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Resilient and sustainable supply chains for A&D
How to solve challenges and seize opportunities

Gilles Bacquet
17th July 2024
capgemini-engineering

There is a growing demand for greener travel, and more opportunities to serve increasingly security conscious countries across the world. Investment in the right technical tools, and a coordinated effort can help us to build a better supply chain for the A&D sector.

The Challenges

Aerospace and defense are obviously interconnected. That’s why we often group them together as ‘A&D’.

Both sectors today are experiencing separate growth in demand for their products. The COVID-19 pandemic’s after effects are still being felt in both industry’s supply chains. Shortages of essential materials, like titanium, cause production delays, as do labor shortfalls in some areas. Constraints in the supply of specialist electronic components, like chips, is another mutual problem.

Like much of the world, both industries are weathering overall inflation in the costs of raw materials, transport and labor. And, both industries feel increasing societal and shareholder pressure to adopt more sustainable practices in production and supply chain operations, though to a lesser extent in defense.

A&D’s OEMs and tier 1 companies often share the same suppliers and cross industries – which can lead to the intractable problem in which OEMs are able to source parts, but tier 1s can’t, resulting in these tier 1s being unable to service OEMs. This pressurizing of suppliers can create a kind of ‘cannibalization’ within the industry for certain scarce components and materials – creating bottlenecks and delays that harm the industry as a whole.

Aerospace and defense also have their own unique challenges and opportunities, some of which are outlined below.

Aerospace

In aerospace, up to 80% of a product’s value can come from suppliers. The sector has huge levels of complexity and safety critically in its products. For example, a commercial airliner may comprise millions of individual parts – and the lack of just one of these parts is enough to ground that plane. But the lead time for parts is unusually long, two years in advance in some cases – making forward planning a challenge.

Aerospace’s current problems range from book orders full for years, manufacturing rates that never exceed rate 75 (75 units a month) for single aisle aircraft, major quality issues – covered to a damaging extent in mass media – and a weak supplier ecosystem (eg. one business analysis forecasts one A&D supplier bankruptcy per week in the next few months).

But despite all this, the industry needs more airframes – one prediction is for another 32,000 planes in the next 20 years (whether new build or upgraded/retrofitted). Commercial demand appears to be returning to pre-pandemic levels for travel, and on a global scale, demand continues to grow – especially amongst developing countries – even though Europe is seeing a slight drop in short haul flights.

Defense

Defense has its own set of challenges and opportunities. It too is seeing a rise in demand – this is driven, unfortunately, by recent conflicts and shifts in geopolitical circumstances and defensive postures. Not only for new systems and platforms, this demand spike also includes repairs to systems currently being fielded and the constant need for spare parts.

Despite these opportunities, the industry must also endure political uncertainties that affect demand (and to a lesser extent, supply). Defence priorities and spending could change significantly, depending on the results of various elections that are happening at the time of writing. Defense often thrives in periods of instability, but instability must be built into the industry’s forward planning for its supply chains.


Another challenge faced by defense is to anticipate the future and develop the next generation of equipment that will take us in the 2030s and beyond  (eg. 6th generation fighter aircraft, currently under development in various countries). These new capabilities will require a new supply chain, supporting the introduction of new technologies from suppliers that aren’t yet delivering parts to A&D.

What to do now

Despite the challenges, there are several steps that we can take to make the most of A&D’s supply chain situation using supply chain quality management (SCQM). 

Strengthen our supplier relationships

Each supplier has separate issues and, as such, each supplier must be managed differently. But, to be blunt, in the current period of scarcity, favorite buyers get favorable treatment. The goal then is to get suppliers to prioritize you when things are scarce.

Smaller companies don’t necessarily have the knowledge or digital tools to integrate with the supply chain. You can help. This can involve local teams, emphasizing a collaborative approach and personal relationships with your supplier. You can offer supplier training and development programs to upskill their people using the unique experience and knowledge you have developed.

You can also strengthen your new supplier onboarding, helping new ones to get verified, tackle the appropriate industry standards and overcome the many compliance hurdles of A&D. Contracts can be restructured to incentivize timely deliveries and reward good treatment from suppliers.

Diversify our suppliers where possible

The second approach is to diversify, accepting that this can be impossible in many cases due to the current state of the supply chain. Diversifying allows us to support new suppliers and spread risk, considering the volatility of the industry.  The nearshore/friendshore trend is seeing a rearrangement of supply chains , so developing new local suppliers (or ones in allied countries) will help in complying with certain trade policies, particularly in defense.

Encourage and demonstrate sustainability

As reported in our blog on sustainability in supply chains, European parlement approved in may 24 a directive for a new supply chain lawknown as ‘The EU Supply Chain Act’ or ‘Corporate Sustainability Due Diligence Directive’ (CS3D). C3SD is intended to address the sustainability problems faced (and caused) by modern supply chains.

So, as social attitudes and the regulatory landscape change, sustainability is no longer just an ecological concern, it is a business imperative. Inbound and outbound supply chains (scope 3) are well understood to be a major contributor to company emissions – which means steps must be taken now.

To this end, you should first conduct a detailed ESG evaluation to gain oversight and baseline your current situation and emissions. After this, you can explore ways of embracing the circular economy (where possible), choose greener transport modes within applicable parts of the supply chain and incentivize your suppliers to increase their own sustainability – helping them to do so when you can.

Improve our supply chain awareness and supplier management

Knowing the state of our suppliers (and our supplies) is a key part of increasing the resilience of our supply chains. It requires detailed risk assessment, using regression modeling, based on disruptions and accounting for (increasingly frequent) ‘black swan’ events – eg. financial crises pandemics, war – all of which we have endured in recent times.

This requires dedicated scenario/contingency planning, along with the use of methodologies like the Eight Disciplines (8D) approach. Originally developed at Ford Motor Company – 8D can be used for supply chain problem identification and solving. Combine this with ‘old fashioned’, regularly updated supplier healthchecks/scorecards, conducted by your local team on supplier premises, and, where you find shortfalls, look to help your suppliers improve.

All of this can be supported and driven by AI/ML enabled big data analytics to predict demand and inventory requirements, along with smarter logistics, eg. real-time tracking via RFID/IoT on all deliveries. The situational awareness granted by such tracking allows us to develop digital twin models of the supply chain – gaining visibility, whilst simulating and improving the supply chain (eg. through route visualization and optimization).

Conclusion: protecting (and growing) the supplier ecosystem

A&D’s supply chain is key to its success and onboarding new suppliers into this ecosystem is not easy. In many cases, switching suppliers isn’t an option either, due to the requirements of certification for new suppliers, how few companies are specialized enough to even do this work, and how unstable, as of late, the industry has been.

Instead, we must work together to create a more resilient and sustainable supplier ecosystem that is capable of withstanding the volatility of our time, and taking advantage of its opportunities. There is a growing demand for greener travel, and more opportunities to serve increasingly security conscious countries across Europe and the rest of the world.

The supplier ecosystem and the IT landscape are fragmented, but they don’t have to be. We already have the tech and tools to increase visibility, continuity and reliability – we just need to do the significant amount of work required to make it happen. Investment in the right technical tools, and a coordinated effort can help us to build a better supply chain, and a better A&D sector.

If you are currently facing delivery disruptions, if you need to ramp up your supply chain to meet changing demand or implement sustainable initiatives, we can help. Capgemini has years of experience helping companies across sectors and countries with supply chain quality management, along with access to some of the world’s leading experts in the subject. To find out more, contact our expert.

Meet our expert

Gilles Bacquet

Senior Portfolio & Product Manager, Resilient & Sustainable Supply Chain offers owner
Gilles is a Production & Supply Chain engineer and has joined Capgemini group in 2001. Starting as consultant expert in Supplier Quality Management for Automobile & Aeronautic, he has extended his responsibilities in creating Supply Chain offer and developed business oversea. He is today leading Resilient & Sustainable Supply Chain offers for Capgemini Engineering.