Robust supply chain design with suppliers as system integrators: an aerospace case study

Original Equipment Manufacturers (OEMs) have sought new supply chain paradigms that allowed them to focus on core activities, i.e. overall product design and commercialisation. This pursuit led to partnerships with a new generation of tier-1 strategic suppliers acting as integrators. Integrators are not only responsible for system supply, but also for system design. However, critical integrators were not able to live up to their new roles, which led to costly delays in development and production. These failures highlight the ineptitude of current risk management practices employed by OEMs. To support OEMs in implementing a more differentiated and suitable approach to the use of integrators, this paper proposes a mathematical programming model for Supply Chain Design (SCD). Instead of looking at the introduction of integrators as a dichotomous decision, the model suggests the optimal number of integrators, i.e. systems, and individual part suppliers. We propose new measures for integration risk, which build upon current risk assessment practices. Robust optimisation is used to study the effect of uncertainty over baseline risk values. All approaches were tested using both randomly generated instances and real data from a large European OEM in the aerospace industry.