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Vertical Integration In The Aerospace Industry

Thu Nov 07, 2019 1:25 pm

Leeham ( https://leehamnews.com/2019/11/05/aviat ... -way-back/ ) had an interesting article about an industry trade show where all the buzz was around vertical integration making a comeback. The article makes the wise point that this is on a case-by-case basis rather than one-size-fits-all. In this

Overview:
Latecoere is a French aircraft manufacturer created in Toulouse 50 years before Airbus. It’s today the world’s leading supplier of aircraft doors. If you have flown on an Airbus A320 or Boeing 787 you have passed Latecoere’s doors. It’s also active in airliner wiring systems and other aerostructures.

To support its door production it has created a new 4.0 factory in Toulouse which is producing complete finished parts in a fully automated process running 24/7. The factory has cut the production time for key components for the doors from three months to three weeks. While doing so it has improved quality, cost and supply reliability to the door production.

The new factory is an example where changing a classical industrial setup from a network of suppliers, doing their part of the finished product, to a fully insourced setup where the input is base materials in one end and out comes finished parts on the other end, has been the key to success.


Key steps were:
• Start by building a digital twin of the factory in Dassault’s Delmia simulation tool and optimize product flow and operations before building the real factory
• Investing in connected and automated machines for all operations which keep track on their quality level of tools and jigs and report all information to the overall factory control layer
• Elimination of all transports inside and outside the factory
• RFID tracking of all materials, products and tools, meaning all can be tracked where they are in the factory at all times
• Automated 3D quality inspection after each manufacturing step

I think this is a strong trend. I've read a lot about how Tesla and SpaceX have been doing vertical integration for years now and how industry has taken note. We've read similar things happened with Boeing's T-X team.

The article has more info in it, so I recommend a read. It talks about a great benefit is that all required skills to design and implement the factory are now in house, there is no need for costly crossing of corporate boundaries to maintain or revise the factory set up.
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kalvado
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Re: Vertical Integration In The Aerospace Industry

Thu Nov 07, 2019 2:02 pm

Doors are a pretty niche product, with not many common-use components. I wonder if, for example, any fasteners, either more generic or special order, are insourced.
I can see other aircraft-specific assemblies following the trend, but to a limited extent. Such factories shuld be able to take advantage of supplying entire industry (A320 and 787, in this case), so assemblies would still be outsourced.
Even this type of integration could be harder in other cases. Insourcing, for example, electric motors or pneumatic actuators doesn't look as a good idea as those components are more or less generic. Integrating too much under the same roof - or even within same campus - is also problematic.
Throughout automation and continious process flow whenever possible are definitely a great idea.
 
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Re: Vertical Integration In The Aerospace Industry

Thu Nov 07, 2019 2:26 pm

kalvado wrote:
Doors are a pretty niche product, with not many common-use components. I wonder if, for example, any fasteners, either more generic or special order, are insourced.
I can see other aircraft-specific assemblies following the trend, but to a limited extent. Such factories shuld be able to take advantage of supplying entire industry (A320 and 787, in this case), so assemblies would still be outsourced.
Even this type of integration could be harder in other cases. Insourcing, for example, electric motors or pneumatic actuators doesn't look as a good idea as those components are more or less generic. Integrating too much under the same roof - or even within same campus - is also problematic.
Throughout automation and continious process flow whenever possible are definitely a great idea.

I agree doors are a niche product and the article makes the point that this approach doesn't make sense for every product but the niche still has competition and the best way to stay ahead is to lower production cost especially in high labor cost regions such as France.

Production rate of A320 alone argues for high automation, and if the industry goes through a down cycle, they can just run the factory less than 24/7.

The article says "the input is base materials" and to a door manufacturer I presume that is sheet and tubular metals?

I agree one can go overboard with inboarding but it is interesting that SpaceX makes its own guidance computers and radios and Tesla now makes its own AI processor chips rather than buying from vendors such as Rockwell Collins or NVIDIA.

In aerospace applications it seems vendors find ways to claim "generic" actuators and motors aren't really generic and charge big markups.

In contrast, https://www.teslarati.com/tesla-model-3 ... ion-video/ talks about the Tesla Model 3 "Superbottle":

During a recent interview with Tesla owner-enthusiast Sean Mitchell, Detroit veteran Sandy Munro of Munro and Associates mentioned that among the Model 3’s unique components, its “Superbottle” is one of the most innovative. Combining two pumps, one heat exchanger, and one coolant valve in one cleverly-designed bottle, the Model 3’s cooling system is arguably the most unique in the auto industry.

The traditional automotive industry is all about suppliers and outsourcing the different components of a vehicle to different companies. This results in cars having redundant components. The Chevy Bolt, for example, has three cooling systems: one for its battery pack, one for its cabin, and one for its electronics. This is not the case with the Model 3, as the fondly-named Superbottle handles the entire cooling system of the whole vehicle — battery pack, cabin, and electronics included.

The Superbottle has garnered much recognition even among noted gearheads such as Jalopnik‘s David Tracy, who used to design automotive cooling systems himself. Munro, for his part, noted that the Superbottle actually gives several advantages for Tesla, such as increased modularity and packaging space, potential weight savings, reduced final assembly costs, and reduced final assembly time, to name a few. For Munro, the novel cooling system is the very definition of Tesla’s vertical integration.

Munro argues a lot of this is about traditional auto makers afraid to break traditional relationships between teams/specializations:

“The Superbottle is a great example of how the normal automotive companies don’t work together, and Tesla does. That Superbottle crosses many lines that you can’t cross here (in Detroit). If I’m in charge of engine cooling or battery cooling, I don’t want nothing to do with cooling the cabin. And yet, we’ve got the motor cooling, the battery cooling, and electronics, all going through one little bottle that’s got some clever little ball valves that open and close to make sure that everything’s getting heated or everything’s being cooled to where it needs to be. We all thought that was the best thing in the whole damn car,” Munro fondly commented.

Perhaps the "Factory 4.0" tag is being used to try to encourage specialists to be willing to change and surrender some turf for the common good.
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vikkyvik
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Re: Vertical Integration In The Aerospace Industry

Thu Nov 07, 2019 3:54 pm

It sounds good, but it also takes a LOT of investment in equipment, tooling, getting up to speed on processes your suppliers are already good at, implementation of quality steps and SPC, subject matter experts in the various processes and in systems and industrial engineering, likely major facilities upgrades, etc.

The return will (hopefully) be great, but the initial and ongoing investment for the first few years is significant.
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Re: Vertical Integration In The Aerospace Industry

Thu Nov 07, 2019 5:25 pm

vikkyvik wrote:
It sounds good, but it also takes a LOT of investment in equipment, tooling, getting up to speed on processes your suppliers are already good at, implementation of quality steps and SPC, subject matter experts in the various processes and in systems and industrial engineering, likely major facilities upgrades, etc.

The return will (hopefully) be great, but the initial and ongoing investment for the first few years is significant.

True. From what I see the auto industry is just now figuring out how far ahead Tesla is. Ford said one reason they sold their EU operations was to be able to fund EV research. Seems the cost of not making the investment may be worse than accepting that you do need to make the investment. Maybe the same will play out once Boeing transitions to "Black Diamond" manufacturing processes.
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Sokes
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Re: Vertical Integration In The Aerospace Industry

Fri Nov 15, 2019 12:32 am

Revelation wrote:
[
...
Tesla now makes its own AI processor chips rather than buying from vendors such as Rockwell Collins or NVIDIA.



How many employees does one need for such a task? How much investment for machinery?
I struggle to believe that. It sounds a bit like a pressure cooker company building it's own stainless steel plant.
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Re: Vertical Integration In The Aerospace Industry

Fri Nov 15, 2019 3:28 am

Sokes wrote:
Revelation wrote:
Tesla now makes its own AI processor chips rather than buying from vendors such as Rockwell Collins or NVIDIA.

How many employees does one need for such a task? How much investment for machinery?
I struggle to believe that. It sounds a bit like a pressure cooker company building it's own stainless steel plant.

Sorry, I should have been clearer.

Tesla does not make the physical chip, but they do everything else involved in making the physical chip, such as logical design, simulation, layout, etc.

It doesn't take a HUGE team to do this work, rather than a moderately sized team of VERY skilled individuals.

People like Peter Bannon and Jim Keller ( ref: https://electrek.co/2016/02/28/tesla-hi ... s-pa-semi/ ).

The chips get made by foundries such as TMSC.

Time on their production lines is VERY expensive since they are the same facilities that pump out iPhone CPUs, so you really must get it right the first time.
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Sokes
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Re: Vertical Integration In The Aerospace Industry

Fri Nov 15, 2019 5:35 am

Revelation wrote:
Sokes wrote:
Revelation wrote:
Tesla now makes its own AI processor chips rather than buying from vendors such as Rockwell Collins or NVIDIA.

How many employees does one need for such a task? How much investment for machinery?
I struggle to believe that. It sounds a bit like a pressure cooker company building it's own stainless steel plant.

Sorry, I should have been clearer.

Tesla does not make the physical chip, but they do everything else involved in making the physical chip, such as logical design, simulation, layout, etc.

It doesn't take a HUGE team to do this work, rather than a moderately sized team of VERY skilled individuals.

People like Peter Bannon and Jim Keller ( ref: https://electrek.co/2016/02/28/tesla-hi ... s-pa-semi/ ).

The chips get made by foundries such as TMSC.

Time on their production lines is VERY expensive since they are the same facilities that pump out iPhone CPUs, so you really must get it right the first time.


Wow. That is interesting. I would have never assumed that, learned something new.
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JayinKitsap
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Re: Vertical Integration In The Aerospace Industry

Fri Nov 15, 2019 7:13 am

A variant of the vertical integration is the Joint Venture (JV), a JV would allow say Boeing and Safran to make APU's that Boeing gets income from the future parts and service work, but also to basically lock in their APU tech to just Boeing aircraft. It is probably better for the OEM than just exclusive contracts like the GE90 and the Trent XWB & 7000 as the innovation paid for to develop a specific engine is the engine mfg's to use in the next engine.
 
gtae07
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Re: Vertical Integration In The Aerospace Industry

Thu Nov 21, 2019 8:15 pm

[quote="Revelation"In aerospace applications it seems vendors find ways to claim "generic" actuators and motors aren't really generic and charge big markups.[/quote]

Oh, it's not just actuators and motors. All kinds of commercial off-the-shelf items get a new nameplate, some fancy paperwork, and a (much) bigger price tag to go on airplanes.

I think part of the wave of insourcing/vertical integration going on even among the existing OEMs is that they're tired of getting burned by suppliers (schedule and cost slips, legal disputes, quality, etc.); I think that just about every OEM has been burned at some point in the last 15 years and it's resulted in a lot of those suppliers getting absorbed into the OEM to try and fix the problems. It's probably also some of the pendulum swinging back after the "return on assets" craze of the 2000s, where the drive was to outsource as much as you could to minimize your own company's assets on the balance sheet, and make that RoA number look really good (that was a big push during MBA school around 2010).

I think you'll still see a lot of "build-to-print" work where the OEM designs the item and just has someone else make it, but I think the days of outsourcing the design and engineering of major components and assemblies (like wings, fuselages, etc) are numbered. Really specialized items will be bought from suppliers (avionics, engines, smaller components like actuators and landing gear) but outside of existing relationships or really small companies like startups, I don't expect major airframe fabrication and assembly to be outsourced any more.
 
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Re: Vertical Integration In The Aerospace Industry

Thu Nov 21, 2019 8:57 pm

gtae07 wrote:
Revelation wrote:
In aerospace applications it seems vendors find ways to claim "generic" actuators and motors aren't really generic and charge big markups.

Oh, it's not just actuators and motors. All kinds of commercial off-the-shelf items get a new nameplate, some fancy paperwork, and a (much) bigger price tag to go on airplanes.

I think part of the wave of insourcing/vertical integration going on even among the existing OEMs is that they're tired of getting burned by suppliers (schedule and cost slips, legal disputes, quality, etc.); I think that just about every OEM has been burned at some point in the last 15 years and it's resulted in a lot of those suppliers getting absorbed into the OEM to try and fix the problems. It's probably also some of the pendulum swinging back after the "return on assets" craze of the 2000s, where the drive was to outsource as much as you could to minimize your own company's assets on the balance sheet, and make that RoA number look really good (that was a big push during MBA school around 2010).

I think you'll still see a lot of "build-to-print" work where the OEM designs the item and just has someone else make it, but I think the days of outsourcing the design and engineering of major components and assemblies (like wings, fuselages, etc) are numbered. Really specialized items will be bought from suppliers (avionics, engines, smaller components like actuators and landing gear) but outside of existing relationships or really small companies like startups, I don't expect major airframe fabrication and assembly to be outsourced any more.[/quote]
Very interesting post!

I posted a link to our 777X thread today which gave a good break down of all the avionics/systems changes going onto 777X and it's a longer list than most people imagine, with the usual suspects as vendors/subs.

Makes me wonder how much profit will be left for Boeing after feeding all those mouths on what may turn out to not be a very large production run.
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