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Suppliers Are Not Your Bank, and Boeing Is Not Your Friend

May 9, 2019
Paul Ericksen, IndustryWeek's supply management advisor, shares his take on the week's news.

There were three supply chain articles of note last week that if you haven’t read, I recommend reading.

Three Ways Supply Chain Finance Can Fund the Future posits that strategic payment terms with suppliers can improve cash flow. The author’s background, not surprisingly, is in capital finance, and from that perspective he makes a good argument.

Commenter Toppers is not of the same mind, however, writing that “Mr, Roberts, a company's supplier is not your bank!  The SCF practice is a trick equivalent to theft and has destroyed our relationships with some of our long-time multinational customers.” 

A couple of additional points here. The article says the “buyers free up cash that would otherwise be trapped in the supply chain.” That’s like saying that when you buy groceries, the money you pay for them is trapped in the store. I wonder how stores would react if we told them we were going to extend payment terms.

The article also states that “suppliers can accelerate their own cash flow through access to early payment.” The rub is that in order to get paid per the previous payment terms, the supplier must accept a discount on price.

Top Boeing 737 Max Supplier Rushes to Answer Production U-Turn reports that Spirit AeroSystems, which is Boeing’s largest 737 Max supplier, is scrambling to shore itself up after cuts in production due to the fallout from the Lion Air crash.

It is not uncommon for an OEM to sharply reduce schedules when demand doesn’t materialize in the market. Stopping production completely, as in the case of the 737 Max, is an extreme case of this phenomenon. While this has a negative financial impact on the OEM, the supply chain suffers even greater damage to its financials. This is sometimes called the Bullwhip Effect, since the initial action of the person holding the whip handle becomes several magnitudes greater at the tail of the whip. You can be assured in the case of the Boeing 737 production shutdown that it just isn’t Spirit Aero that is reeling from the impact.

Read more Supply Chain Initiative columns by Paul Ericksen

Manufacturing at most airline producers is pretty much assembly. This means that most of what is assembled into an airplane experiences the Bullwhip Effect when production is dramatically reduced or stopped altogether. That can’t be good, can it?

They won’t go “on record,” but the Boeing suppliers I’ve talked to say their relationship with Boeing supply management is one of edict and confrontation.

Boeing's Blunders, and What We Can Learn from Them, by author and Miller Ingenuity CEO Steven Blue, probably does the best job of all the articles I’ve read on the Boeing 737 Max crashes of outlining the possible—probable?—causes. If you have an interest in leadership, you need to read this article. A couple of nuggets include:

“But Boeing claims to value safety and integrity. Boeing even has a policy called “speak up” that ostensibly creates an environment “where employees are comfortable raising concerns without fear of retaliation.” If that were true, why would whistleblowers even be necessary?”

“The CEO sets the stage for how the whole organization behaves. And if he mandates profit above all else, as that mandate moves down the organization, it gets worse.”

“If you are the CEO, get down in the trenches and talk to the people that have concerns about your mandates.”

“Always remember that people will behave the way they are measured and compensated.”

Anyway, in my mind, a very interesting read.

Paul Ericksen is IndustryWeek’s supply chain advisor. He has 38 years of experience in industry, primarily in supply management at two large original equipment manufacturers. 

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