2005 Update to the 2005 Update to the Business Case Analysis Business Case Analysis of the Parachute of the Parachute IndustryIndustry

Prepared by:Prepared by:

Dr. Lisa Owens & Dr. Frances Dr. Lisa Owens & Dr. Frances KennedyKennedy

Clemson UniversityClemson University

BackgroundBackground

2004 National Security 2004 National Security Assessment of the U.S. Aerial Assessment of the U.S. Aerial Delivery Equipment IndustryDelivery Equipment Industry– Prepared by the U.S. Department of Prepared by the U.S. Department of

CommerceCommerce– 1996 – 20001996 – 2000– Scope: Industry-wide; Included Scope: Industry-wide; Included

Market and Supplier EnvironmentsMarket and Supplier Environments

BackgroundBackground

2005 Update to the Business Case 2005 Update to the Business Case Analysis portion of the original Analysis portion of the original studystudy– Adds 2001 - 2005Adds 2001 - 2005– Current Report: 1996 – 2005Current Report: 1996 – 2005– Scope: 4 primary producersScope: 4 primary producers

MethodologyMethodology

Multi-stage processMulti-stage process– Visited one manufacturerVisited one manufacturer– Developed questionnaire and Developed questionnaire and

collected consistent data and collected consistent data and informationinformation

– Followed up with numerous Followed up with numerous conversationsconversations

Business Case Analysis Business Case Analysis Results Results Four general areasFour general areas

– SalesSales– MarginMargin– LaborLabor– InvestmentInvestment

Total Sales DollarsTotal Sales Dollars11

$0$10

$20$30

$40$50

$60$70

$80$90

1 Stated in Millions

2001: 58%

TOTALDecrease

Sales Dollars by Sales Dollars by CategoryCategory11

$0

$10

$20

$30

$40

$50

$60

Defense International Comercial

2001: 67%

Defense Decrease

1 Stated in Millions

Defense Sales as a Defense Sales as a Percent of Total Sales Percent of Total Sales

0%

10%

20%

30%

40%

50%

60%

70%

80%

GrowingDependence

60-68%

Average MarginAverage Margin

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4% High: 3.4%

35% to 500%

Fluctuations

Single Year Declines of 148%

Labor StatisticsLabor Statistics

0

200

400

600

800

1000

1200

Production Nonproduction Engineering Other

SIGNIFICANT

Workforce ReductionsLoss of Expertise

Eroding Labor Market

Capital InvestmentCapital Investment11

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

Plant Equipment1 Stated in Thousands

UNPREDICTABLE DEMAND

&LOW MARGINS

TRIGGER

ImplicationImplicationss

1. Constrains technology investment

2. Locks in old costly processes

CONSTRAINTS

1. Layoff experienced workers * Increases costs –

inefficiencies, hiring, training*10-12 month learning curve

2. Long lead times* Slow delivery* Excess inventory costs* Ties up precious capital

RESULTS

1. Higher costs . . . to producer . . . To customer

2. Slow delivery

IMPLICATIONS

Potential?Potential?

Example: 1 value stream in 1 facilityExample: 1 value stream in 1 facility– In 2 years:In 2 years:

Capacity (units) more than doubledCapacity (units) more than doubled Capacity (square feet) reduced to 69%Capacity (square feet) reduced to 69%

– Reduced Days Supply of Inventory (DSI) Reduced Days Supply of Inventory (DSI) from 125 to 61from 125 to 61

– Order to Invoice time fell from 21 to 5 daysOrder to Invoice time fell from 21 to 5 days– One year improvement of 17% in sales per One year improvement of 17% in sales per

employeeemployee

Problems?Problems?

Typical change management issuesTypical change management issues– CommunicationsCommunications– Performance measurementPerformance measurement– Managing expectationsManaging expectations– Ensuring security Ensuring security

Other potential barriersOther potential barriers– Technology constraintsTechnology constraints– FundingFunding– Timing Timing

Research Potential – Research Potential – Supply Chain Supply Chain Document problems, barriers, Document problems, barriers,

implementation and resultsimplementation and results– Ideal supply chainIdeal supply chain

Well-defined Well-defined CriticalCritical

Research ImplicationsResearch Implications

CustomerCustomer– Results of the study impact other Results of the study impact other

Defense supply chainsDefense supply chains Supply ChainSupply Chain

– Better communications and awarenessBetter communications and awareness– Identify potential barriers Identify potential barriers – Identification and development of the Identification and development of the

best metrics to track progress and best metrics to track progress and impact of changesimpact of changes

Baseline Research Baseline Research

During this slow period, we canDuring this slow period, we can– Baseline metricsBaseline metrics– Identify potential barriersIdentify potential barriers– Quantify holding capitalQuantify holding capital

This initial phase could inform This initial phase could inform actual implementationactual implementation

Questions and Discussion?Questions and Discussion?

Dr. Lisa Owens

(864) 656-4888

lisao@clemson.edu

Dr. Frances Kennedy

(864) 656-4712

fkenned@clemson.edu