Aerogistics : Creating value in the Aerospace Supply Chain

WHAT IS CLUSTERING?

Intense competition in the global marketplace is forcing organizations to consider new practices by which they could enhance and sustain their competitive capabilities. Clustering is one such option through which an organization can leverage its resources to compete effectively against competitors. All companies are part of a cluster to some extent in that all companies form relationships with suppliers, buyers and competitors. It is only the extent of the operational alignment, interdependency and systems integration that determines the formalisation of a cooperative cluster.

Future competition will be between clusters of interrelated organisations that add and generate value through cooperation. This type of interactive arrangement enables companies to realise their goals by co-operating instead of competing.

The Japanese have a widely quoted phrase for such relationships – kyoryoku shi nagara kyosa - which translates to ‘co-operating while competing’.

Partnership and cooperation between firms is becoming common practice and also a means of competition for small companies. Often SME’s are limited in their range of product offering and they consequently tend to cluster their capacities and capabilities in order to achieve mutual synergy. Small companies are renowned for their flexibility due to their infrastructure and resources.

Clustering has the advantage over capital investment and growth in that it allows companies to expand on their product offering and achieve economies of scale, whilst maintaining their flexibility. This enables SME’s to compete effectively in divergent and often larger markets, which is made possible through collaborative strategies such as work package management, research and development, information technology and marketing.

STRATEGIC CLUSTERING Vs
TACTICAL CLUSTERING

Companies that collaborate as a focused alliance of multi-commodity suppliers are defined as ‘Strategic Clusters’. They align business strategies, processes and systems to maintain competitiveness.

The term ‘Tactical Clusters’ is used to describe the sub-group of companies within a strategic cluster that are either joint bidding or project managing a particular work package. A company may only be part operate within one strategic cluster but may be part of several tactical clusters.

WHAT ARE THE DRIVERS FOR CLUSTERING?

The six main driving forces from the external environment that have lead to an increasing formation of cluster networks:

	Turbulence in world markets and high economy.
	Existence of economies of scale / scope as competitive cost reducing agents.
	Globalization or regionalisation of a growing number of industries.
	Globalization of technology.
	Fast technological change leading to ever increasing investment requirements.
	Shortening product life cycles.

WHAT ARE THE BENEFITS OF CLUSTERING?

	Greater presence in the marketplace and access to wider market opportunities.
	Better chance of securing larger contracts.
	Cost-effective sharing and pooling of resources – production capabilities can be expanded and resource utilisation increased, thereby improving efficiency without placing excessive strains on capital reserves. The ability to call upon more extensive production capabilities allows individual companies or the cluster as a whole to quote for a wide range of contracts.
	Sharing appropriate business development and running costs.
	Sharing market intelligence and ideas.
	Greater marketing image can be accomplished without sacrificing company individuality.
	Increased access to financial support.
	Guidance from more experienced companies.
	More substantial profile in financial markets.
	Lower vulnerability during the formative years.
	Aggregation of purchasing costs – economies of scale.

CLUSTER DESIGN

Supply chains can be either market responsive or physically efficient depending upon its design in terms of resource strategy, inventory strategy, information sharing and overall objectives.

The aftermarket is characterised by variation in demand and short lead-times and should be manufactured through a responsive supply chain that has extra capacity, capability of market information processing and that is more flexible. However, functional products, which are characterised by steady demand pattern, high volumes and long product life cycles, should be processed through a physically efficient supply chain.

Click here for Enlarged version of Clusterning Table

A central theme underlying the concept of clustering is the tension between what are deemed as the alternative strategies of ‘lean’ and ‘agile’. Agile companies are capable of operating profitably in a customer environment of continually changing customer opportunities. This could be seen as mutually exclusive to the concept of ‘lean’.

However, when deconstructed the lean and agile paradigms are not as different as they appear. Firstly, they share the same requirements for use of market knowledge, an integrated supply chain and lead-time compression. Furthermore, they share the same policy and process decisions.

The key difference is the way in which these process and policy decisions are employed, which is related to the differing demand patterns associated with each paradigm.

In the agile paradigm, demand is relatively uncertain both in volume and variety, which requires flexible planning and manufacturing processes whose capabilities are aimed at responsiveness.

In the lean paradigm, where demand is assumed to be relatively more predictable, level scheduling and frozen production periods are used to help direct manufacturing processes to quality and production imperatives.

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