Business Plan: Slow Wing Aircraft Operations in Brazil

Executive Summary

This business plan provides an environmental assessment of Brazil and identifies major logistics and supply chain management issues associated with setting up a wholly owned subsidiary there. Recommendations concerning the best city in which to establish a manufacturing and supply chain operation to meet the long-term goals of the company are provided, along with a high-level logistics and supply chain management plan supporting the recommended location of Belo Horizonte. Belo Horizonte is situated near several port cities, including Santos and Tubarão, and is currently the headquarters of aircraft manufacturer Aero Bravo, among others.

Today, Brazil is the fourth-largest aircraft producer in the world (Fisher, 2002), and its economy is the largest in South America (Brazil, 2009). Notwithstanding the geographic distances involved between Brazil and the United States, the country is becoming an increasingly important exporter of goods of all types and is well situated to take advantage of new opportunities for establishing strategic alliances with U.S. companies. In spite of its attractiveness as a potential site for Slow Wing's secondary operations, there are considerations that must be taken into account in order for such a venture to be successful.

Although Brazil has enjoyed a strong economic run, there is always the inherent risk of economic instability that may jeopardize even the most thoughtful approach to establishing operations abroad. As Hoffman, Kamm, Frederick, and Petry (1999) emphasize, "Multinational corporations considering doing business in Brazil must weigh the risks inherent in economic instability. Firms which decide to do business in Brazil generally have sufficient resources to commit long term, with the flexibility to leave returns for future balance sheets" (p. 95). Furthermore, as a leading economy in South America, there are important cross-cultural differences between the U.S. and Brazil that will affect the rate at which Slow Wing will be able to form strategic alliances and build the supply chain envisioned by this initiative. In this regard, Hoffman and his associates emphasize, "Multinational corporations should not assume that the relative speed of transition which is typical for ventures in, and with firms in, the industrialized world will be the same when working in industrializing countries" (p. 95). Finally, Drake (2004) cites several examples of American firms seeking to establish operations in Brazil and concludes, "Doing business in Brazil is potentially costly and dangerous" (p. 1147). Therefore, Slow Wing's approach to establishing secondary operations in Brazil must proceed in a thoughtful and cautious manner, taking the following issues into consideration as the plan proceeds.

As noted in the executive summary, Brazil's economy is larger by far than those of other South American countries and is characterized by mature manufacturing and service sectors (Brazil, 2009). It is also the world's third-largest aircraft manufacturer (Fisher, 2002). Furthermore, Brazil's exports have been increasing for the past fifteen years and are expected to continue to grow despite the global economic downturn (Brazil, 2009). According to Reddy and Reddy (2001), many transportation-related manufacturers in Brazil are well experienced in providing customer-centric products that will be of value to Slow Wing. These authors report, "Firms have been shifting more manufacturing responsibility to their suppliers. For example, VW in Brazil has production facilities where the suppliers run the assembly line. Innovative steps like this can allow even a firm in the traditional manufacturing industries to be customer-centered" (p. 85). The geographic distances involved notwithstanding, Brazil enjoys modern port facilities, and the availability and quality of the suppliers needed for this initiative are deemed sufficient for the company's needs (Brazil, 2009; Fisher, 2002).

Supply Chain Plan

Brazil has more third-party service providers than any other country in South or Central America today. There are currently 14 third-party service providers in Brazil, compared to five in Colombia, seven in Argentina, five in Chile, two in Bolivia, three each in Ecuador and Paraguay, four in Venezuela, and one in Uruguay (Third party service providers, 2009).

By contracting with local parts suppliers and vendors for the company's other needs in its secondary operations in Brazil, the value-added aspects of the company's operations can be realized while avoiding unnecessary warehousing and transportation charges. This aspect of the business plan is one of the most important to consider. According to one authority on supply chain management, "As a factor in supply chain management, the combined entity of purchasing, procurement and sourcing is one of the most important. Indeed, supply management is the first area of focus for virtually every firm embarking on a supply chain effort" (Poirier, 2002, p. 43). As a company's supply chain matures to Level 3 and beyond (see Table 1 below), additional savings are typically realized through a combination of decreased transaction costs, identifying new sources for goods and services that may extend globally, lowered transportation and logistics costs, the use of contract suppliers for various subassembly requirements, and reduced inventory and carrying costs (Poirier, 2003).

To the extent that a Brazilian supplier's operations and corporate culture are consistent with Slow Wing's organizational goals and performance management approach, the sourcing and procurement function will be facilitated. In this regard, Poirier reports that "supply chain efforts progress through five levels in a sequence. As a firm moves through these levels, the various functions make progress or they restrict the overall effort" (p. 21). Table 1 below provides an overview of the major business applications concerning sourcing and procurement as defined by Poirier.

Table 1: Sourcing and Procurement in the Evolution of the Supply Chain

The table maps five progression levels across key business applications. Levels 1 and 2 represent Internal Supply Chain Optimization; Level 3 represents External Network Formation (Advanced Supply Chain Management); Level 4 represents Value Chain Constellation (e-Commerce); and Level 5 represents Full Network Connectivity (e-Business). For design and development, progression moves from internal-only activity at Levels 1–2, to selected external assistance at Level 3, to collaborative design with enterprise integration and PIM-linked CAD/CAM at Level 4, and to joint design and development at Level 5. For purchase, procurement, and sourcing, the progression moves from leveraging business unit volume at Levels 1–2, to leveraging the full network through aggregation at Level 3, to key supplier assistance and web-based sourcing at Level 4, and to network sourcing through best constituent at Level 5. (Source: Excerpted from Poirier, p. 22.)

Sourcing, Procurement, and Forecasting Strategy

According to Poirier, most companies occupy the first, or beginning, level of supply chain evolution; however, as a firm's supply chain evolves into the higher levels, companies will begin to reap the economic benefits of using external resources to achieve their organizational goals. As Poirier emphasizes, "It is here that the external network formation begins, as the focus is on advanced supply chain management. The value chain constellation appears in Level 4, as current leaders display features of e-commerce, collaborate with allies in the digital economy, and apply cyber-based technologies in their relationships" (p. 22).

One authority on organizational decision making, Makridakis (1990), emphasizes that a comprehensive understanding of the principles of forecasting and decision making, together with a fundamental understanding of how and why past efforts have failed, will help companies of all types develop future-oriented decisions in planning and strategy. The process of planning and forecasting is based on the quality of information available. Makridakis (1987) recommends the following:

1. To avoid biases in information acquisition it is necessary to sample "information from as wide a base as possible." To avoid accepting false forecasts in haste, one should seek out disconfirming data and hypotheses.
2. Because people are inefficient in aggregating information, this should be done mechanically.
3. To avoid false attributions of apparent causes ("illusion of control"), greater care needs to be exercised when interpreting causes (p. 548).

Notwithstanding the foregoing recommendations and the need for high-quality information, Makridakis also suggests that in the context of forecasting and planning, simple methods — such as a simple average of expert group opinion — have frequently outperformed more sophisticated approaches (1987). There are several factors that must be taken into account in formulating an efficient planning and forecasting strategy that will support the proposed inventory management strategy. For instance, Boyson, Harrington, and Corsi (2004) emphasize that "in most supply chains today, uncertainty and/or a lack of current information causes organizations and their trading partners to accumulate inventory as insurance against potential service or fulfillment failures. One way to minimize such inventory buildups is to reduce uncertainty by improving the flow of information within an organization and between an organization and its extended enterprise supply chain partners" (p. 36). This enhanced ability to communicate in real time reflects Levels 4 and 5 of the supply chain evolution process described in Table 1 above and would require Brazilian parts suppliers and warehousing vendors to possess the requisite computer-based telecommunications and inventory management software applications needed to maintain close contact as Slow Wing's inventory needs change over time, and to ensure that unnecessary inventory buildups do not occur — buildups that would create additional expense and detract from the value-added manufacturing functions provided by Slow Wing.

In his book Streetwise Project Management, Dobson (2003) advocates the use of a just-in-time inventory management strategy to keep inventories low and the manufacturing process more productive. This approach requires close coordination with Brazilian suppliers, warehousing operations, planners, forecasters, and transportation directors throughout the inventory management process. In this regard, Epps (1995) advises that such an approach requires the efficient transportation of materials from outside vendors directly to the work-in-process area, where value-added manufacturing operations take place, followed by the shipping of finished products to the customer within a reasonable timeframe. This inventory management strategy can save manufacturers the costs of inspection, stocking, material handling, inventory tracking, and carrying inventory, as well as the risks associated with parts damage and obsolescence (Epps).

The just-in-time inventory management strategy has become a performance management technique that endeavors to complete the process right the first time and to avoid any non-value-added activities that will detract from the company's profitability (Epps). According to Epps, "The time a part is delayed, moved, or inspected is referred to as non-value added time. It is waste time because no value is created for the customer when the product is not being processed. Under the JIT concept, activities such as moving parts, waiting for parts, machine setup, and inspection are referred to as non-value added activities. Inefficiencies in production cause non-value added activities" (p. 40).