WHITE PAPER - Outsourcing for Composite Supply Chains

WHITE PAPER

AEROSPACE

Outsourcing for Composite Supply Chains A transformational opportunity for Aerospace and Defense

© 2024 Web Industries, Inc. All rights reserved.

Table of Contents Overview • Factors to consider.................................................................................................................................................1 • Current industry dynamics......................................................................................................................................1 • Value potential in outsourcing...............................................................................................................................1

Big-picture Challenges • The need for adaptability.......................................................................................................................................2 • Why adaptability has become a core advantage.................................................................................................2 • Navigating cultural shifts........................................................................................................................................2 • Securing leadership buy-in.....................................................................................................................................2 • Finding effective value-tracking metrics ..............................................................................................................3

Outsourcing Opportunities • Pre-production supply chain..................................................................................................................................4

• Unique opportunities in composites formatting..................................................................................................4 • Seven avenues worth investigating

1. Reducing supply chain operating costs.............................................................................................................4 2. Lowering carrying costs......................................................................................................................................5 3. Freeing up working capital.................................................................................................................................5 4. Eliminating pre-production steps/management..............................................................................................5 5. Realigning activities for optimal value/revenue generation............................................................................5 6. Cultivating additional new business channels/partnerships............................................................................5 7. Shifting current variable costs to fixed-cost elements.....................................................................................5

Measuring Value • A “dollarized” accounting of outsourcing opportunities....................................................................................7 • Identifying your full range of costs........................................................................................................................7 • Understanding “cost of possession”....................................................................................................................7 • Game-changing value impact................................................................................................................................7

• Case study: $4 million in demonstrated savings..................................................................................................7

Evaluating Potential Outsourcing Partnerships.................................................................................8 - Getting the relationship right

- Leveraging the outsourcing partnership

- Closer collaborations offer better results - Asking the right questions - Continuous improvement

Consider Web Industries................................................................................................................................9

Overview Aerospace and defense OEMs and contractors who are scaling production to meet increasing composite-based product demand face a variety of shifting and fast-moving challenges. Paradigms are constantly shifting as new applications, advanced materials, and manufacturing techniques evolve.

Manufacturers are continually assessing the optimal combinations of materials and processes to build each part. They need to account for scalability of production while maintaining required quality— and they need to deliver at the lowest cost. These considerations represent the inherent challenges of composites formatting— challenges that become more acute by the day.

Factors to consider For every component or part produced, there is a cascading set of variables to optimize: • Scope of materials – What are the best solutions among thermosets, thermoplastics, and pre-pregs? Do you require woven dry fiber? Adhesives? Processing consumables? What are your flexible material needs as a whole organization? Do you use other soft goods?

• Manufacturing methods – To achieve your quality and scale objectives, you may need to incorporate various methods, such as hand lay-up, automated fiber placement, automated tape laying, compression molding, CCM, and resin infusion, to name a few.

• Pre-production material formatting processes – What formats will your materials need to take during the manufacturing process?

Will you require ply shapes? Narrow-width, precision slit tapes?

How wide: 1 mm or >2 in? Could you benefit from fiber parent material options that could pre-orient quasi-isotropic shapes? Do you require chopped flake or other formats? The bottom line is: For many products, the “pre-production” formatting processes are as critical to success as excellent downstream production processes.

Current industry dynamics These formatting steps are sometimes thought of as non-core processes that make up a “necessary evil” of composite manufacturing. But further examination can uncover new opportunities. When thinking about formatting, there are a few core issues that arise that can easily become opportunities: Material management – Multiple composite materials require a variety of material management strategies as well as different out-time tracking.

Value potential in outsourcing Mastering your full supply chain Today’s leaders in aerospace and defense are adopting a more expansive view of their supply chains—one that includes these previously under-examined “pre-production processes.” Positive results have been seen in a variety of improvements that significantly boost their competitive advantage and standing in the market.

For many OEMs/contractors, the pre-production supply chain can be identified as a source of transformational change, delivering the ability to: 1) adapt to today’s challenges; 2) fuel sustainable growth; and 3) drive greater profitability—all without any capital investment.

Benefits seen by companies who have optimized their pre-production supply chain include:

• Improved cash flow; elimination of raw material inventory, accelerated work-in-progress • Elevated production throughput and increased profitability • The ability to leverage recovered assets to: expand production, onboard new programs, grow market share, and increase profit per square foot • The opportunity to assign scarce in-house labor resources for maximum value The chart below shows some of the potential value you can unlock by establishing a successful partnership for the pre-formatting and materials management of advanced composites in the areas of: materials management, formatting efficiencies, and new business opportunities.

Value potential in outsourced partnerships...

Materials Management

Formatting Efficiencies

• Less exposure to price fluctuations for raw materials (fixed cost vs. variable)

• Greater breadth of technologies and production resources

• The ability to buy only what you need (no waste) • Savings in carrying costs (management and logistics as well as storage and inventory maintenance)

• The latest technical capabilities • Pre-formatting steps that accelerate/improve your processes • Multiple processes can run concurrently • A focus on core competencies

New Business Opportunities • Leverage partners’ core competencies to expand your potential markets • Improve sustainability metrics for customers and shareholders • Have greater agility and speed when taking on large-scale opportunities • Confidently set competitive pricing for new business bids/RFQs Source: Web Industries

Constant demand fluctuations – Demand fluctuations create havoc for managing supply and inventory requirements.

Multiple products/programs – Your supply chain may support multiple small businesses in the form of products or endcustomer programs. Multiple programs mean multiple supply chains and formatting requirements, which need to be customized to specific applications.

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Big-picture Challenges Aerospace and defense manufacturers live in a current business climate of risk, instability, and rapid change. These three conditions have only intensified after the global COVID-19 pandemic and the turbulence of recent aerospace and defense business cycles.

Companies are now facing:

• Elevating demand as commercial aircraft producers ramp build rates • Huge growth projections in: commercial airplane, business jet, engine/nacelle, space launch, and defense markets • Dynamic innovations and developing markets for eVTOL, UAVs, hypersonic craft, and next-gen rotor craft • Ongoing challenges hiring, training, and retaining skilled labor

The need for adaptability These business realities demand that composite manufacturers be adaptable and creative as they position to react to these circumstances and position themselves for future growth.

The first essential requirement for a company to truly be adaptive and positioned for growth is a responsive supply chain. This includes all supply chain processes required to support composites production: demand planning, order management, receiving, internal logistics, material management, formatting process, quality control, etc.

Why adaptability has become a core advantage The market dynamics driving the importance of supply chain mastery include: Uncertainty – This can be the enemy of the methodical, but an ally for those who find a way to be adaptable and agile in their response to it.

Volatility – Sharp and irregular fluctuations driven by mergers and acquisitions, marketplace turmoil, unpredictable commodity costs, competitive innovation, erratic demand fluctuations, and other daily surprises create daily headaches and fresh problems for organizations whose supply chain approach is too rigid.

Rapid change – The rate of change in today’s aerospace and defense climate is amazing. Old ideas such as a 5-year planning cycle are practically obsolete. To capture the opportunities that come from this rapid change, supply chains not only need to adapt, but to adapt rapidly.

Navigating cultural shifts This “triple threat” of uncertainty, volatility, and rapid change has given birth to a culture of caution and restraint in many companies.

This may be attractive to risk managers, but it can prove fatal to those responsible for driving revenue against competitors.

Many companies attempting to avoid mistakes simply remain satisfied with the status quo, maintaining outdated and no longer workable supply chain practices. This is the opposite of the culture necessary for an adaptive company to thrive and maximize profitable growth opportunities.

Driving real transformation in supply chain strategies and objectives will require deep changes at many companies—and not all of them will be up for the challenge. In a new survey sponsored by UPS, only 32% of respondents report their companies can make supply chain changes when necessary. Of the 68% who can’t, one of the root causes cited is not having an executive-level champion committed to overcome resistance.

Securing leadership buy-in Adaptability requires an organization whose leaders are actively seeking change that leads to proven progress. In fact, business pundits specifically suggest:

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Who can help within the manufacturing organization?

And what kind of impact will supply chain optimization have?

The adaptability of the company is not as important as the adaptability of the company’s supply chain, which can be much more complex” James Tompkins, PhD

Founder, Tompkins International

CEOs, CFOs, supply chain VPs, and other executive leaders who are responsible for value creation have an opportunity to take a more definitive role in defining and managing their supply chain. And, if they do, the results can be worthwhile—with average impacts being reported on 75% of operating results.

There is evidence that attending to this can be a competitive advantage since many manufacturing leaders have not yet put their full attention here.

For example, for leaders polled in a “CFO Publishing” survey sponsored by UPS Logistics: • While 74% saw the supply chain as crucial to success and characterized it as a direct link to achieving objectives, but...

• Only 33% recognized a high level of integration/alignment between supply chain strategy and results seen by Operations and Sales • It is suspected that the reason for this lapse is that supply chain control is still fragmented, decentralized, and separated from senior leadership

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Finding a way to generate this high-level support from senior management can be “job #1” for supply chain leaders looking to make real progress in breaking down the silos that represent a major tactical challenge in creating new structures and policies.

Further evidence of these disconnects may be seen in that only 33% of surveyed professionals believe their strategic and operational plans are well integrated.

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Finding effective value-tracking metrics Another tactical challenge is finding a way to definitively track your progress. Finding ways to establish current/baseline costs—and then agreeing on metrics that will track the full costs of your supply chain. According to the survey, only 17% of respondents say they are “very satisfied” or “completely satisfied” with their ability to measure total supply chain costs.

This should be concerning as one of the most important sources of cost savings and productivity gains is paring down inventory and supply chain transactional costs.

To convince operational and procurement functions to give up control, you need the support of executive-level leadership.”

Jack Healy

CFO, IDG Group

What are the reasons your company can’t implement major supply chain changes?

What statement best describes your company’s ability to make changes to their supply chain?

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Outsourcing Opportunities Outsourcing and the transformational supply chain Why your pre-production supply chain matters For composite manufacturers, the pre-production supply chain process—and the transformational opportunity—often starts with a purchase order to the material vendor and ends with the delivery of formatted composite material to the point of production. It’s here that new efficiencies can be uncovered.

By outsourcing pre-production, supply chain activities, cycle time is significantly reduced—allowing you to better focus on “making parts” vs. “getting ready to make parts.”

The primary objective of the pre-production supply chain is to feed the source of revenue - the production of composite parts. To position for supply chain transformation and capture the opportunities, embrace outsourcing!

Unique opportunities in composites formatting There are a few aspects of the composite materials supply chain that make it particularly challenging and susceptible to consuming excess resources. The good news is that this dynamic elevates the potential value of outsourcing.

• Formatting processes are a “necessary evil” of composites formatting. Suppliers need to make parts but composite materials primarily come in rolls, which require formatting to support the various manufacturing processes.

• Formatting processes can be very expensive and time-consuming.

Each manufacturing process requires a specific format from the material to meet production requirements (see chart below).

Developing these formatting processes in-house for new requirements can drive long lead times for product development and onboarding.

• Every new product and/or program requires new formatting capabilities, which drive more costs, more asset utilization, and more technical support.

Seven avenues worth investigating Discovering and measuring transformational opportunities The elements below can help you identify specific areas for value tracking and impact calculation when you outsource pre-production/ formatting activities: 1. Reducing supply chain operating costs 2. Lowering carrying costs 3. Freeing up working capital 4. Eliminating pre-production steps/management 5. Realigning activities for optimal value/revenue generation 6. Cultivating additional new business channels/partnerships 7. Shifting current variable costs to fixed-cost elements Let’s look deeper into these opportunities...

1. Reducing supply chain operating costs Supply chain costs—including inventory, material management and scrap—can add 28-35% (or more) to the cost of your composite materials.

Purchase orders distributed to multiple material and adhesives vendors ultimately drive numerous transactions requiring time, cost, and labor to manage the expediting, receiving, quality inspection, internal logistics and inventory of goods.

Vendor consolidation and a significant reduction in purchase orders is automatic when outsourcing. Instead of managing multiple vendors, multiple raw material part numbers, and PO’s, which drive transactional activity and cost, consolidate to one vendor/partner.

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Of course, your team will retain the high-level supply responsibilities of vendor selection, contractual pricing agreements and macro production demand planning—to maintain your quality and standards. You will also be able to manage formatting specifications, quality requirements and notice of specification revision changes.

Regular communication and metrics reporting replace ensure alignment with production performance requirements, but with those important exceptions your team is relieved of the major pre-production supply chain responsibilities.

The transition and transformational process can be accomplished in a relatively short timeline and without capital investment. A typical “Current Production Cycle Time” vs. post-outsourcing “Revised Cycle Time” are depicted below.

Outsourcing pre-production formatting - cycle time impact

Outsourcing formatting requirements can expand your scope of formatting capabilities and your ability to explore/adopt new materials and processes that are developing with the design of future structural components. Multiple processes can be run at once.

Production can be scaled with greater agility. This accelerated technology curve has already been observed in products such as nacelles and EVTOL aircraft, to name a few.

5. Realigning activities for optimal value/revenue generation Ensuring that every manufacturing process you run, every person on staff, and every square foot of real estate is generating the maximum value is the kind of competitive advantage that defines long-term success. When you transition your assets and people away from pre-production activities that aren’t unique to your product, you are automatically increasing their bottom-line impact. When each party in the manufacturing process can focus on its specialized role and core competencies, with an understanding of how that role helps achieve the end-product objective, everyone wins.

6. Cultivating additional new business channels/partnerships An outsource relationship can also offer opportunities to leverage your partner’s core competencies to expand scope of your company’s capabilities and scale of potential new projects/programs you’re able to produce or bid to produce.

Information management should include predictive analytics, including automated pre-preg out-time tracking, management of any material testing and qualification data.

2. Lowering your carrying costs Languishing inventory, expensive freezer assets, precious floor space, formatting equipment and personnel, which are all currently invested in your in-house pre-production supply chain, can all now be realigned to support growth of current and new products/ programs—resulting in significant carrying cost savings.

(See Case Study on page 7 for a $4 million illustration.)

3. Freeing up working capital As your supply chain transitions to an outsourced model, you’ll be able to recover resources for investment in production and other revenue-producing opportunities. Cash flow improvements are measurable and quickly achieved as the pre-production supply chain is transferred to the outsourcing partner. Outsourcing can drive short-term transformation and enhanced productivity and profitability.

4. Eliminating materials management costs/risks and formatting processes

Your outsourced partner may possess capabilities you don’t have in house, which might allow you to offer new product solutions faster than before—a faster NPI process! You may be able to take on new projects quicker without needing extended time to develop manufacturing concepts plus estimate the formatting cost and develop a proposal required to meet the bid specifications.

(Your outsourcing partner is already prepared.)

Winning a new program requires investment in formatting capabilities, talent, and the floor space to execute those supply chain requirements. An outsource partner can take the development process a step further by testing and evaluating different materials and process options before scaling high-volume, production solutions.

Accurate material yield and scrap rate projections are important for new program proposals and price bids. Having an outsource partner with that expertise can help win new business—and deliver enhanced profitability for the life of the program.

7. Shifting current variable costs to fixed-cost elements If you are currently handling pre-production formatting in-house, you are subject to significant variability in materials costs, time required to produce, labor costs, transportation, and so on. By moving these activities to an outsourced partner, you are able to negotiate a fixed long-term cost for the duration of your contract or program.

Outsourcing formatting processes to a partner both transfers risks (e.g. materials price fluctuations, logistics costs) and frees up in-house assets—including personnel, floor space, and cash—assets that can then be better used to drive short-term production growth.

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Lean, risk mitigated supply chain replenishment

If you are familiar with the concept of lean, min-max fulfillment in supply chain management, you’ll understand the time and effort it takes to build a workable system. Imagine being able to tap into a ready-made process from a supply chain partner who has already invested in the required elements needed to achieve this kind of value.

Here’s an example of a simple shop floor consumption model.

The outsource partner drives the fulfillment quantity required to replenish product to the max production requirement level.

This min-max pull process drives efficiency and risk mitigation via minimized transactions, eliminated wait time, small lots, simple process flow, and exact demand “pull” requirements.

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Measuring Value A “dollarized” accounting of outsourcing opportunities So what is the value of outsourcing? Given the opportunities outlined, how do you measure the potential impact?

First, it’s important to measure everything that can be measured.

You must have a true picture of your current “total supply chain costs”, including the formatting processes, to understand your current efficiencies or inefficiencies and make a rational decision on outsourcing.

Other hidden costs...

Be sure to consider the “hidden costs” of your pre-production materials and in-house formatting. These elements can be seen in the following graph:

Cost of possession

Identifying your full range of costs Tools such as Value Stream Mapping can help paint the picture of your current processes and identify areas of waste. If you don’t have the personnel to conduct the VSM events, there are consultants (maybe even your chosen outsource partner), who can help do that with you.

Supply chain costs are captured in several buckets • Purchase Orders - The process of managing POs is, in itself, expensive. It’s not only the cost to fill out and submit POs as much as it is the time and labor required for the numerous transactions each PO creates; from receiving, to inventory movement, to inventory & material management time.

• Inventory - To account for the real costs, be sure to include: the cost of the goods + space consumed + cash investment (1.5% x value x DOH) • Material Yield - Yield loss is the actual material used in formatting a material for production. If your parent roll is 36” X 500’ long then you’re starting with 1500 square feet. You need 1349 feet to cut a set of plies for a hand lay-up process, then your yield is 90% (1349/1500 = .899). You’re losing 10% of your material, which has a definitive cost. That 10% should be covered in the price of the part. If the yield can be improved, the profitability of the part improves.

• Material Scrap Loss - This is material that simply goes to waste, either from poor material management, exceeding out-time, non-conforming formatted material that can’t be used, or material that didn’t get put back in the freezer at the end of the day.

Industry rates can be up to 30% of purchased material. Unless the entire material is charged to the job, which can put you in an uncompetitive position, then your costs are elevated and profits are below what they could be.

• Formatting of Composite Materials - This is the “necessary evil” of composites manufacturing. Formatting is rarely a manufacturers core competency; however, it is a constant requirement. The non-revenue floor space, technical, and operational talent required, and the capital to procure and locate the processing equipment, are all investments that can be “dollarized”. The one certainty is: Those dollars would be more productive if aligned with revenue-producing activities.

Case study: $4 million in demonstrated savings

A major aircraft engine manufacturer wanted to streamline its composite pre-preg formatting operation by outsourcing the entire process. After calculating prospective savings related to supply chain, material management, and kitting activities (along with the benefits of freed up floor space) the company chose to partner with Web Industries to produce 11 part numbers. Some of the measurable benefits included: • Inventory management costs cut by nearly $4 million annually • Reduced cycle time (order receipt to shipped goods) by 50% • Valuable floor space recovered for more profitable use • Important engineering resources returned to core activities *To download a full copy of this case study, please visit: www.webindustries.com/assets/resources/pdfs/web-industriesaerospace-case-study.pdf

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Evaluating Potential Outsourcing Partnerships Paradigms are constantly shifting as advanced materials and manufacturing techniques evolve.

An effective outsource supply chain/formatting partner can deliver different materials custom formatted to meet specified requirements with better quality and lower total cost than can be achieved in house.

Getting the relationship right Relationships for supply chain outsourcing are between both organizations and people—and anticipating the dynamics of establishing that relationship can be critical.

Adequately investing in the “people” side will help cement the relationship. In many respects, the relationship between a company and an outsourcing provider is like getting married.

There is a courtship period that starts out with dating (RFP process), followed by a wedding and honeymoon (selection and start-up) and, finally, a happy marriage (maintaining/managing the partnership).

The outsourcing life cycle

By investing in equipment, technologies, and talent dedicated to these core competencies, material formatters free their manufacturing partners of these responsibilities, allowing them to focus resources on their core competencies. And when innovators of aircraft design and assembly can focus on doing just that, the sky’s the limit in terms of what next-generation aerospace advancements they can pursue.

Closer collaborations offer better results In most cases, these outsourcing relationships are either arms-length, vendor-client arrangements or true collaborative partnerships characterized by mutual exchange and trust. Ideally the post-implementation relationships should move beyond vendor/ client to partnership. There is always a contractual relationship; however, there is also a relationship between the people in your company and the people in the provider’s company. Adequately investing in the “people” side will cement a long-term relationship.

Asking the right questions To build and maintain a lasting outsource relationship, remember that there is no “off the shelf” approach. Each product/program is a stand alone business and the supply chain, formatting, and fulfillment need to be customized for each one. Establishing a relationship based on long-term success takes dedicated effort and a planned approach.

Continuous improvement Another key to enjoying a lasting outsource relationship is an emphasis on continuous improvement. To practice continuous improvement, you and your outsource partner should understand that a true partnership requires collaboration and cooperation.

Although companies involved in an outsourcing relationship agree with that principle, true partnering is rarely practiced.

Leveraging the outsourcing partnership During the downsizing that took place during the COVID-19 pandemic, many manufacturers found themselves outsourcing some of their non-core, non-revenue producing competencies. These moves demonstrated tremendous opportunities for enhanced performance and profitability.

The goal is to eliminate the “we vs. them” problem that can undermine such relationships. Accomplishing this goal requires you and your partner to have a disciplined continuous improvement path forward, not just for product/program performance, but for the partnership itself. This path should include: • A shared Vision of where the initiative is headed • Shared values in ethics and honesty beyond traditional norms • Shared expectations and commitment to long-term success • Shared confidence in each other • Shared responsibility for execution, success, and failure

With a robust, outsourced formatting infrastructure at their disposal, aircraft manufacturers and tiered suppliers now have access to the manufacturing equivalent of a “gym membership” in which they can: “work-out” trial various concepts, rule out what doesn’t meet expectations, and ramp up what does at a fraction of the time and cost it would take to set up their own “gym” and testing capabilities.

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Consider Web Industries Web Industries

• Has developed and supported the composite material formatting development as well as the ongoing production and order fulfillment of precision slit tape for the world’s largest airplane programs.

• Has and is supporting integrated supply chain engagements for large engine and nacelle ply cutting programs globally.

• Is, with material suppliers and OEMs, supporting the development of thermoplastic composite products and manufacturing processes, including precision slit tape for automated fiber placement and quasi-isotropic, 45- and 90-degree parent materials for CCM processes.

Web’s expertise has been proven globally on the largest aerospace programs.

Our core competencies position us to be the ultimate outsourcing partner for aerospace and defense composite manufacturers • Composite formatting product and process development • Vendor managed inventory • Precision formatting services • Integrated fulfillment

Learn more Aerospace brochure Development Center For Composites Automation brochure

We would appreciate an opportunity to discuss your challenges and objectives and help design a pre-production composites supply chain partnership that helps transform your business for years to come.

About Web Industries We are 600+ employee-owners inspiring ingenuity through the power of close collaborative relationships.

Precision converting and outsource manufacturing are our core businesses.

Web Aerospace partners with composite manufacturers to outsource/eliminate in-house, pre-production composite formatting and supply chain requirements, allowing them to focus on core manufacturing operations.

In doing so, our customers, without capital investment, are able to: • Outsource pre-production composite formatting and required resources • Leverage recovered assets – people, floor space, cash, etc., to grow. market share • Achieve elevated production throughput while increasing profitability • Expedite new program onboarding and shorten timelines to revenue

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