Some industrial companies produce millions of identical products each year and therefore don’t have to adjust the manufacturing process. Other companies, however, face a greater challenge: the creation of low-volume, high-complexity (LV/HC) products—those that are customized for each client and manufactured in relatively small quantities (anywhere between ten and 10,000 units annually).
LV/HC products are often very large—think of passenger airplanes, paper machines, forklifts, or construction cranes—and they are usually critical to a customer’s mission. Their prices are high, reflecting the cost of their components, the stringent quality requirements, the intricacies of customized production, and the need for sizable manufacturing facilities and specialized equipment. Labor costs may also be significant, because fewer tasks can be automated.1
While demand for LV/HC products has been steadily increasing for years, many sectors are now experiencing an unprecedented rise, partly because of a postpandemic rebound. To meet demand, aerospace OEMs—defined here as manufacturers of large aerospace equipment such as airframers; engine OEMs; and super Tier 1 suppliers—need a new approach to ramp-up. The same holds true for smaller Tier 1 and 2 component suppliers and raw material providers. These companies, as well as those in other LV/HC industries, might need to accelerate manufacturing to an unprecedented extent—and they might benefit from doing so quickly, if they want to seize the emerging opportunities.
We recently examined OEMs across industries to identify the best strategies for rapidly ramping up production in LV/HC environments. Within commercial aerospace, a sector that has arguably experienced the most pandemic-related disruption, these strategies could be critical to meeting soaring demand and reducing the huge backlog in orders for aircraft and engines.
Our analysis suggests that the most successful OEMs simultaneously focus on six critical areas: sales and operations planning, supply chain, inventory management, shop floor operations, talent, and change management. Other companies along the value chain, including raw material providers and suppliers, could also benefit from a similar focus. Experience shows that businesses that excel in all six areas have boosted production volume by about 10 percent and improved rework efficiency by about 40 percent.
Commercial aerospace: A typical LV/HC industry
To understand the extent of the demand increase for LV/HC products, consider commercial aerospace. The industry had been struggling to fill orders when COVID-19 disrupted travel and upended the market. The 2020 plunge in orders was temporary, however, and 2021 saw the onset of steady, incremental improvement. Although the quick recovery is welcome, it has also exacerbated one of the industry’s long-standing problems: a growing order backlog.
A look at a few aircraft models shows the extent of the challenge. For the Airbus A320 family, it would take about ten years for Airbus to make the approximately 7,200 aircraft that its customers have already commissioned (Exhibit 1). Boeing would also need about ten years to eliminate the backlog of about 4,800 orders for its 737 family of aircraft.
Increasing output would be a logical move, given current airline and customer demand, and most commercial-aerospace OEMs have already ramped up production significantly. According to one analysis, aircraft production is expected to rise significantly through 2029, followed by more moderate growth (Exhibit 2).
As with other LV/HC OEMs, many aerospace manufacturers may have difficulty achieving their future production goals because their workforce, infrastructure, and supplier networks are already being pushed to their limits. Even if OEMs want to hire more staff, long-standing labor shortages may hamper their efforts, especially for skilled jobs. Suppliers that want to ramp up their own production to meet OEM needs are also facing talent shortages. For all companies along the value chain, expanding facilities and buying more equipment may also be difficult, because inflation is raising capital expenses.
In a February 2023 article, our colleagues discussed how aerospace OEMs could scale manufacturing by improving certain activities, including throughput management and talent recruitment.2 The framework we recommend below covers similar ground but also includes additional strategies that may help all LV/HC companies.
A six-dimensional framework for scaling manufacturing
How can LV/HC companies scale manufacturing rapidly when their products have unique designs, with few common parts or modular components? And what infrastructure and investment are required to make the shift?
Better sales and operations planning despite persistent uncertainty
Forecasting LV/HC product demand is difficult because unexpected economic shifts have an outsize impact on orders. The customer base is small, so if a single account orders more or less than expected yet production scales up as planned, the impact of an inaccurate forecast will be magnified.
Furthermore, while the market has changed, some OEMs have not updated their long-standing demand- or capacity-planning strategies to account for new complicating factors, such as increased product complexity, extensive customization requests, a higher rate of supply chain disruptions, and increased maintenance demand for the same parts as aircraft life is extended. Their validation methodologies—the tools for assessing available capacity—are also inadequate or inaccurate for the current environment.
Lacking the insights required to direct production efficiently, OEMs spend much time reconfiguring production schedules. But they might be able to avoid rework by reinventing sales and operations planning across all business units and regions. These are the main changes:
- Along the entire value chain, both demand and capacity planning should be based on hard data and statistical analysis. Companies could focus on generating real insights on demand and capacity from multiple internal teams and external suppliers. It may take a lot of effort to fill the gaps and ensure that the data are both consistent and high quality. Planning teams may need to ask themselves where they really need more detail and insights, such as those areas with the most value at stake and the highest risk.
- Every plan could benefit from a resilience component to deal with potential disruptions, including workforce shortages, and provide business rules for the recommended response. The best plans include some predictions related to disruptions that might occur and potential responses. For instance, it may be difficult to determine whether production should be nearshored or whether excess inventory should be stored in certain locations if there is no visibility about where supply chain disruptions are most likely to occur. Every resilience strategy may also require some investment and analysis to determine if the risks are high enough to justify funding over time.
- OEMs might want to develop plans for all activities along the value chain, including material ordering and production line scheduling, and short- and long-term supplier requirements. Ideally, the planning recommendations will be consistent across documents, and relevant parts should be accessible to stakeholders across the value chain (for example, by making them available on the cloud).
Plans are only as good as the decisions they inform. They should be used regularly in the sales-and-operations-planning process and cascaded to the front line to inform operational decisions. Experience has also shown that OEMs benefit from consolidating all information in a master plan that contains all pertinent information based on real insights. The best master plans also document results, actions, and owners of all tasks, rather than leave them in separate databases. The improved planning and greater transparency can help everyone, from the leaders who no longer have to engage in frequent replanning to the production line employees who encounter fewer disruptions.
LV/HC product OEMs have traditionally been slow to automate planning. Today, that slowness is a liability: in light of the increased potential for disruption, using automation to expedite scenario planning and decision making is more crucial than ever.
Fewer disruptions and faster shipments along the global supply chain
The parts and components of an LV/HC product may come from internal groups, contractors, or suppliers within an increasingly global network. Supply chain disruptions are common, and the delay in the shipment of a single small component can have serious domino effects, especially if no alternatives are readily available. Too often, OEMs may not realize that disruption is imminent because they lack sufficient visibility regarding specialist suppliers that create complex, difficult-to-replicate parts or those suppliers with a history of underperformance. For instance, OEMs may not realize that a critical supplier has low stock levels until they place their orders.
Taking off: Scaling complex manufacturing in the aerospace industry
Asking suppliers to step up production—a seemingly simple request—may not be an option, because sales volumes are generally low, giving companies little leverage. Suppliers may also be wary about adding capacity because demand is volatile. And any shortages will only become more acute as OEMs try to increase production.
While OEMs don’t have direct control over output of parts and components, they can implement solutions to improve supplier management. Within commercial aerospace, for example, many tasks are still performed manually and do not adhere to standard operating procedures (SOPs). A shift to automation and greater attention to SOP guidelines might be particularly important for the following activities:
- Supplier performance tracking. Some OEMs have dashboards to calculate KPIs for each supplier, but not every group may enter performance data regularly or completely for important parameters, including adherence to technical requirements. If OEMs ensure that all teams closely communicate with critical suppliers and enter essential information, such as expected turnaround times for rework, they will get a clear view of performance that allows them to provide feedback and detect problems early. The dashboards might also enhance joint problem-solving sessions and allow suppliers to share information, such as the time required to ramp up machine capacity. In some cases, OEMs may grant suppliers access to parts of the dashboard, so they can enter information and acknowledge requests without an intermediary.
- Integrated finances. OEMs could integrate the databases for purchasing and accounts payable to expedite payments.
- Parts transparency. More OEMs could adopt systems for determining the exact location of critical parts during end-to-end production. These changes may help teams identify and potentially avoid shortages, minimizing disruption during production.3
- Better tracking for quality audits. OEMs might benefit from a central database that contains information about the quality of parts received from suppliers. While some OEMs already collect this information, it is not stored centrally, causing different teams to unnecessarily repeat quality audits when they cannot find the relevant information.
- Nonconformance. OEMs could codify information on common nonconformance issues, allowing them to sort through data more quickly and identify patterns that signal trouble. This transparency is often absent now, because so many groups are involved in production and they don’t always share information with one another. Again, a central database that tracks problems and solutions would help.
The right inventory in the right place
OEMs have basic rules for managing inventory, such as specifying that parts should be reordered once supply falls beneath a certain level. The guidelines, however, haven’t been updated to reflect current realities, including the increased frequency of supply chain disruptions and longer lead times.
In addition to updating the guidelines and creating new targets, OEMs can implement several possible solutions to reduce or eliminate inventory problems. In some cases, OEMs may benefit from redesigning their inventory “architecture”—how much stock is kept on hand. OEMs could also update inventory issues more carefully in real time and consider how shifts, such as a move from road transit to shipping, might affect transportation times.
Addressing continued turbulence: The commercial-aerospace supply chain
Better planning and execution can also contribute to success, especially since few OEMs have a stable order book and do not receive frequent change requests from customers. If OEMs can obtain more insights about their supply needs via end-to-end transparency, they can reduce safety stock buffers and improve material flow.
Closer relationships with external groups can be essential for better inventory management. With suppliers, including Tier 1 and beyond, OEMs could collaborate on improving vendor-managed inventory levels and enforce schedule adherence. They could also optimize order sizes, align delivery schedules, enforce quality requirements, and introduce regular reviews.
Efficient shop floors for every project
LV/HC product shop floors involve multiple specialized teams that work in different areas and may not have easy access to information from other groups. Adding to the complexity, production cannot be standardized across orders because of customization requests, especially for electronics and cabin features. With so many teams, and so many activities happening simultaneously, even the best managers may have difficulty pinpointing problems, including looming disruptions, parts shortages, and quality issues.
Some production glitches are inevitable, but OEMs can reduce their frequency through clear and consistent digital documentation that uses standard defect codes—a level of detail often absent today. To give their guidelines weight, OEMs could monitor production more closely and ensure that teams adhere to the established assembly timelines for critical activities. If teams appear to be falling behind, OEMs might mitigate delays by offering selective overtime shifts and being flexible about resource allocation—for instance, moving some employees from one production line to another. OEMs might also minimize disruptions by integrating into production additional checking and testing processes, such as automated visual inspections.
The most efficient shop floors have employees who are highly invested in their work and take ownership of it. OEMs may be able to promote the growth of these traits by creating and supporting autonomous, multifunctional teams that are free to prioritize tasks and allocate resources as they see fit. In addition to increasing efficiency, empowering teams in this way may increase employee satisfaction. Companies could also promote continual improvement by encouraging workers to propose process changes.
A strong and loyal workforce
Many LV/HC OEMs are struggling to manage labor shortages, and the problem could soon become worse. In aerospace and defense, for example, about one-third of employees are 55 or older.4 Talent retention is also tough for companies in this industry, with a 2022 McKinsey survey across industries revealing that 40 percent of employees then had planned to leave their jobs within the next three to six months.5
Since ramp-ups require a larger workforce, LV/HC OEMs might consider consolidating some corporate human-resources-related programs and activities, including analytics and IT, into a temporary talent “win room.” In addition to creating strategies for attracting and retaining employees, talent win rooms can help streamline the hiring process, which is sometimes more protracted in aerospace compared with other industries.
Other shifts that may improve recruitment and retention include the following:
- More rapid advancement options and a clear career path. Many workers, especially those in Gen Z, feel restricted if they remain in the same role for many years. Companies that create clear pathways for pursuing new opportunities and rapidly advancing may thus have an advantage. For instance, OEMs could create programs that allow shop floor workers to learn new skills or allow employees to rotate into other roles to test their interest in them.
- Clear KPIs. Employees appreciate KPIs that provide transparency about the skills needed to advance. Some employers may even want to allow employees to select some of their own KPIs.
- Flexible schedules and the option for hybrid work. With companies in many industries offering flexibility when it comes to work hours and location, aerospace companies may want to consider similar policies.
Steadfast progress through strong change management
Beyond tangible changes in production tasks, OEMs could address some cultural and organizational issues to help their ramp-ups succeed. One major focus involves increasing accountability. At present, managers may be uncertain about their responsibilities or task ownership, because the products and manufacturing processes are so complex.
To reduce such misunderstandings, OEMs could create multifunctional teams in which each member has clear roles and responsibilities. They can reinforce the importance of each role by creating clear performance metrics for each one. The new teams should operate autonomously and assume many of the decision-making responsibilities that senior leaders previously handled. Beyond eliminating some bureaucracy and giving teams a sense of ownership, the new approach might give senior leaders more time to concentrate on major strategic issues.
Of course, some production-related issues will always need to be escalated to senior leadership because of their potential impact. Companies should set clear guidelines that describe what merits escalation, when it should occur, and who must be involved.
Applying the lessons along the value chain
While our research primarily focused on OEMs, the findings are relevant to all companies along the value chain. OEM ramp-ups, in fact, can only occur if raw material providers and suppliers also increase production to meet increased demand—and that means both groups benefit from working together to achieve an efficient and effective ramp-up.
The same forces that interfere with ramp-ups at OEMs also affect suppliers—sometimes to an even greater degree. For instance, suppliers may have difficulty increasing their capital expenditures, because their margins are already thin and they often have fewer reserves than OEMs.
If suppliers follow the new approach to ramp-up, they may gain many of the same benefits that OEMs do. Talent recruitment, for instance, might be even more challenging for small, local suppliers than for global OEMs with large human resources departments. If suppliers adopt some new tactics for recruitment, such as providing more flexible schedules and clear career paths, they may increase their appeal to applicants. Similarly, better supply chain management may increase the odds that suppliers will receive raw materials and components in time to avoid production delays.
When it comes to product development, LV/HC OEMs, including those in commercial aerospace, prioritize innovation. They could also benefit by implementing new strategies for ramp-up that consider both their unique products and the intricacies of their markets, evolving product technologies, complicated supply networks, and customer expectations. Suppliers and other businesses also stand to gain by considering a new approach to ramp-up. And with LV/HC product demand expected to soar to even greater heights in multiple industries, the need for such strategies will soon become even more urgent along the entire value chain.
