedicated cluster of aerospace activities) to manufacture high pressure compressor vanes for the GE9X engine. The GE9X engine is the only one used to power Boeing’s 777x aircraft, which is expected to enter service in 2020.
Of late, Singapore’s market dominance is facing a threat by neighbouring upstarts such as Thailand, Malaysia and the Philippines. However, they are competing mostly on low labour costs. Singapore boasts of a very efficient workforce that produces high quality work, helping to offset the higher labour cost.
The overall MRO cost in Singapore is very competitive due to other factors such as efficient customs as well as excellent connectivity and infrastructure. The high concentration of aerospace industry players means that the domestic market is extensively layered with key support sectors to absorb subcontracting works.
Moreover, the Singaporean MRO industry is based on a solid foundation of forward-looking policy support, cutting edge research and innovation, and a home-grown talent pool – competencies which are clearly lacking in other countries. The government introduced the Aerospace Industry Transformation Map (ITM) in January 2018, which aims to boost the aerospace industry by $4b and generate around 1,000 new jobs by 2020 through operational excellence, innovation in emerging technologies and skill development. These efforts are visible through the latest developments.
Rolls-Royce, SIA Engineering and the Singapore government have invested up to $60m in a joint laboratory to work on advanced manufacturing technologies involving 3D printing and robotic solutions. ST Aerospace is deploying data analytics to bring new solutions like predictive maintenance and inventory processes to their customers.
The company is also using drones for improved aerial aircraft inspection and fabricating spare parts through additive manufacturing methods for better cost and time efficiencies. The government has also introduced programs such as Skills Framework for Aerospace and the SkillsFuture Enhanced Internship Initiatives to equip Singaporeans with relevant skills in the aerospace industry.
Create a winning aftermarket model
Now that the prospects of Singapore as a MRO hub are evidently clear, the question becomes: Is your aftermarket model ready to reap these benefits? Is it driven by best practices, or is it merely an extension of your production supply chain?
For aftermarket supply chain to deliver its services effectively and profitably, it is important to understand how the challenges in aftermarket supply chain are different from those in production supply chain. These differences range from management of service supply networks and reverse logistics, to demand patterns and planning requirements for large volume of parts at all stages of the product life cycle. As such, there are key factors that need to be paid close attention to –
This starts with determining the products to be supported and creating a service products portfolio that maps demand and profitability. The second step is to establish relevant business models for supporting each service product, and restructuring after-sales operations to create incentives for delivering exceptional service. Once completed, organisations can leverage state of the art solutions for designing effective service networks, analysing profitability of service offerings and inventory planning to achieve their service objectives.
Service agreements focus on uptime and availability, critical factors for end customers. Customers are increasingly opting for performance or outcome-based contracts, which peg the service provider’s revenues with specific performance metrics. The customers pay only for the outcomes and not for the activities or tasks. Implementing such strategies requires a customer-oriented planning system, which can deliver value for providers through higher revenue streams, and for customers through higher product availability.
Whilst ERP systems are effective for transactional control, aftermarket supply chain is based on analytics-based business processes which require flexible and dynamic control. Leading ERP providers are now extending their capabilities by allowing component-based solutions to be plugged-in to meet specific requirements of service business. Not only does that help integrate advanced capabilities that come from best-in-class solutions, but also allows organisations to increase the ROI of their ERP platforms.
For instance, increasingly available hosted applications for service oriented business platforms allow for faster implementation and fewer IT resources. Logistics is a standard function to be outsourced, whereas companies are even looking to outsource processes such as planning and sourcing. The idea is to invest as few resources as possible to achieve service objectives more quickly and at a lower risk.
E-commerce sales are rapidly capturing the traditional wholesale share. The industry is responding to these challenges by digitising its service offerings. This not only serves to provide better service, but also presents an opportunity to increase connectivity with end consumers. The generated data will drive deeper insights into customer behaviour and preferences, which organisations can utilise to fine-tune their operations, consolidate networks and boost margins.
Executives should understand the importance of linking services with other functions such as product design, development, sourcing etc. For instance, Sales & Operations Planning (S&OP) is an integrated, cross-functional planning methodology which has traditionally being applicable for finished goods planning. Extending S&OP to service planning can provide increased visibility into the impact across services, marketing, design and manufacturing units. The need for integration extends beyond the four walls of the organisation as well, to promote collaboration and information sharing amongst the end-to-end supply chain players.
The aftermarket supply chain has long been an under tapped profit centre. Organisations are increasingly taking note of its importance in driving customer loyalty and boosting revenues for the next growth phase.
However, they will have to answer pertinent questions before they can do so. With responsiveness being a high cost function, what can organisations do to balance the complicated trade-off between cost-to-serve and service level? Do they have an effective logistics network to provide the required agility for rapid shipments of variable quantities? Are they struggling with deploying a skilled, competent workforce to execute their strategy on ground?
Once they have these basics right, organisations can focus on creating a robust and cross-functional model. By focusing on the specificities of service-oriented customer demands, they can then harness the rising tide of MRO services.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Frederic Gomer (MSc) is the managing partner & co-founder of B2G Consulting, an international supply chain management consulting firm engaged in supporting international clients in emerging and growing markets.
With his background as a global end to end supply chain management and transformation specialist, Frederic has extensive experience working in a range of industries including manufacturing, aerospace, retail, pharmaceutical, heavy industries & oil & gas. His areas of expertise include providing companies with guidance in improvement of their global supply chain operations and strategy.
Frederic started his career in engineering and has more than 17 years in consulting experience, he is a regular contributor to supply chain publications and a speaker at regional and global seminars & conferences. He obtained his Master degree (MSc) in Material Science & Process Engineering from INPG – Grenoble Institute of Technology (Institut National Polytechnique de Grenoble) in France.