Digital twin is an exciting technology that builds an accurate representation of a real-life system, making it easy to test, verify, and implement changes. Kel Chou, Regional Manager of the Aviation & Aerospace Vertical for North and South Asia, talks about its origins and possibilities when applied to supply chains, creating myriad questions and discoveries for significant transformation.
Chris Parker: Hello, everyone. And welcome to the Expeditors podcast, where we look at the logistics and freight forwarding industry through the lens of a global logistics provider. I'm your host, Chris Parker. And today, we're talking about digital twin technology and how the very creator of it, the aerospace and aviation industry, is a prime target to realize a massive digital transformation through its application to their supply chains. Joining me is the regional manager of North and South Asia for the aviation and aerospace vertical, Kel Chow. Kel, welcome.
Kel Chou: Hey, Chris. Good morning.
Chris Parker: Good evening. Actually. I'm calling you from my evening. I'm calling you in your morning. You're all the way out in Singapore. How is the weather out over there?
Kel Chou: Oh, fantastic. It's always hot, humid, and sunny all the time.
Chris Parker: I don't know how you guys do it. I like my nice crisp Pacific Northwest air. That's the right climate for me. So today, we're talking about digital twin technology and its impact on the aerospace and aviation industry. Kel, could you walk me through your career, and your relationship within this space? What kind of experience do you have, and what has brought you to where you are now?
Kel Chou: I came from the dark side of the force, I would call it, where I used to spend more than 13 years in the air force, managing 24/7 AOG operations, and maintenance plans. And a huge part of that is to ensure that the logistics and supply chain plans are aligned with the maintenance plans to deliver the outcomes that we want, which is to generate enough aircraft to fly. So essentially, my background is in engineering. I spent a good number of years as an engineer. So, data is really part of my DNA, so to speak. Being engineers, we are very data-driven, very objective-driven to really drive innovation and continuous improvements, not just in the way we conduct maintenance and engineering on the aircraft but also in the logistics and supply chain processes because all of them come together to deliver integrated value for the overall outcomes to keep our planes flying.
Chris Parker: You've seen then, I guess, any kind of evolution within the industry. You've seen changes and stuff over the last however many years that you've been involved, yeah?
Kel Chou: Definitely, well, I would say that the technology that goes into designing, and engineering aerospace products has been rapidly evolving over the decades. However, I think the opportunity in terms of aerospace logistics and supply chain is where the there's a lot of white space, or I'll call it's in the digital infancy. There's a lot of space where a progressive company could leverage on digital technology solutions to be able to deliver more value for their operations for their business.
Chris Parker: And obviously, today we're talking about digital twin. So, could you help me understand? And I know we've talked about this before and previous episodes, but what is digital twin technology, according to you? And I know that we at Expeditors, we have our own version of it called Living Model, but for the sake of the conversation, we'll just call it digital twin here. What is it? And what's like the history of it too because I know it has a relationship or has its roots in aviation.
Kel Chou: So, the digital twin technology is actually not new to the aviation and aerospace world. Digital twin has been applied in aerospace, notably in the design and engineering process, all the products, whether it's in the airframe or the propulsion systems, also known as the engines, aircraft engines, well in the aftermarket or MRO segment, the maintenance and repair overhaul segment, it's also used to do, kind of, conducting monitoring of the health of the systems onboard the aircraft or even the spacecraft. So, in our context here, the Living Model service, the digital twin capability, is a key to a diagnostic capability that is now available for progressive customers to be able to measure the performance of their supply chain and diagnose opportunities for continuous improvements and innovation. So, this is not just a software solution, but it comes with a supply chain engineering resources to support customers with the relevant studies, to dive deep into the data, to help them navigate their journey for continuous improvement and innovation in their supply chain.
Kel Chou: What we envision in their experience upon being set up for digital twin is that stakeholders in the aerospace supply chains will have a Living Model of their supply chain, that they can measure their performance with respect to the desired outcomes that the business really desires and really look into the data to diagnose opportunities for continuous improvements. You think about it. The experience is akin to watching movies on Netflix. You can tune into the channels that you want, the relevant movies, the different themes which meet your taste and preferences. And it allows you to address very strategic questions that you can solve as part of your problem statements in your supply chain.
Chris Parker: You mentioned MRO earlier, and I guess I'm curious, what are some of the unique characteristics of supply chains in aviation and aerospace?
Kel Chou: The very interesting relationship in aviation aerospace is that in MRO is often very complex. That's a huge mix. I call it in terms of the range of part numbers and there is a relatively low quantity for every part number. So, you have a high mix, low volume kind of supply chain. So, it becomes very fragmented. And many large enterprises actually grew through mergers and acquisitions. Over time, over decades. And what happens is that your supply chain is growing in silos. So, you'll find that the nature of the supply chain tends to be very decentralized because of the way these aerospace companies have grown over the years, over the decades. And well, it doesn't help that data eventually is sitting in various silos and hence tend to be very fragmented in a supply chain environment, where you're trying to drive cost (down) and performance. It can be very hard to navigate forward when you have a very fragmented, siloed supply chain. That is also complex.
Chris Parker: I remember Neil Rub, I had on a few episodes ago, he was saying that an airline manufacturer can have up to 12,000 partners that are manufacturing different parts and such. I mean, that management is just... That's unreal. That's too many.
Kel Chou: Yeah, exactly. Yeah, exactly. And well, in a way that industry or the decades have been kind of socialized in a certain operating model where it requires a very labor-intensive operating environment that we have been comfortable in the leveraging a lot of human resources and that doesn't help with the pandemic over the last two and a half years, because suddenly you have an opportunity here. You are able to take a pause, reset and say, "What can we do better? How can we drive and embrace digital transformation to do more with less, not so much of, with less people, but to generate more value in the operating model? At the same time, create a better working environment, employee experience, stakeholder experience for the internal stakeholders as well as for the customers as well."
Chris Parker: So, all these partners, all these silos and stuff, this is how the industry has always been made up. Has there ever been an effort to, I guess, mitigate any of this? What problems does it cause, and who has tried to do anything about it?
Kel Chou: Well, it's hard for one person to solve this. It is a transformation. It's a change management, and well, there's some studies in... Let's say done by McKinsey in the latest data study that they did in 2021, they found that the supply chain is a single largest driver of the cost structure for most aerospace companies. Yet the digital maturity is in its infancy, and of the companies in the study, only up to 12, from 12 to 15%, adopt digital on various elements in their supply chain, despite the fact that it's the single largest cost structure. So it gives the most opportunity for progressive companies to look into that and say, "What can we do in the supply chain that we can embrace more digitalization to drive how we do things and manage our production or the way we conduct maintenance, repair, and overhaul in our fleets, in our components to deliver better value for the customers to deliver better efficiency and productivity and to drive greater value in the entire value chain."
Chris Parker: So then, what would you say is unique about the aviation industry that really makes it, I guess, the right target for a transformation through something like digital twin?
Kel Chou: Well, I would say that many of these aerospace companies, well, they have embraced an operational excellence framework that kind of requires their stakeholders to even drive innovation and continuous improvements in their supply chain, with KPIs even allocated for ownership at all levels within the organization. So, everyone is kind of working with a set of scorecards and KPIs. So, the innate desire and need to drive innovation, to improve productivity and efficiency in the way they conduct the day-to-day operations has always been there. And if you think about it from a supply chain management and logistics, right? If you're managing a global supply chain, your goal is always about trying to find a single source of truth, a comprehensive picture with a base on objective data sets to measure the performance so they can drive improvement. If you can't measure, you can't manage.
Chris Parker: Right.
Kel Chou: So, in the end, it's about connecting back to the operational excellence framework that they have in place. The tool gives them a means to achieve those outcomes that they want to achieve. Without a tool, then, you have decentralized data sets in silos, and it's hard for you to make decisions in a very objective way to trust your data. And say, what can you do with your supply chain? But the simple principle is this. If you can't measure properly, then it's very hard to manage properly.
Chris Parker: And something that I imagine, too, is with so many partners under a single manufacturer, is that everyone may be reporting differently, or there's just different approaches to the data. The data quality is going to vary quite vastly amongst all the partners, correct?
Kel Chou: Well, that's a pain point, actually.
Chris Parker: Exactly.
Kel Chou: In the same McKinsey study, they actually pointed out the same problem. So nearly every company's data, from spending to the supply performance to inventory levels, were observed to be very disparately organized. That is often challenging to trust the data to make decisions, and well, in a way, the study also concluded that it's a byproduct of a sector that has grown through acquisitions over time. So, the problem compounds when you're trying to share data across companies or across within the larger enterprise when you want to collaborate, you want to find ways to collaborate. How do you leverage on that data to deliver actionable insights? It's very tough. And it doesn't help that many of these large enterprises have grown to a large size in a very decentralized manner. And each divisional entity may even have their own P&L, right? Well, it doesn't help.
Chris Parker: If digital twin is such an appropriate thing for, and a powerful tool for manufacturers, what would you say are some things that make it kind of hard to adopt across the industry?
Kel Chou: Well, I would say it's not just for manufacturers. It's also for the players in the MRO industry. So, correlating to the question, I would say that we have a saying at Expeditors. It's people, process, and technology that synergizes value to our operations, and in return, it translates to value being created for our customers. So, circling back to the question, I would say is having the right people with the right skill sets and experience, digital skillsets and experience in the context of logistics and supply chain to drive digital transformation is not something that it has been embedded in the DNA of many of these entities in the industry, it is a very new domain. The technology (in aerospace) concluded in the study by McKinsey is very advanced in the R&D, in the design and engineering, but in the logistics and supply chain, that's where they find that's white space that's in its real infancy. Yet supply chain has the largest cost driver in the overall cost of operations, right? So, the biggest challenge is to really have the right people with the right skill sets and experience to drive that digital transformation across various levels in the organization.
Chris Parker: So then, for an organization that wants to use the digital twin technology, how hard is it to test, to validate, and implement the directions that they want to take?
Kel Chou: I'll correlate back to the study that McKinsey has done. They have... I'll call out some statistics here as well.
Chris Parker: Yeah, please.
Kel Chou: That 28% of the companies in the study reported having a vision or strategy for data used that aligned with business objectives. However, the data is very securely kept. It is not easy to use because they're in silos, they're sitting in different systems, they're not integrated, they're not in the same templates or-
Chris Parker: They don't even talk to each other.
Kel Chou: So... Well, there's a syndrome of garbage in, garbage out. Right?
Chris Parker: Right.
Kel Chou: That happens. So, it's a function of how you keep in and how do you interpret the data? And only 22% of these companies reported having clean, structured data-
Chris Parker: Wow.
Kel Chou: Stored in a central repository that is ready for analysis. Wow. So, I would say the key thing about embarking on a digital twin setup for the supply chain, whether it's in aerospace or not, is about having a very clear, defined data governance strategy. And in the context of aviation and aerospace, where it's highly fragmented, that's a starting point, that's a pain point to really start thinking about having a good data governance strategy. And in the context of our Living Model service here, that's part of the scope of work that Expeditors offers to help navigate that conversation about establishing a good data governance strategy as part of setting up for success.
Chris Parker: Absolutely.
Kel Chou: In digital twin.
Chris Parker: And a data governance strategy, to me, sounds like a big investment. Do you see this as a barrier for organizations to want to pursue?
Kel Chou: Well, I would say that there's no need to start with a big bang, right? Usually, you look at the entire supply chain, a global supply chain and aerospace supply chains tend to be very globalized. And I would not recommend starting with a big bang, right? Really start with a certain segment of the supply chain. Prioritize or define first the problem statements that you want to solve, at least the known problem statements you want to solve. And then kind of zoom it down to a certain segment, start on that segment itself and test it, and build, measure, learn before you scale up. So, you're able to validate, addressing those problem statements, and in the process, you may even uncover new potential problems that you're totally not aware of.
Chris Parker: I mean, hey, that'd be huge if you could figure that out, even just from a small sample set.
Kel Chou: Exactly. So, you get it right at a small sample size before you scale up. I think that's an easier way, I'll call it. It's kind of doing a proof of concept, do a POC study with a certain segment or a supply chain with a certain program. And then you validate it, it works. You have to ensure that it aligns to your process. So, I remember, if I recall that dimension, it's your people, process, and technology. So, it's not just buying a software tool. You need to be able to make sure that people are trained, equipped with the necessary skills and expertise to interpret the data, to sense make the data to introduce changes to the supply chain, to pass it out, to validate.
Kel Chou: And you have to have a process as part of your data governance strategy to collect the data in a very systematic way. So, it's people, process, and then the technology tool that comes together. And people need to be trained to use the tool, right?
Chris Parker: Sure. Of course.
Kel Chou: So, in a way, it's a digital transformation project. So hence it's easier to start small, test it out, and make it work at a smaller scale before you scale up to a larger globalized supply chain.
Chris Parker: What would you say are some cool questions that can be answered with digital twin technology? And I know that there's an aspect of, "We don't know what we don't know." So there's going to be a lot of discovery that will happen, but what do you see as some kind of interesting things to be discovered?
Kel Chou: Yeah. There are a couple of questions. I'll call up some examples.
Chris Parker: Please.
Kel Chou: So, for example, MRO, supply chains, you could be asking questions like, where should I position my forward stocking locations, considering my vendor footprint and the customer locations that allow us to best achieve our KPIs because what's a sweet spot that you have to position the FSL, your forward stocking location. Do we need one? Do we need two? Do we need three? And if we need three, where should we position that? The next question could be what kind of KPIs and service level agreements, example again, in the context of MRO, the turnaround time for the repair cycle of the components, what can I sign up for with my customers and my suppliers, and repair station that is achievable given the current market conditions-
Chris Parker: I really like this one.
Kel Chou: Market conditions are always evolving. So, with a Living Model, it allows you to model, to test it out before you execute, and you can validate those responses as well,
Chris Parker: But it means that you don't have to worry about over-promising or under-delivering because everything is right-sized-
Kel Chou: Exactly.
Chris Parker: Because it's been tested and validated, and you kind of have an idea of what is comfortable and the right amount of risk for your company to take.
Kel Chou: Exactly. Be careful what you sign up for. So, you need to know what you're signing for, whether it's metrics that you are agreeing with your customers or with your suppliers and vendors, repair stations, is it going to work? So, if you don't have a tool to measure, to manage, then it's kind of risky if you think about it. So, the technology has evolved to a point when, if you're able to get that set up right, you have a diagnostic capability to be able to test model validate before you execute, which is what they're doing in aerospace, in R&D, and design, and engineering environment, because you're always iterating your designs, you're testing how it works in the performance before you go for your production
Chris Parker: Ensure safety.
Kel Chou: Exactly. So, if we are doing that for design, engineering, and R&D, why not do it for supply chain? The other questions I can imagine, what cost savings and performance would we have if you take on more consolidation programs for specific range of non-time critical parts for repair and production volumes? Well, I'm sure many strategic business leaders are asking those questions, and without a digital twin, it's kind of hard to validate or to make a very objective assessment of that question. And in the context of sustainability in recent times, that is a really big movement going on in the industry, which is carbon emissions reporting for scope three emissions, the indirect emissions in a context or transportation and distribution, notably categories four and nine respectively, as an opportunity to amalgamate, multiple sources of carbon reports from multiple providers, allowing progressive entities to have that comprehensive tool to manage all their scope three emissions while ensuring compliance to global standards. For example, the global logistics emission council methodology. So these are some examples of the questions we can address with the Living Model or with a digital twin.
Chris Parker: And these are huge questions too. I mean, these are almost an existential level of how a company wants to adhere to certain sustainability goals or even just making sure that they're doing business in a way that's comfortable for them. I think that's really cool.
Kel Chou: So, it's not just-
Chris Parker: So much opportunity.
Kel Chou: Yeah. It's not just managing your operating expenses. It's also about how you deliver greater value for your stakeholders, and your customers. How do you ensure that you sign up for something that you can achieve and not over-committing? So that you can still grow revenue sustainably without incurring unnecessary costs in your business. It's also about ensuring that your employees have a healthy, sustainable work-life experience in a new hybrid operating environment.
Chris Parker: What would you say is driving the effort then for digital transformation within aerospace and aviation industries?
Kel Chou: Well, I would say that the pandemic over the last two and a half years of provided opportunities for very progressive enterprises, especially those with very strong financial support and financial standing to take a pause, to take a reset, to explore new methodologies, to improve productivity and efficiency in the operations. Regardless of whether as in MRO in maintenance repair and overhaul or in manufacturing, I mentioned earlier in my responses, many of these big boys have their respective versions of an operational excellence framework. Pre-pandemic it is already there, and it defines the way they operate, and the employees are measured to those KPIs and scorecards in accordance with those frameworks that they have expanded. And that is their model to drive productivity and efficiency. Now I'll call out some push and pull factors. So post-pandemic or in the endemic stage we are in, I think companies are beginning to recognize that it's no longer sustainable to fall back on the pre-pandemic operating model that may be seemingly too labor-intensive in the context of a new operating environment that we are in today.
Kel Chou: Supply chains have changed and evolved; employee landscapes have evolved. So, there's a strong desire to say, "Hey, let's contemplate ideas. Let's evaluate options that allow us to re-engineer our new operating models to drive revenue growth while managing the cost of operations and keeping productivity and efficiency high and the workforce happy." This is not an easy thing to do right now because it's not easy to ensure and retain a very skilled and talented workforce. So, these are the push factors. And then the other pull factors, digital technology solutions, are becoming hygiene factors to keep pace with the evolving employee landscape in the new competitive environment that embraces hybrid remote work. So, it doesn't need to always contemplate the digital employee experience.
Chris Parker: I mean, this all sounds great. We're talking about a company being able to retain its employees better, meet its sustainability goals, redesign its supply chains and manage things in a much more efficient and informed manner. That informed aspect is really cool to think about. Say an organization wants to get started with implementing a digital twin, creating one, and then running models off of it. How do they get started? What's step one?
Kel Chou: I will kind of define it simply as the build, measure, learn, scale model. So, work with partners. Start looking at partners who have the supply chain expertise and experience coupled with digital technology tools. These guys can offer boots-on-ground support that can walk the journey with you. They're not just selling you a software and you figure it out on your own. They can walk the journey with you to drive that, to navigate that digital transformation journey, to define the data governance strategy well, and ensure that you are transitioned and set up and ready to go. The next thing is, as I mentioned earlier, it's important not to start with a big bang, identify a segment of a supply chain to start with before you scale up, get it right where you encompass developing the right expertise, whether you train them or you hire or work with partners, expertise at all levels to define and manage elements of your people, process, and technology, in relation to this adoption of a new technology solution.
Kel Chou: And define problem statements, at least the known-problem statements, right? To diagnose and manage and test out that digital twin Living Model solution. And I will also call out the... It's important to have the capacity to be aware of the unknown unknowns, the unknown problems. Because once you start measuring, you start to observe, and you have the opportunity to observe new trends and new insights that allow you to drive more actionable initiatives to improve your supply chain. The last thing I will call out is it's important to realign back to your organizational business plans. And I will call out an example is the operational excellence program. I mentioned, most of them have a well-defined operational excellence program. We need to focus on how you connect this back to your KPIs. How does it help you improve your business and your corporate goals and performance? Well, in the end, we are supporting you to run a business and to deliver a competitive edge in your business.
Chris Parker: What I like you said was, to have the problem statements figured out but also be prepared to learn a lot. That space for that unknown, I think, is such an interesting perspective if you're going to have some problems that you are well aware of. And then you're going to implement this technology to seek out those solutions. But this could uncover a lot of other things that could lead to a greater transformation and organizational transformation; it sounds.
Kel Chou: And hence the importance to relate back to the business and corporate business plans. Right?
Chris Parker: Absolutely. Yeah. That's your north start right there.
Kel Chou: Exactly. To begin with the end in mind, so to speak.
Chris Parker: Kel, as we wrap this up, I want to know, what kind of excites you the most about what digital twin technology can do?
Kel Chou: Well, I'll wear my engineering hat.
Chris Parker: Sure.
Kel Chou: In a sense that it allows me to test, model, experiment scenarios and solutions before I execute them. So, I think that is a huge mindset shift from a trial-and-error approach in supply chain and logistics. Because if you do not have a digital twin set up properly to do all of that stuff, then essentially what you're doing is you are employing a trial-and-error approach in the post-pandemic or endemic environment where disruptions will continue to be evolving. I think it's very challenging to be basically employing a trial-and-error approach.
Chris Parker: Can a company even afford to make those kinds of experiments, that trial and error, that sounds costly more than ever these days?
Kel Chou: Yeah. Well, it's costly. It's not to say that you trial and error with the digital twin. You can, but now you're doing it within a more simulated environment, right? Because based on data, based on the data you're set up with, you're able to do all the modeling that you want before you go live, right? So yeah, it is taking a more calculated, objective-driven approach before you dive into the deep blue sea, so to speak.
Chris Parker: Yeah. Yeah, Kel, thank you so much for talking to me about this. I'm really excited to see where this goes. Not only with this industry, but also how it can be applied to the everyday person. What can this do? This sounds like this is the start or at least the next step after being used in engineering space. So it's exciting to see where this kind of thing will go.
Kel Chou: My pleasure as well, Chris.
Chris Parker: Thanks for listening to today's episode. If you've got any questions or want to learn more about today's topic, check out the show notes for more information. And before you go, make sure you're subscribed to whatever podcast app you're using so you won't miss the next episode. To learn more about Expeditors, you can find us on LinkedIn, Facebook, Instagram, and Twitter, or simply visit us at expeditors.com. Take care, and I'll see you next time.