2010 5th International Conference on System of Systems Engineering
A framework for managing risks in the aerospace supply
chain using systems thinking
Abhijeet Ghadge Samir Dani
Business School Business School
Loughborough University Loughborough University
Loughborough, UK Loughborough, UK
A.S.Ghadge@lboro.ac.uk S.Dani@lboro.ac.uk
Abstract - Impact of globalization, technological and
environmental changes, has radically influenced supply
chain risks and mitigating strategies. Since uncertainty is
an intrinsic element of the aerospace supply chain system,
this paper analyses the uncertain variables (risks) in
aerospace supply chain using a ‘systems of systems’
approach. Complexity and interdependent nature of the
aerospace supply chain requires different levels of
mitigation strategies. In this paper, utility theory and a
proactive approach to risk management is considered.
Effect on quality and delivery are two important
monitoring parameters when analyzing risks within the
aerospace supply chain system. This is depicted with the
help of cases. The paper concludes by identifying the
benefits of mitigating strategies for future sustainable
systems.
Keywords: Aerospace supply chain, Risk Management,
Supply Chain Systems.
1 Introduction
Supply chains are growing more global and complex.
These are driven by customer expectations for reduced
costs and increased flexibility. An aerospace supply chain
needs to work with global partners ranging from design to
manufacturing to maintenance, repair and overhaul
affecting all stages of the product life cycle. Chris
Geoghegan, President of SBAC in his interview said,
“Achieving supply chain improvement is critical to
continued competitiveness of UK aerospace and defense
industry”[1]. The challenge of supply chain management is
to plan and control the boundary between the
organizations, its upstream and downstream partners so
that not only non-value added transactions are minimized
but also new benefits are achieved. Supply chain risk can
be defined broadly as an exposure to serious disturbance
arising within a supply chain affecting its ability to
effectively serve the end customer market. The Supply
Chain Risk Management (SCRM) approach generates
added value to industry by providing better understanding
of supply chain risks, greater influence and control over
and distributed systems that are comprised of complex
suppliers, increased quality and reliability of products with
systems [11]. The Systems of systems concept originally
Manuscript received March 26, 2010. Corresponding evolved in the defence sector, but now it being widely
author: Abhijeet Ghadge (e-mail: A.S.Ghadge@lboro.ac.uk).
978-1-4244-8196-5/10/$26.00 ©2010 IEEE
DOI 10.1109/SOSE.2010.418
Roy Kalawsky
Research School of Systems
Engineering,
Loughborough University
Loughborough, UK
R.S.Kalawsky@lboro.ac.uk
increased efficiency and reduced operational costs. Supply
chain risk sources are any variables which are un-
predictable and can disrupt the complete network. Mason-
Jones and Towill [2] suggest five categories of supply
chain risk sources: environmental risk sources, process risk
sources, control risk sources, demand and supply risk
sources. Risk and revenue-sharing in new-product
development and subsequent manufacturing is a feature of
the aerospace industry, which can lead to long-term
business partnerships.
2 Literature Review on Supply Chain
Risk Management
Risk management is about identification, analysis and
control of risk parameters. SCRM is contrary to traditional
risk management where it is driven by systemic
interrelationships focusing at identification and reduction of
risks not only at company level but focusing on the entire
supply chain similar to a ‘systems of systems’ approach.
An aerospace supply chain systems is more vulnerable due
to its typical requirement for high quality standards, global
sourcing and high service requirements. Vulnerability is
defined [3] as an exposure to serious disturbance, arising
from risks within the supply chain as well as risks external
to the supply chain. Traditional supply chain problems
studied in literature are related to location decisions,
demand planning, strategic alliances, pricing, supplier
selection, outsourcing at strategic management level and
material handling, inventory control, layout designs,
resource allocation at operational management level.
SCRM is becoming more challenging because of greater
uncertainty in supply and demand, globalization of market
and shorter product life cycles [5]. Zsidisin et al. [6-10]
have attempted to identify risks for the aerospace industry.
Table I provides a classification of various supply chain
risks.
3 System of Systems Approach
Systems of Systems (SoS) are large scale concurrent
 spread globally, early identification and management of the
TABLE I
supply chain risks that could affect product and/or service
Classification of supply chain risks [22-28]
quality becomes increasingly necessary. The application of
Chopra and Sodhi Classified supply chain risks as disruptions,
SCRM ensures the continuous success of customers supply
(2004) delays, systems, forecast, intellectual property, base by delivering products and/or services in accordance
procurement, receivables, inventory, and with set quality standards.
capacity. SoS presents some unusual risk management
Sinha et al. (2004) Classified four areas of risks which include challenges that often are not explicitly addressed, yet can
standards, supplier, technology, and practices.
impact the resulting degree of system effectiveness [12].
Finch (2004) Classified risks into three broad categories Well established risk management processes in place for
which include the three levels of coverage: different systems may not be compatible with all systems.
application level, organizational level, and In next section, we identify risks within aerospace supply
inter-organizational level.
chain systems and build a systems specific risk
Norrman and Lindroth Categorize the type of risks into operational
(2004) accidents, operational catastrophes, and management framework
strategic uncertainty.
Kleindorfer and Saad Divided risks in two broad risk categories as,
(2004) (1) risks arising from the problems of
coordinating supply and demand,
(2) risks arising from disruptions to natural
activities.
Tang (2006) concluded there exist two kinds of risks in
supply chain as operational risks and disruption
risks.
Tang and Tomlin Companies usually manage supply chain risks
(2008). either at the strategic (long term) or at the
tactical (medium term) level.

applied in various fields of space exploration, health care,

logistics, software integration etc. This emerging system-
of-systems concept describes the large-scale integration of
many independent, self-contained systems in order to
satisfy a global need. Each system affects the other. The
synthesis of the indiviual complex systems into a larger
system of systems results in additional complexity and
challenges to keep the system working. A supply network /
chain is made up of various entities and nodes in the chain
which are working together to achieve one single task,
which is providing the final consumer/ customer the
required product or service. It does not always have to be a
profit making outcome, non-profit supply chains working
towards humanitarian aid and relief are also comprised of
various entities which if not considered as one larger Fig.1. Aerospace supply chain systems behavior
system of system may be very difficult to manage. The
optimisation of one part of the chain doesn’t necessarily
provide an optimised supply chain. The various entities 4 Risks in the Aerospace supply chain
have to be considered together from the perspectives of the
interdependencies and the dependency on time to achieve system
the desired output and thus to make sure that the flow is not Uncertainty is an intrinsic element of the aerospace supply
disrupted. Hence, the analogy of using a ‘Systems of chain system. This supply chain operates in a Make-to-
Systems’ approach. Using a SoS approach, the aerospace Order environment which is typically a pull supply chain
supply chains is represented as a complex network of strategy wherein, the demand is highly uncertain. Juttner
entities from the perspective of interrelating risks which [13] suggests that, it is important to develop a risk
can cause the flow to disrupt. This is shown in fig.1. management approach specifically for supply chain /
Aerospace supply chain systems depend upon a industry. Management of supply chain risks should be
complex network of suppliers, contract manufacturers, industry specific since, it’s necessary to first understand
Maintenance Repair Overhaul (MRO) service providers; different types of risks that are dominant to that specific
each one exposed to different assortment of risks that can industry. The Electronic industry is prone to short product
disrupt the supply chain. Due to supplier networks being life cycle risks and high demand uncertainty [14] similarly,
aerospace supply chain is exposed to risks due to product risks impacting business. Table II shows the supply chain
complexity and systems network complexity. The risks within the aerospace supply chain. Some of identified
literature survey depicts that, industry wise SCRM risks may be also observed in other supply chains like
frameworks are developed for automobile, automotive, locomotive which implements similar supply
telecommunication, semiconductor and pharmaceutical chain management strategies.
supply chain systems [10, 13, 15] but, not specifically for
the aerospace industry.
5.2 Risk Analysis in Aerospace Supply Chain
.
Systems
5 Conceptual Framework for Supply
Risk is a function of uncertainty and impact factor. A
Chain Risk Management simple tool for risk assessment is a probability-impact
Considering the supply chain as a System of System, matrix as shown in fig. 2(a) following probabilistic theory.
it is clear that the various processes and interdependencies But, a decision theory combines both probability theory
in the chain will have to be considered when managing and with utility theory.
mitigating risks. One of the major outcomes of risk
propagation in the supply chain is disruption of supply to In probabilistic risk assessment, risks are evaluated
the final consumer/ customer irrespective of the location of based on likelihood of event with severity of occurrence
the disruption. Hence if the disruption occurs around the which follows linear curve A as shown in fig. 2(b).
supplier side the manufacturer is starved off inventory, Kainumaa and Tawara [16] uses multiple attribute utility
whereas if disruptions occurs in the distribution chain the theory for assessing a supply chain. Using utility theory
final customer does not receive the product or service.
Generically, supply chain risk management has three
standard processes : Risk Indentification, Risk Analysis,
and Risks Mitigation. This paper proposes that when
considering these processes for managing risks in the
supply chain the perspective taken should be that of a
System of Systems approach which will provide a more
holistic approach to managing the risk. The humans in the
system at various points of the interdependencies will also
have individual sensitivities towards risk management.
Some will be risk-neutral, whereas some will be risk-
Fig. 2 (a) Probability-Impact matrix and (b) Probabilistic and
averse, while others risk- takers. The individual perspective
utility theory curves for risk analysis.
will also lead to how the system behaves collectively in
managing the risks. It will create an additional viewpoint of for risk assessment, Joseph [17] has showed that, utility
understanding the propagation and the impact of the risks based loss function follows non linear curve B [fig. 2(b)];
for the supply chain system and not only the particular node where less probabilistic event(s) can have high severity. In
or entity where the disruption has occured. The other aspect this paper the assumption we raise is that, the aerospace
of looking at risk management differently from a reactive supply chain risks follow a utility theory curve.
stance (reacting to the risk or disruption after it happens) is
that of a proactive stance. When taking a proactive stance,
Boeing, for its Dreamliner 787 project has outsourced
the supply chain will be designed by taking a systems
major subassemblies using Assemble-to-Order strategy
perspective and hence procedures or proccess will be put in
from different parts of world but, delay in deliveries led to
place to manage risk propagation proactively. A proactive
huge business loss [17]. Similarly, Airbus in year 2006
risk management framework for the aerospace supply chain
faced major delays due to mismatch of electrical harnesses
systems is proposed in this section by identifying,
between designed and physically appeared routing on
analyzing and mitigating risks within the aerospace
aircraft losing billions of dollars. Effect on quality and
industry. This is still at a conceptual stage and in the next
delivery are two important monitoring parameters while
stage of the research validation of this framework will
analyzing risks within aerospace supply chain systems.
sought.
This is predominantly observed from two cases.
5.1 Identifying the Risks in Aerospace Supply Chain Considering the utility curve and the Probabilistic –linear
Systems curve in fig 2(b) it can be seen from the two cases that, the
probability that the suppliers would cause disruption was
Many factors are considered during this stage of risk quite low and hence there were no proactive mitigation
management but, the focus should be on risks which are plans in place when considering a direct linear probability-
dominant to the specific industry. Hence an understanding impact scenario. However, following the utility curve, it is
of the existing supply chain network and the interactions is quite evident that risk-averse companies would have seen
prerequisite. Later each function within the network risks with low probability having high impact. Proactive
undertakes a full review of potential risks and identifies the
measures should have been in place for minimizing A Multi-sourcing strategy in global outsourcing helps
disruptions to such prestigious project. to share risk, lower cost of product and improve service
through competition. OEM’s when outsourcing globally
A SoS approach can lead to determining the actual impact TABLE II
of the risk as it brings into the perspective the various Risk mitigation in aerospace supply chain
linkages and the impact of the linkages on the complete
system.
Risk Mitigating strategy Benefits
5.3 Evaluating Risks in Aerospace Supply Chain Long term
Systems global sourcing Risk sharing contracts relationship.

The assessment process can be intuitive or analytical. Low-cost sourcing Cost saving.
The assessment activity is quite challenging due to Diverse supplier Sustainable logistics Reduced transport
globalized network of supply chain systems. Risk base model delays.
assessment consists of activities that enable supply chain
managers to evaluate and measure risks in terms of costs. It Contract manufacturing Risk transfer.
motivates the organization to develop contingency plans Flexible
for future. Sodhi [14] and Zsidisin et al. [6] made the Volatile market Make to order production.
following observations from case studies with OEM’s: Quick product
Postponement configurations.
1. OEM’s underestimate the risk in the absence of an Quick response to
accurate supply chain risk assessment process. Strategic stock market demand..
Product lesser cost of
2. With inaccurate estimates of the probability that a complexity Quality standardization quality.
major disruption would occur, many OEMs find it
difficult to perform a cost/benefit or return on may benefit by developing contracts as a ‘risk and revenue
investment analysis to justify certain risk sharing partnership’ with other world class suppliers. Thus,
management attempts. merging of leading edge technology and high level
capability helps to mitigate supply chain risks. Contract
While assessing the risks in an aerospace supply chain, manufacturing for production and services like MRO helps
and due to its typical nature of product and network to transfer the risks to other partners in aerospace supply
complexity, many important and interrelated factors chain systems.
contributing directly or indirectly get neglected during the
assessment. This can have a major impact on supply chain With lot of emphasis given to sustainable supply
and demands strict evaluation of identified medium level chain management [19] the supply chains are reconfiguring
as well as critical risks. themselves to fit into government regulatory policies.
Proactive steps like developing sustainable logistics
5.4 Risk Mitigation in Aerospace Supply Chain models for supply chain would mitigate future risks. Some
of the following concepts help in achieving the balance
Systems between demand and supply thus creating sustainability.
For successful risk mitigation plans to work, information Postponement strategies utilize product and process design
flow and security are key enablers. The other enablers like concepts such as standardization, commonality, and
agility in supply chain, collaboration with partners and modular design to delay the point of product
risk/revenue sharing polices play a vital role too. The risks differentiation. This helps to reduce risks and stock in the
in aerospace supply chain and probable mitigating strategy system. It is a mass customization tool to handle demand
are mapped in Table II. fluctuating market like the one observed in aerospace
supply chain systems. The Strategic stock concept is a
Risk sharing contracts within supply chains can provide the safety stock inventory for critical components to ensure
following benefits: that supply chain continues to function smoothly while
facing disturbance in supply chain. This could be best
1. Helps to collaborate for achieving objectives. utilized in case of environmental risk arising out of natural
or man-made disasters like floods, hurricanes, terrorist
2. Pools best management practice. attacks etc.

3. Helps to develop strategic relationships for further Risk monitoring closes the loop in a risk management
business. system. It helps to feed the observations, results, key
finding after risk mitigating strategies are implemented to
the start of the process where new risks or constraints may
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6 Conclusions
This paper has developed a risk management
framework for aerospace supply chain systems by
considering the complete network as a ‘systems of
systems’. Referring to the utility theory approach to risks,
risks are identified, assessed and mitigated for specific
industry needs. Further research is required to understand
the differences in using the two concepts (probabilistic
theory and utility theory) for risk assessment and
identification. It is also important to understand how
different people in supply chain system perceive supply
chain risks. Risk management is a complex process
involving difficult decisions [21] like, risk transfer or risk
sharing, risk aversion? An industry specific structured risk
management process is needed for managing risks. With
the help of mitigating strategies suggested for the aerospace
industry in this paper, the next stage in this research will be
to build and implement a decision support toolkit for the
future.
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