The use and management of international supply chains

Gulfstream's supplier network spans the entire globe. This represents a significant challenge for any company. Adding to the complication is the fact that Gulfstream has moved towards a just-in-time (JIT) inventory system. This type of system is designed to reduce inventory costs and increase inventory turn. To successfully implement a just-in-time system, several factors must come into play. For Gulfstream, they needed to find ways to leverage their geographic location in order to execute their JIT plans.

The first way in which they maximize location is by virtue of their Savannah location. This location, on the Atlantic seaboard, gives them ready access to the European suppliers that they use for many components. They are a few hours down by road from Atlanta, which gives them international airport access, which is critical to the delivery of engines. Their location in a southern state gives them access to their wing supplier in Texas. It also allows them to further reduce production costs by operating a maquiladora on the Mexican side of the border. The maquiladora system has been set up to give U.S. manufacturers access to cheaper Mexican labor, but retain ease of shipping back into the United States. All of Gulfstream's suppliers are able to deliver parts within a day or two. This is facilitated in part by their high-end positioning. Not only does this allow Gulfstream to pass along the cost of flying engines into Georgia from Germany but because the company promotes the Rolls Royce engines as a key selling feature the customers are happy to pay this cost.

The relatively proximity of most of Gulfstream's suppliers allows them to work closely with those suppliers. This is not only vital for the implementation of a JIT system, but it allows Gulfstream to forge and maintain close relationships with their suppliers. The result is that Gulfstream can work with their suppliers on product development in addition to the standard manufacturing function.

Gulfstream recognizes, however, that their customers can take their planes all over the world. Therefore, they have established a number of locations around the country to handle their servicing and maintenance needs. To assist with this program, Gulfstream's suppliers also maintain warehouses around the world. Gulfstream's strong relationship with its suppliers allows this to happen. The combined reach of Gulfstream and its suppliers, working in concert, allows for the maintenance function to be met with much the same effectiveness and efficiency as the assembly function. One result is that Professional Pilot Magazine has named Gulfstream #1 in product support. Gulfstream's effectiveness owes much to its supply chain management program.

2) at the time it was done, sending a car to track the progress of a train may not have been excessive. While today the train shipment could be tracked with bar codes like a FedEx shipment or with GPS, that technology may not have been available at the time. The rail process has been, for Gulfstream, less efficient than their other shipping processes.

For example, at the Port of Savannah, Gulfstream is a significant customer so they have no difficulties with their shipments. The company has less power over the railroads, however, because it does less volume with them. The result of this is that the railroad is the weak link in Gulfstream's logistics system.

Gulfstream has a strong business case for its approach to its supply chain. They operate in a low-volume, high-end sector. If there are any problems in shipping, it can impact a significant percentage of their annual output. One or two fewer planes in a year can knock millions from their top line. It is reasonable to expect that Gulfstream has high fixed costs associated with its business, given the real estate, equipment and labor requirements of aircraft manufacture. The contribution margin at the end of the year may only amount to a handful of planes. Therefore, it is imperative for Gulfstream to ensure that every plane they intend to produce is produced. Failure to do so could mean that the company is not profitable that year. Repeated failures of this type could put Gulfstream out of business.

Additionally, Gulfstream's production schedule does not allow for simultaneous production. Therefore a delay in one aircraft equates to a delay in every subsequent aircraft. Thus, delays represent an opportunity cost because of lost capacity. Such delays also result is customer dissatisfaction, which Gulfstream would then have to address. Gulfstream is positioned as a high-end product, and that reputation demands that they deliver high-end results.

The result of all of this is that Gulfstream faces substantial costs in the event of any delay in their logistics network. After all, each aircraft costs millions of dollars, more than enough to pay for the costs of Gulfstream's supply chain management.

Moreover, Gulfstream also realizes benefits in terms of new product development. The company's product development function is closely tied with their suppliers. This enables them to develop better and more innovative aircraft at a lower cost. This would not be possible without the investment that Gulfstream has already made in developing such strong relationships throughout their supply chain.

3) Gulfstream's just-in-time approach is closely tied into their choice of locations. In the aircraft industry, parts are not commoditized. That is, one supplier's parts cannot be replaced with another's. For Gulfstream, that means they must be in a position, both geographically and in terms of their supply chain management, to ensure that they have all of their supplies when they need them. Locating in Savannah gives them easy access to supplies from a multitude of channels - sea, air, rail and road. This location allows them to work with suppliers in Europe, the East Coast, the South and Mexico. This gives Gulfstream increased flexibility when it comes to choosing suppliers, since they have access to suppliers form so many regions. Should any supplier be unable to execute the JIT system, Gulfstream will have other potential suppliers with whom they can forge a relationship.