Presentation Aerospace Forging

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A forging supplier strategy focusing on consolidation and diversification of offerings to address the turbulences in the aerospace industry

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Presentation Aerospace Forging

  1. 1. A forging supplier strategy focusing on consolidation and diversification of offerings to address the turbulences in the aerospace industry Rémy LORIOZ
  2. 2. TABLE OF CONTENT Introduction The Forging Industry A Strategy to Face the Downturn Conclusion 1 2 3 4 5 Supplying the Aerospace Industry
  3. 3. Study environment Industry <ul><li>The Forging Industry </li></ul>Sales 2008 <ul><li>$70,840,007 Up 18% from 2007 </li></ul><ul><li>95+% Aerospace </li></ul>Markets The XXX Group at a Glance Employees <ul><li>Approximately 180 </li></ul>
  4. 4. Study environment LOCATION <ul><li>XXX, XXX, U.S.A. </li></ul>The XXX Group at a Glance
  5. 5. TABLE OF CONTENT Introduction The Forging Industry A Strategy to Face the Downturn Conclusion 1 2 3 4 5 Supplying the Aerospace Industry
  6. 6. Vertical Relationship in the Aerospace Industry Structure of the Supply Chain Row material Assembly Engine Avionics & equipment Airframe Various parts and components Supply-type Supplying Specialization-type Supplying Prime integrator Tier 1 Supplier Tier 2 Supplier Tier 3 Supplier
  7. 7. Vertical Relationship in the Aerospace Industry XXX’s Position in the Supply Chain <ul><li>Definition </li></ul><ul><li>Effect on XXX </li></ul><ul><li>Value gain </li></ul><ul><li>Consolidation trend </li></ul>The Machining Issue Prime Integrator 1 : Boeing Tier 1 Supplier : Rolls-Royce Tier 2 Supplier : Machining XXX Prime Integrator 2 : Sikorsky Prime Integrator 3 : Bombardier : Orders : Parts
  8. 8. Vertical Relationship in the Aerospace Industry Value Chain Integration <ul><li>Speed to market </li></ul><ul><li>Collaboration </li></ul><ul><li>Rapid Innovation </li></ul>Advantages
  9. 9. Vertical Relationship in the Aerospace Industry Globalization of the supply chain Globalization Forces XXX’s Limited Risk Exposure <ul><li>Overcapacities of production in highly industrialized countries </li></ul><ul><li>Significant advantages of labor costs on less industrialized countries </li></ul><ul><li>Availability of worldwide information networks that connect firms information systems </li></ul><ul><li>The emergence of extended markets areas </li></ul><ul><li>Very low to low volume </li></ul><ul><li>High flexibility </li></ul><ul><li>Ability to forge a high number of different alloys </li></ul><ul><li>High quality aerospace forgings </li></ul><ul><li>International Traffic in Arms Regulation (ITAR) </li></ul>
  10. 10. Internationalization of Horizontal Relationships <ul><li>1960s: From the old piston engine to the jet engine </li></ul><ul><li>1985s: New materials (Ultralight alloys, carbon fiber), new propulsion system with high by-pass ratio, massive use of electronics. </li></ul>Two revolutions <ul><li>Technological Barrier </li></ul><ul><li>Financial Barrier </li></ul><ul><li>Market Barrier </li></ul>Three Barriers <ul><li>Internationalization </li></ul><ul><ul><li>F-22 </li></ul></ul><ul><ul><li>U.S. Tanker Fleet </li></ul></ul><ul><li>Supply Chain Structure </li></ul><ul><li>Value Chain Integration </li></ul>Several Consequences
  11. 11. Internationalization of Horizontal Relationships Mergers and Acquisitions <ul><li>Lack of leverage </li></ul><ul><li>Regulators </li></ul>Low activity ahead 2008 Turnover : EADS $62,7 billions The Boeing company $60.9 billions Lockheed Martin $42.7 billions BAE Systems $30.5 billions Northrop Grumman $33.9 billions Raytheon $23.2 billions
  12. 12. Cyclical behavior of civil aerospace markets Airline Business Model <ul><li>Business class </li></ul><ul><li>Load factor </li></ul>Profit contradiction <ul><li>Manufacturing delay </li></ul><ul><li>Time of recognition of over capacity </li></ul>Double Delay Structure
  13. 13. Cyclical behavior of civil aerospace markets XXX’s sales variation and market demand <ul><li>Both civil and military; opposite trend. XXX’s sales affected. </li></ul>Cyclical Behavior
  14. 14. TABLE OF CONTENT Introduction The Forging Industry A Strategy to Face the Downturn Conclusion 1 2 3 4 5 Supplying the Aerospace Industry
  15. 15. Industry Processes Impression Die Forging The forging advantage Dies Impact Part
  16. 16. Market Overview Markets served <ul><li>Automotive: high to very high volume. </li></ul><ul><li>Aerospace: very low to medium volume </li></ul><ul><li>Other: various industries, oil, nuclear, boiler etc… </li></ul>Markets Info
  17. 17. Market Overview Market share Customers 140 customers; 100-110 are repeat customers that places orders on a consistent basis. 5 customers represent 65% of the sales, when combining direct and sub-tier level: #1 – Rolls-Royce #2 – Sikorsky Helicopter #3 – Bell Helicopter #4 – Goodrich Landing Gear #5 – Alloy Specialties (Honeywell)
  18. 18. TABLE OF CONTENT Introduction The Forging Industry A Strategy to Face the Downturn Conclusion 1 2 3 4 5 Supplying the Aerospace Industry
  19. 19. The Economic Downturn Background Information <ul><li>Undervaluation of the risk </li></ul><ul><li>A blurred financial system </li></ul><ul><li>Financial Innovation and Globalization </li></ul>Main factors Effects on the Industry Less Credit Less Orders Production adjustments XXX’ sales drop <ul><li>Fewer financing possibilities for aircraft acquisition. </li></ul><ul><li>Fewer orders, orders cancellation, orders delay </li></ul><ul><li>Prime integrators adjust their production schedule </li></ul><ul><li>Effects of the crisis on XXX </li></ul>
  20. 20. Issues Summary <ul><li>Industry Cycles </li></ul><ul><li>Globalization risk </li></ul><ul><li>Value Chain integration </li></ul><ul><li>Fewer prospects </li></ul><ul><li>Globalization of customers supply base </li></ul><ul><li>Economic crisis </li></ul><ul><li>High Cost of dies </li></ul><ul><li>Consolidation of the supply base </li></ul><ul><li>Less forgings in new aircrafts </li></ul>Aero Industry Economy Markets Forging Industry
  21. 21. XXX’s SWOT Analysis THREATS Potential customers will choose other providers Incomplete quotations will result in prospects selecting competition (not able to quote all nickel work) Utility costs (natural gas continues to rise) Regressive pricing Customer are looking for suppliers who can deliver product quicker than today. Low-cost competitors New global forgers entering US civil and military markets OPPORTUNITIES Use access to high level decision makers in industry Develop press capability for superalloy rotating parts Add related services –i.e. machining Convert 1500T press into isothermal forging press Promote improved turn around time Promote better cycle time Asian markets – particularly China Aluminum forge products WEAKNESSES Limited awareness of XXX outside of small group of customers Image as a “typical” hammer operation Perceived lack of capability to forge nickel alloys Less forge product in XXX’s size is included in new product Poor IT Systems Older equipment in ageing facility Significant reliance on aerospace industry – 95%+ Limited aluminum forge heating capability Overall forge size capability STRENGHT High recognition in most aircraft primes and subs High customer retention High regard for historic technical capability (titanium) Wide range of materials, forge methods, and manufacturing capability In-house capability of supporting operations Low utilization of equipment (available capacity) 5-yr. bargaining agreement Customer LTA’s on several growth programs 2D/3D simulation capability
  22. 22. Strategy’s Proposal - Consolidation Keep and Seek Benefits <ul><li>Strong competitive advantage </li></ul><ul><li>Huge dies inventory </li></ul><ul><li>Low Costs </li></ul><ul><li>Program targeting </li></ul><ul><li>Customer targeting </li></ul>Risks Involved <ul><li>Being barred from new programs </li></ul><ul><li>Miss new opportunities </li></ul><ul><li>Can not be the only strategic item </li></ul>Use the die inventory to target active programs and customers and gain competitive advantage while lowering tooling costs.
  23. 23. Strategy’s Proposal - Consolidation Enter the Aftermarket DIE CUSTOMER 1 SUB-ASSEMBLY PROGRAM 1 CUSTOMER 2 CUSTOMER 3 CUSTOMER 4 CUSTOMER 5 PROGRAM 2 PROGRAM 5 PROGRAM 4 PROGRAM 3 ASSEMBLY ASSEMBLY End-User 1 End-User 2 End-User 3 End-User 4 End-User 5 End-User 6 XXX Tier 3 Supplier TIER 2 SUPPLIER TIER 1 SUPPLIER AEROSPACE SUPPLY CHAIN – XXX’S OPPORTUNITY PRIME INTEGRATOR AFTERMARKET
  24. 24. Strategy’s Proposal - Diversification Service provider ? Raw material supplier XXX Tiers 2 Tiers 1 Prime End-User Finished product Raw Forging Finished machined part Finished sub-assembly Finished aircraft : Sale
  25. 25. ? Any Questions? ? ?

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