The role of logistics competitiveness in Airbus’s Mobile, Alabama assembly plant decision

A New York Times article (September 18, 2015) titled “First US Airbus Factory Gives Wings to Revival in Mobile, Alabama” describes parts being flown in from Europe for assembly of the A321 jet in the Mobile plant. But the article describes the deepwater port to receive large parts from Europe, freight trains nearby and two long runways at the nearby Brookley airport that added to Mobile’s competitiveness. The historic role of military employment at the Brookley Air Force base also added to its significance as a location, in addition to the urgency caused by the cancellation of a previously approved tanker project involving Airbus and Northrup Grumman.  How should the logistics access and mode flexibility of a location be incorporated into the calculus regarding its competitiveness ? Given the mix of modes to deliver components, how will this flexibility enable fast response and yet efficient production in response to production issues as they arise ?  Will the US assembly of the jets provide a demand side benefit in addition to supply advantages – if so, which is more important in determining this site’s long run benefit to Airbus

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18 Responses to The role of logistics competitiveness in Airbus’s Mobile, Alabama assembly plant decision

  1. Brian Karabelski says:

    The logistics scenario capabilities in Mobile of having in Mobile of having the deepwater port to receive large parts from Europe, freight trains nearby and two long runways at the nearby Brookley airport allow for a very flexible, efficient supply chain to the Airbus factory. By optimizing this supply chain it will add to the competitiveness of Airbus and will be important in determining the sites long run benefit to Airbus.

  2. Patrick Lee says:

    Regarding, competitiveness ? It is a about speed of reception and delivery. Having more than one way is better than one is true logistics. This keeps the supply chain fluid. The flexibility enhances coordination to produce and deliver on time and also just in time-that is where the efficiency lies. Yes, I believe the US assembly of the jets provide a demand side benefit in addition to supply advantages – the supply side is important as the buses become readily available to meet consumer need.

  3. Sooin Kim says:

    An interesting example, similar to Mobile for logistics location, would be Rotterdam harbor in the Netherlands. This harbor is one of the biggest harbors with incredibly efficient capabilities of receiving largest ships in the worlds. With EU market entrance, this harbor is taking the maximum benefits to deliver goods to the rest of Europe using its excellent highway systems. These logistics services are for the market and the US can definitely benefit from the investment of Mobile as one can familiarize its brand and among others. Eventually I believe the long-term growth would come from the innovation and the level of customization level for Airbus, which would be more supply side.

  4. Frank Griffin says:

    The Mobile AL assembly plant has significant logistical benefits that can provide lower costs to allow them to be more competitive. The logistical cost should definitely be analyzed as compared to the competition.
    Another key advantage could be their ability to provide shorter lead-time items. This will allow them to compete with an advantage in certain market segments because of their ability to provide quicker. They can also have a reduced need for inventory since supply time can be shortened.

    Although I do not see the logistical advantages increasing overall demand, shorter lead-times and lower cost structure could shift more market share to Mobile, therefore increasing demand for that region, based on the supply advantages they have.
    The supply advantages I feel is more important to the long term benefit to Airbus.

  5. Mike Flatt says:

    I believe the US assembly could have a positive demand side benefit for Airbus. American’s like American built products and even more to that fact the tax payers like sourcing military hardware from US affiliated companies. In today’s global world sourcing needs to occur from the best overall solution and that may not include only domestically produced products, however if Airbus can check a few extra boxes in it’s favor I believe it will be rewarded. This has proven successful in the auto industry for Toyota and Subaru specifically.

  6. Matt Geddie says:

    Airbus moving to Mobile, AL is a strategic move not only for their US customers but diversifying out of an EU slowing economy. Moreover, the flexibility the Mobile plant gives Airbus in terms a domestic manufacturing and tapping into American Innovation gives a long term plan to an industry that will continue to redevelop itself to cut costs and increase quality most likely fueled by long term government subsidies.

  7. Dan Skinner says:

    The assembly plant in Mobile will allow them to be mobile in their options for shipping. Their logistics will allow them a competitive advantage. I agree with Mike Flatt, the US assembly of the jets will provide a demand benefit, it will allow Airbus to lobby for new jets purchased by US companies to be subsidized by both the US, and Alabama government.
    In the long run the supply side, logistical benefit, outweighs the demand side benefit.

  8. M. Moore says:

    Logistics access and mode flexibility should be considered in the calculus when considering carrying cost, response time (Goodwill) and capacity in future expansion. The mix in modes will allow for flexibility if one mode is impacted by weather or fuel cost, additionally component size and unit volume should be considered as an alternate mode may be less costly as volumes change. Additionally if there is a production issue and additional materials are to be made, alternate modes are valuable as one mode may have additional frequency, smaller or larger volume etc.
    The US assembly will provide supply advantages as many existing component manufactures are located in the US and a vast supply are available for additional components. Demand Side benefits with additional orders and the foundation of “Good Will” will be invaluable in the future for additional orders in the US. The most important for the long run benefit for Airbus is the supply advantages. As Airbus will have multiple routes for incoming components having the port, and rail. Regarding shipment to customers the airstrip is essential. If one of these key points in the logistics supply chain was missing, then other cities should be considered.

  9. Peter says:

    Airbus made a choice on assembly in Mobile. The assembly of jets in the US will provide demand side benefits in addition to supply advantages. Like my colleagues Mike and Dan pointed out, manufacturing in the US will allow American public opinion to accept them as a potential defense contractor. Matt’s point about Airbus diversifying its manufacturing to insulate itself from potential EU economic woes is also salient. Since Airbus already has a modular assembly system, bringing components from across Europe makes adding an American assembly site reasonable. Mobile’s existing transportation facilities near the former Brookley AFB seem to be the best place to stand up an Airbus facility. Alabama’s history in the French empire and it’s current Right to Work laws can’t hurt their situation either…

  10. LaBaron Hartfield says:

    Manufacturers like Airbus must incorporate the availability logistics options given the complexity of assembling a product like an airplane. Airbus makes several “make vs. buy” decisions to optimize the production of the final product. Brookley Field, with multiple logistic already in place, provides Airbus a tremendous amounts of flexibility for the supply chain of components arriving at the final assembly point.

    Flexibility has upfront costs, though. In selecting Brookley, Airbus avoids the requirement to invest in a vertically integrated facility or public infrastructure for suppliers to reach the facility. Multiple logistics options permit Airbus to be more proactive in finding the most cost-effective suppliers for inputs. The multiple modes of delivery permits Airbus to have contingency plans in place should complications arise in the supply chain.

    Airbus reaps additional the benefits of cost advantages such as a cheaper labor force and the elimination of government tariffs on finished goods. Stateside production should increase the demand for Airbus planes. Airbus can offer a comparable product (Airbus A320/A321 vs Boeing 737) to customers at a more competitive prices without sacrificing margins that would be eroded by wages and tariffs. In the long run, Airbus should focus on the rewards on the supply side as they can exert tighter controls over costs than selling prices acceptable to the market.

  11. Courtney Metzger says:

    I believe that the US assembly will in fact provide a demand side benefit to airbus. As Peter mentioned, this arrangement will allow Airbus to be considered as a military contractor. I also agree with Mike Flatt that this move, similar to Toyota and Subaru, makes the product attractive to US companies. Additionally, Airbus is cutting costs by using assembly postponement. Import tariffs are reduced and even though the strong dollar is likely offsetting this benefit, it is giving them a footprint on US soil.

    In regard to the long run benefit of demand, it is important for Airbus to be aggressive in capturing market share in the US. The product will need to be price competitive and the company will need to build goodwill through marketing its new commitment in the US market. Additionally, it will be necessary for the company to switch capacity between its plants as market conditions change and/ or currencies grow or decline in value.

  12. Throughput is the main variable that needs to be considered for the flexibility. In case it can help during high demand periods (especially when there are production issues) and cost effective otherwise then it is beneficial. Having alternatives will help making contingency plans. That is, this can help lower labor costs by contracting workers as needed than having them all the time. So now it gives them the flexibility to employ more people when needed and lower costs by lowering staff numbers. When there are production issues, they can increase work force in the places that will help resolve issues quickly.By reducing the cost, it will help increase demand. So that will provide long term advantage of finding customers not only locally but also internationally. It will help compete better by making funds focusing on time delivery (which is a major problem in this industry) like production issues.

  13. Oswin Joseph says:

    The deep-water port, freight lines and the long runways provide Airbus an ideal location to bring in parts from Europe to assemble the aero planes. In the long run, it can assemble other structures of the aero plane such as fuselage, cockpit etc and transport quickly using the excellent infrastructure to Europe, China etc. The logistics access, mode flexibility along with the generous tax breaks provided by the state of Alabama goes into Airbus’s calculation of what state to choose to build the plants. Assembling the jets will provide a demand side benefit as the purchase of jets is a highly political issue – US airlines can now buy Airbus instead of Boeing as they are manufactured in the US and this will negate politician’s arguments of not buying American jets. In the long run, I believe it will be the demand benefit that will be useful in generating orders but the supply benefits will be instrumental in ramping up and generating orders as they come through.

  14. Meera Gursahaney says:

    The variety of transport options available in Mobile gives Airbus enormous flexibility when designing their supply chain which when taken advantage of will lead to a competitive advantage in both cost and sourcing. In regards to increasing demand, It doesn’t seem like there would be a huge upswing in demand due to US assembly since it is not the individual consumer purchasing their products. However, I do agree with Mike’s comment about the possible benefits US assembly could provide when it comes to dishing out defense contracts.

  15. Rodney Williams says:

    The logistics capability of the Mobile location provides several advantages that increases the competitiveness of that Mobile plant. First off, it allows the Mobile plant to have several options that could be evaluated for the best efficiency in terms of both time and cost. Lead time could be compared to cost efficiency in that the airfield could be utilized to shorten lead time or the deep water ports could be used to maximize shipment loads and larger parts. Having freight trains nearby ensure a reliable distribution options to other US locations. When all of these are taken into account, it gives Airbus multiple options with varying cost and lead times that’ll support both their scheduled production and unplanned “pop-up” issues that require quicker deliveries.

    Having efficient production and distribution options could possibly lead to higher US demand for Airbus products. If so, the flexibility of the Mobile plant would be able to continue to have supply advantages that should be able to meet the increase in local demand. Being to meet it’s supply side goals would be more beneficial in the long run because it would be able to meet the demand needs. If the supply side is not efficient and able to meet the demand needs, then Airbus would lose the competitiveness advantage to competitors that could better supply the local market.

  16. Emily London says:

    *How should the logistics access and mode flexibility of a location be incorporated into the calculus regarding its competitiveness ?

    They should do some research on the area and facilities to gauge a location’s competitiveness. For example, being near an airport, railway, or waterways tend to be convenient.

    *Given the mix of modes to deliver components, how will this flexibility enable fast response and yet efficient production in response to production issues as they arise ?

    The parts delivered can vary in size so having a waterway or railway can be convenient for efficient production. If a smaller or medium component needs to arrive fast, being close to an airport works best.

    *Will the US assembly of the jets provide a demand side benefit in addition to supply advantages – if so, which is more important in determining this site’s long run benefit to Airbus

    Yes, they can help provide both demand and supply advantages because of the receive of parts and return of parts if they are faulty for speedy construction/repair. Supply is most important because if you cannot supply Airbus planes, you won’t get money.

  17. C. Thomas says:

    Mode flexibility regarding the new assembly location will be key to enhancing its competitiveness, especially in a changing world economy. By having the ability to flex production based on transportation costs with further ability to flex variable lead time the Mobile plant may offer Airbus a distinct supply chain advantage over its customers. The one disadvantage this will bring to their production includes significant efforts put into coordination of transportation of parts and assembly kits as customer demands and transportation expenses change.

  18. Ryan Laskey says:

    I see the Mobile location as a competitive benefit to Airbus’s logistic costs, but I don’t see any demand driven from these actions. The logistic costs for component parts of the size of an airplane can be very high. It is also expensive the expand capacity with the capital equipment required to produce them. By setting up on the eastern seaboard Airbus can pool their capacity with Europe and have the transportation infrastructure to support them. With this advantages Airbus will be able to keep their cost basis low, however I find it hard to believe that the airline industry can be driven by its production location. Airbus and Boeing support the majority of aircraft used throughout the world so the purchasers are going to choose based on costs and features rather than the location of the facility. Even if US purchasers saw US made as a value they would still choose Boeing as a US corporation over Airbus as a French Corporation. They are still importing a large portion of the value chain from the EU.

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