Think the days of the Bullwhip effect are over? Not at all. Here is a telling example from Russian aircraft manufacturing. As UAC tries to ramp up production of the SSJ 100 passenger jet, its engine supplier is struggling:
“We are facing difficulties with the supply chain. We need to fight every day [against Airbus and Boeing] to get priority,” PowerJet CEO Jacques Desclaux said, speaking at the ERA General Assembly in Dublin.
Desclaux explains that when Airbus and Boeing order 500-1,000 components, PowerJet struggles to secure slots for 100-500 parts. “It really is a challenge. There are not a lot of certified suppliers, so the choice is quite limited. The only thing we can do is to anticipate and place orders which are larger than we need,” he said.
There are two aspects to this situation. One is that PowerJet is willing to keep extra inventory and lock the capital, just to avoid production downtime (and probably associated penalties for missed deliveries). It is probably justifiable in the current situation, but as the production ramps up, this clearly needs to change.
The other is that inflated orders do not help the supplier either. Working on an inflated order from UAC, the supplier may be starving other customers, who may in turn inflate their orders next time. It is easy to see this spinning out of control. Who has to take the first step in this situation? Is it the supplier, or customers?