Is It Time for Aerospace to Get Unapologetically Hard-Nosed About Quality?

Leap or get left behind

Published: Thursday, May 10, 2018 - 11:01

Boeing is demanding its suppliers reduce their prices by 10 percent, according to a February 2018 article published in Bloomberg Businessweek. It’s a hard pill for many to swallow, given that that these cuts are on top of the roughly 15-percent cuts demanded in 2012, when the company launched its Partnering for Success program.

Boeing programs like the Dreamliner ran into massive cost overruns due to delayed delivery and poor-quality components produced by its suppliers. This led the aerospace giant to compensate by demanding price decreases and improved quality from its suppliers.

The pressure has many aerospace suppliers wondering how they can remain profitable, especially as original equipment manufacturers (OEMs) also look to expand their own aftermarket maintenance and repair services.

So, what’s the answer for aerospace suppliers? The math is simple: Reduce quality costs—a huge and unnecessary profit sink—by investing in high-leverage strategies that build operational excellence and a culture of quality.

Pricing pressure is going up

There’s no question that pricing pressure has had an impact on aerospace suppliers’ profits in recent years. It’s not just Boeing, either. European defense giant Airbus is also flexing its muscle with suppliers, even as it ramps up production rates and quality requirements.

Company leadership has said that 100-percent on-time delivery and quality are minimum expectations for suppliers, not just hypothetical goals. Across the board, aerospace OEMs have made it clear that suppliers that expect to win contracts must be willing to work within the new terms—and deliver faster and better than ever before.

Although this new approach is ruffling feathers throughout the industry, the strategy has largely been successful for OEMs. In fact, according to Bloomberg, Boeing’s share price has doubled since the beginning of 2017.

The key takeaway? Don’t expect to see policies like these go away anytime soon.

The impact of quality on profits

Companies focused on operational excellence have long known that quality directly affects profits. And it’s not just direct losses like scrap and warranty costs—there are also hidden costs around diminished productivity, inefficiency, and loss of brand value.

ASQ has pointed out that while companies typically estimate quality losses at 10 percent of revenue, the actual cost can total far more. Even a conservative estimation would put quality-related losses of at least $1 million for a company with $10 million in revenue.

Conversely, in a recent Forbes survey of 1,800 senior executives and quality professionals, nearly half reported that improved quality efforts have increased profits. The survey also showed that companies making meaningful investments in continuous improvement and operational excellence enjoy higher profits, both through increased sales and efficiency.

Although the Forbes results are encouraging, it’s obvious that not all companies have evolved to where they should be. Many manufacturers still have big strides to make, but it won’t happen until they recognize quality as an investment rather than a net cost.

Improving aerospace quality: A high-level perspective

The Forbes survey highlighted several key gaps and strategies for the other half of companies aiming to get up to speed market leaders:
• Process modernization: Time spent on putting out quality fires is growing, representing huge productivity losses. Outdated processes are slowing many companies down, compared with those investing in digital transformation, which are seeing faster reporting and improvements.
• Monitoring and measurement: The survey showed that less than 25 percent of companies have well-developed quality metrics. Other studies have shown that 2 in 3 companies don’t even track cost of quality, a key operational metric. Clearly, you can’t manage what you don’t measure in the first place.
• Quality culture: Successful quality initiatives require a culture of communication and collaboration. The reason is that to harness your team’s combined brainpower and creativity, everyone must feel comfortable contributing their ideas—and their criticism.

Quality often doesn’t get enough attention due to the push and pull between quality and production, but mature organizations reject this as a false choice. Quality isn’t just the job of a single department, nor are defects treated as an unfortunate byproduct of hitting production targets.

It’s about finding solutions that boost both quality and efficiency, like lean initiatives or electronic layered process audits for checking high-risk processes frequently. As for our original question of whether now is the time to act on quality? Clearly the answer is yes. The real question is which companies are willing to make the leap.

First published on the Beacon Quality blog.

About The Author

Grant Nadell

Grant Nadell is vice president of sales and services at Ease Inc.. Highly skilled and experienced in leadership, big data, and IT security, Nadell has led sales and implementation of 300+ highly successful enterprise technology projects. Nadell has also evangelized, envisioned, assessed, designed, consulted, implemented, and managed 300+ medium-to-enterprise sized commercial and government client security, big data and virtualization IT projects.