Single-Source Procurement Considerations for Aerospace & Defense OEMs: Pros and Cons

By Scott Anderson on 19 December, 2018

 

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Original equipment manufacturers (OEMs) in the aerospace and military defense industries rely on efficient integration of many different parts with little margin for error. As a result, effective aerospace and military manufacturing relies heavily on maintaining good business relationships between different buyers and suppliers on the production chain.

OEM suppliers must build parts both quickly and in accordance with a long list of precise specifications. As such, military and aerospace manufacturers are increasingly outsourcing their supply chain to focus on their core competencies. However, single-source procurement comes with its share of risks. In this article, we explore the concept of single-source procurement and its strengths and weaknesses in meeting the needs of complex industries.

What is Single-Source Procurement?

OEMs use single-source procurement to develop a business relationship with a single source of materials and supplies. In this way, manufacturers return to trusted suppliers year after year instead having to choose between a range of competitors at each step of the procurement process.

Single-source procurement differs from sole-source procurement, a rarer circumstance, where there is only one unique supplier of necessary materials. Sole-source procurement essentially forces an institution to buy from one source because the source has no competitors — whereas single-source procurement can involve multiple manufacturers that OEMs select for their products.

On the surface, it would seem that single-source procurement may increase production costs and decrease product quality. Many economists argue that increasing competition ensures greater product quality for the lowest possible prices, in contrast with single-source suppliers acting as a one-stop shop for their clients’ needs. However, highly complex industries rely on developing inter-business trust and creating well-defined expectations for its suppliers to follow, rendering single-source procurement the preferred method of acquiring materials for their facilities.

Single-Source Procurement Pros

OEMs create unique, complex products that require a high degree of accuracy and specificity. Implementing single-source procurement practices enables OEMs to develop strong, long-term relationships with suppliers that have developed years of experience tailoring their parts to the OEM’s specifications. 

As the supplier’s success relies on the success of the OEM, suppliers are also invested in making their products competitive on the world stage. Single-source procurement reduces administrative costs and improves product quality as both partners understand what the other one requires. OEMs will also see these additional benefits:

  • Lower customer overhead
  • Elimination of supplier-to-supplier variation, resulting in lower quality costs
  • Higher product volume, allowing suppliers and customers to reduce material, labor, and overhead costs by realizing increased economies of scale.
  • The ability to invest in customer-centric technology and processes that otherwise may be cost-prohibitive.
  • Fewer resources spent supporting multiple suppliers.
  • Tighter relationships and increased knowledge and experience
  • Lower cost structure allowing the supplier to take on more complex, value-added work

Single-Source Procurement Cons

Despite its benefits, OEMs must consider a few important factors before adopting a comprehensive single-source procurement strategy:

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Single Sourcing in the Aerospace Industry

Aerospace industry manufacturers value single-source procurement for its ability to manage risk from complacency. As airplanes consist of a wide variety of complex materials, from engines and propellers to HVAC systems and mechanized seats, working with a trusted single-source supplier ensures that aerospace manufacturers can spend less time integrating different parts and minimize variations within the product.

Working with trusted single-source suppliers also allows aerospace manufacturers to spend less resources on quality control and certification evaluation. Single-source suppliers also understand the component lifecycles in the context of the greater product, and working with the same set of people for all components of the plane will increase administrative efficiency.

Liberty Electronics - An Essential Supplier 

Liberty Electronics develops wire harnesses, electromechanical assemblies, and other electronic wiring assets that form crucial components of some of the most complex products in the aerospace, military, and nuclear industries. We possess Nadcap AC7121 accreditation and are registered by AS9100 and ISO-9001. Liberty Electronics has worked with major OEMs including Bombardier, Northrop Grumman, and Raytheon. 

If you would like to know more about how working with Liberty Electronics will benefit your product line, please contact us or subscribe to our newsletter today.

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Topics: Supply Chain Challenges, Operational Efficiency, Quality Control, Procurement, Cost Control, Aerospace, Defense

Author: Scott Anderson

Mr. Anderson joined Liberty Electronics as Manager of Engineering in July of 1999. In 2010 he was appointed Director of Business Development. He previously worked as a project engineer at Pratt and Whitney Aircraft and at Joy Mining Machinery. At Joy, Scott went on to manage international projects including quality improvement initiatives, computer system implementations, and new product development programs.
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