Given strong growth in both commercial aircraft demand and defense spending, the aerospace industry faces a persistent challenge to keep supply chain operations at peak efficiency. Thirty-eight thousand aircraft are expected to be produced over the next 20 years, and the largest aerospace OEMs have a backlog of orders to fill the next 10 years. That means significant pressure to deliver on time and intelligently innovate and roll out upgraded aircraft models while passing regulatory muster.

Aerospace companies around the world use Skuchain’s EC3 Platform to:

Secure critical components with program buying. From iron to fasteners, several components are critical for aircraft manufacture and have the ability to significantly delay or even shut down an assembly line if not available at the right time and in the necessary quantities. By the time such a shortage is discovered, production plans have to be adjusted by weeks, or even years, and the supply chain has to throw enormous resources towards procuring the necessary components to avoid an order cancellation worth millions.

Previous attempts at instituting Program Buying to secure critical components have often failed because aerospace supply chains lacked the necessary collaboration tools.
On EC3, aerospace OEMs and their suppliers can easily manage a Program Buying campaign to ensure the optimal supply of these components at an advantageous price at all times. Companies specify a quota of raw materials they’d like to procure from suppliers at a previously negotiated price. As this quota is fulfilled by mid-tier suppliers downstream, the appropriate amounts are debited, and the buyer is automatically notified so it can make an informed decision about whether to adjust or replenish the quota. This data and the decisions that result from it can be shared and implemented across supply chain partners in real-time as part of a secure distributed ledger. To go one level deeper, aerospace OEMs can track the inventory itself on the blockchain and know exactly which items were used to fulfill their particular quota by a given supplier.

Collaboratively plan with their supply chains. While Just In Time (JIT) procurement is the gold standard for aerospace supply chains, it is becoming harder and harder to achieve with rapidly changing aerospace technologies and customer preferences. The problem for aerospace manufacturers is that lack of visibility in the production process exacerbates uncertainty in delivery plans set years in advance. For Maintenance and Repair Operations (MRO), which are much shorter-term contracts, aerospace supply chains have to coordinate complex procurement, processing and regulatory approval requirements so a part can become airworthy on schedule.

The key to minimizing risk of procurement errors, late delivery or delivery of faulty parts, is to plan in a collaborative manner by sharing critical information across the supply chain. Any blockchain platform will allow for this data to be distributed in a decentralized way across supply chain partners. Not all data can be shared, however, and some data may be used in an algorithm but cannot be revealed in its raw form. That’s where EC3 comes in to make collaborative planning a practical reality.Using our smart contracts system and cutting-edge zero-knowledge technology, EC3 is able to

  • Hide sensitive data from specific users on the blockchain
  • Store sensitive data in the EC3 system without logging it to the blockchain
  • Use encrypted data in computations without ever decrypting the data

When an aerospace OEM knows that its sensitive information can be used by supply chain partners to plan without compromising confidentiality, they are finally able to share this information and enable a much more efficiently planned supply chain.

Finance suppliers all the way upstream with the lowest rate in the supply chain. Given significant working capital necessary for aerospace manufacturing, new financing opportunities for buyers and suppliers can offer a critical path to expanding capacity and COGS savings. Traditional invoice factoring or receivables financing is a post shipment invoice-accepted model.

In this model:

  • The financier provides 80% or 90% of the face value of the invoice to the seller and the remaining on final payment by the buyer (minus a discount fee).
  • The financier needs to ensure that (a) The receivables are ‘perfected’ (i.e. do not have any liens, etc. and (b) The buyer has ‘accepted’ to pay the invoice and there are no disputes.

Our BOM Buyer is a completely different way of freeing up capital in the supply chain that turns inventory into financeable assets. A special purpose vehicle governed by a smart contract takes ‘title’ to the inventory, offers Buyers and Suppliers favorable payment terms, reduces the cost of financing for Suppliers and COGS for Buyers.

There are four main benefits to the BOM Buyer:

  • Lower COGS for Buyers and lower financing costs for Suppliers, compared to traditional supply chain finance
  • Can offer all Suppliers access to the Buyer’s cost of capital, without affecting the Buyer’s credit or having to draw from the Buyer’s credit facilities
  • Ensure a much more financially healthy supply chain with minimal excess inventory on balance sheets, resulting in earlier revenue recognition for Suppliers
  • Grant Buyers greater visibility and control over their supply chain with new data shared on the blockchain

What does a typical BOM Buyer deal look like?

  • Four parties: a Buyer, a Supplier, a Special Purpose Vehicle (can be owned by Skuchain, a bank or by the Buyer) and a Bank
  • Five steps:
    • A Special Purpose Vehicle enters into a JIT sales agreement with the Supplier, and the Buyer assigns their right to make payment and receive title to the inventory from the existing Master Purchase Agreement with the Supplier.
    • A Buyer offers a payment guarantee for any inventory that is part of this deal, subject to quality control, performance, etc.
    • A Bank will fund the SPV at the Buyer’s cost of capital in anticipation of a deal.
    • The SPV will buy inventory from the Supplier at a discount equal to the financing rate, and pay at terms advantageous to the Supplier.
    • The SPV will sell the inventory to the Buyer, possibly at a lower price than the face value of an invoice, and receive payment at terms advantageous to the Buyer.

What does blockchain bring to this deal?

  • Secure attestations allowing for ease of transmission: By placing agreements and trade documentation on the Blockchain, we provide a secure and trustable medium to transmit the details of a trade to various parties. This allows for portability of transaction information.
  • Reduced operational friction: The investment to make any change in supply chain process is small. Supply chain partners are still able to hide information they don’t want to share with others. The ecosystem can have transparency and visibility to the extent necessary to get the best risk profile and lowest cost for financing.
  • Significantly reduced workload: Operators who had to search for, compile and share the same information over and over again to banks, credit insurance companies and transaction participants are now able to streamline the process while adding security. The transaction process is standardized. There is no need to do an in-depth evaluation of each new transaction.
  • Scalability and additional profit opportunities: Allows for buyers and suppliers to participate and run transactions of any size on the same platform. Multiple tiers of suppliers can now be included in the same Inventory Control and Finance (ICF) program, whereas only single tiers could participate before because of the expense and lack of visibility.
  • Perpetual audit system: All aspects of the trade are now available to be audited in real time by the appropriate parties.
  • Traceability: Applicable SKU level traceability can be made available to relevant parties in real time.

Automate the MRO process by sharing documentation across multiple supply chain partners and even regulators. Each step of an MRO workflow requires close tracking of the origin and quality of materials, process applied, personnel and organizations involved, reconciliation of aircraft configuration and regulatory paperwork. In addition, since MRO contracts tend to require a faster turnaround, each of these complex pieces has to be effectively coordinated so that a part can become airworthy on schedule.

By tagging each of the spare parts used with notations about the process and corresponding documentation on a distributed ledger, an aerospace OEM and its suppliers can automate MRO tracking, planning and regulatory compliance. Because Skuchain’s EC3 integrates its Popcodes traceability technology with Brackets smart contracts, we are able to tie transactions and paperwork with a specific part across the supply chain. Popcodes may be logged onto the blockchain through the Skuchain smartphone app or legacy industrial scanners. Transactions and records may be submitted to EC3 through an API integration with ERP systems, Excel spreadsheets or other existing technology, or directly into our CRP.

As a result, OEMs, suppliers and regulatory authorities alike can complete the MRO process in the most efficient and cost-effective way possible. Should the need arise to review records of an MRO process in the future, OEMs and regulators can use the end-to-end traceability on the blockchain to track the issue back to its source in seconds.