APMEN spoke with Charles Chong, president of the Association of Aerospace Industries (Singapore) of AAIS and Soh Chee Siong, CEO of JEP Precision Engineering to chart the path of a contract manufacturer aspiring to enter the aerospace market.
APMEN: What are the main issues to consider for a contract manufacturer who is thinking of becoming a tier 2/3 supplier for the aerospace industry?
Charles Chong (CC): OEMs and tier 1 primes rely heavily on suppliers to provide materials, products and services, which deliver quality and value at the most competitive rates. Quality and safety are key cornerstones of the aerospace and aviation industry. Contract manufacturers who are thinking of becoming a tier 2/3 supplier needs to come equipped with robust and effective quality management systems.
Besides ISO, AS9100 (BS EN 9100) is the single common industry-recognised standard of quality and risk management for the aerospace industry. It is used and supported by the world’s leading aerospace organisations and throughout their supply chains. Depending on the diversity or focus of the businesses involved within, varying standards are required.
For distribution, the set-up shall need to have a quality system that conforms to AS9120. If the organisation is involved in providing special processes, they will then need to have a quality system that conforms to AS/EN9100 or is accredited to AC7004 (by PRI-Nadcap). For calibration suppliers, they will on the other hand need to have a quality system that conforms to A2LA, ISO 17025 (Guide 25) or other national certifying bodies. Having the right qualification standards will undeniably provide the catalyst needed to achieve a trade license for an organisation, but that alone will not guarantee business success.
In business and manufacturing operations, the organisation will need to have the financial resources, production capacity and other business resources needed to fulfill the tier 1/2 production needs and continuity of supply. In relation to technology assessment, the organisation also needs to be endowed with the much needed technical resources, including engineering resources, inspection and production equipment, facilities, computer-aided design capability and e-commerce capabilities.
Concerning down-tier supplier control, the organisation needs the finesse to ensure that their down-tier management processes are effective and efficient, and also to ensure that the products or services procured from these sources are of utmost quality and standard.
With the need for hefty financial investments in both hardware and software to build capacity and develop capability, the road to supplier qualification is long and may take years to reach the promised land.
APMEN: What are the challenges faced by contract manufacturers thinking of becoming a tier 2/3 supplier for the local (Singapore) aerospace industry?
CC: At the onset, it is evident that the local tier 2 and 3 organisations are facing an unprecedented challenge with a downsizing supplier market. The result of the competitive pressures at the OEM and tier 1 level greatly affects the fortunes of the down-tier aerospace organisations, as the trend is towards fewer direct relationships.
To remain competitive amidst growing global competition, OEM airframe manufacturers are compelled to move from a business model of various direct supplier relationships to one where they partner with fewer tier 1 systems integrators.
The tier 1 systems integrators in turn are following suit in order to reduce their investment risk and supply chain complexity, and are choosing fewer tier 2 and 3 organisations to do business with. As business is concentrated with these integrators, competition is fierce for available contracts.
The second key issue is the lack of development of tier 1 suppliers that are required to manage and integrate the efforts of tier 2 and tier 3 suppliers. This weakness at the tier 1 level is directly linked to the lack of investment in technology demonstrators, which provide the key mechanism for the development of system integration capabilities.
APMEN: What are the assistances that AAIS and/or the Singapore government provide them with?
CC: AAIS works closely with government agencies to facilitate financial assistance programmes aimed at helping SMEs in the aerospace industry upgrade their capability building initiatives. These include assistance for nascent recipients of the AS9100 certification, funding and sponsorships for participants of business missions and exhibitions in trade shows both local and overseas, as part of the Singapore delegation.
Administered by SPRING Singapore, the Capability Development Grant (CDG) is a financial assistance programme which assists SMEs to defray up to 70 percent of the qualifying project costs, in relation to consultancy, manpower, training, certification, upgrading productivity and developing business capabilities for process improvement, product development and market access.
The grant supports a wide range of capability upgrading initiatives that enable SMEs to successfully compete and grow their businesses both locally and globally. There are 10 supportable areas designed to meet an SME’s current needs and stages of development. They range from raising service standards, adopting technology innovation, and grooming business leaders to growing a global brand.
Concerning the area of enhancing quality and standards, it aims to adopt international or industry standards to improve processes, enhance quality of products and services, increase competitiveness and access new markets. The AS 9100 Certification on Quality Management System (Aerospace Industry) is an example of a certification supported by SPRING Singapore under the grant.
APMEN: What is the first practical step to take (eg: certifications, Environment, Health & Safety (EH&S) compliance, lean manufacturing, etc.) for a contract manufacturer who is thinking of becoming a tier 2/3 supplier for the aerospace industry?
Soh Chee Siong (SCS): The first practical step is to obtain AS9100 certification and to prepare for Nadcap courses if an organisation intends to get into the special process area, such as heat treatment and plating. These are the passports to the aerospace industry.
On top of these basic certifications, an organisation will have to start building on other key factors such as Health, Safety and Environment issues, including the Occupational Safety and Health Administration (OSHA), Six Sigma methodology root cause analysis and whether it has a good business continuity plan. These are some of the factors that an MNC will likely consider before they further explore business opportunities with an organisation.
APMEN: What is the qualifying process like in terms of time, effort and cost?
SCS: An organisation requires a lot of resources such as manpower, time and money. The qualifying process can be quite lengthy, varying from a few months to two years. Once an organisation is selected as a potential supplier, it will be given a small lot to prove its mettle known as the First Article.
At this stage, it needs resources to prepare the processes, programmes, inspection plan and all the tools & gauges to support the FA lot. For flight safety components, the organisation will have to go through stringent tests and qualifications before it is given the green light to proceed with production, even if the components manufactured have met all dimensions. Patience and stamina are required.
APMEN: Do you have any cautionary stories to share with our readers?
SCS: Concerning the foreign exchange rate, it is wise for an organisation in a long term agreement to negotiate for a clause to mitigate the risk of currency fluctuation.
For example, US$1 amounted to S$1.60 10 years ago, while it only amounts to S$1.25 today. In relation to material costs, particularly if costs are high, an organisation should consider a clause that would protect their interests should the vendor increase their costs midway through the contract.