Risk Mitigation Planning: What Is It and How Can I Implement It?

Planning ahead has always been important when ordering aerospace metals but it may now be more crucial than ever. Risk mitigation planning can help aerospace manufacturers manage supply chain challenges in particularly volatile conditions.

“Every day, something new is happening. New developments going on in the world are having a larger impact on the supply chain for materials than anyone anticipated,” said Jamie Barron, Vice President of New Source Corporation.

For example, planning for aluminum prices and lead times in 2022 has been hard because prices are high and supply chains are tight. Even before Russia invaded Ukraine in late February, the Midwest average price of aluminum had risen from just over $1.80 per pound but now aluminum is over $2 per pound.

Supply challenges have worsened as the war has continued. As of late April, waits on certain parts had reached 49 weeks.

Efficiently managing inventory of aluminum extrusions and raw materials through effective risk mitigation planning will be key to keeping aerospace projects on time and within budget in what could be a year of unprecedented uncertainty.

Aerospace supply chain risks

Volatility in the geopolitical and economic environment is the top risk in aerospace and defense even without a war, according to EY Global. Managing the supply chain follows as the second largest risk.

While tackling either risk alone is daunting, manufacturers now face both as geopolitical and economic upheavals disrupt supply chains that were already stressed by two years of the COVID-19 pandemic. Fitch Ratings warns that U.S. aerospace supply chain risk could rise further if the Russia-Ukraine war leads to a prolonged tightening of commodity supplies.

Economic sanctions against Russia are leading every industry not to use materials from the country, Barron said. “We are DFARS compliant but it’s all a domino effect.

“Previously, it was only aerospace and defense companies that were using the capacity at domestic mills. Now, other industries that were not required to use only American parts cannot go overseas so they have to go domestic,” Barron said.

Competing demand from industries like automotive and medical manufacturers has squeezed the production of aerospace metals. “There’s only so many presses and so many hours to meet the demands for parts for the aerospace industry,” Barron said.

As if that were not enough, some manufacturers are buying more materials than they need because they project lead times to extend further. Such panic-buying adds false demand on top of the real demand from multiple industries. “It’s a guessing game for everybody,” Barron said.

Risk mitigation planning in aerospace

“The best way to go with risk mitigation planning is to plan a year or 16 months ahead instead of six to eight months,” Barron said. “There’s not enough capacity at manufacturers across the world to service every industry.”

Innovation is also crucial. Transparency and communication between manufacturers and suppliers could help identify and resolve problems, Barron said.

For example, a part’s machinability or life span may be able to be increased with a different alloy. “Look at it from a point of continual improvement,” Barron said.

The whole industry could benefit from more collaboration. New product types could emerge and additional domestic capacity could be created, thereby decreasing dependence on overseas manufacturers. Such improvements could ease supply chain pressures in the long term.

Meanwhile, planning ahead and allowing for flexibility in prices and lead times could help manufacturers navigate the challenges they now face.

Vendor-managed inventory services like those offered by New Source Corporation can help as well because we get the right parts for our customers at the right time. We also assist customers in overcoming supply chain issues such as price increases and prolonged waits by keeping a large inventory on hand.

As planning ahead becomes more important, it helps to partner with a supplier who can assist you in keeping projects on time and within budget amidst uncertainty.

Do you still have questions about vendor-managed inventory? Contact us today! New Source Corporation will be happy to assist you in finding the product that fits your needs.

Please note all metal prices, lead times, and other external factors fluctuate on a constant basis. All information was deemed accurate to the best of our knowledge at the time of this post.

May 9, 2022

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