Ensuring Aerospace & Defense supplier resilience & sustainability in a volatile world

But, supply chains have proven more fragile than once thought. The global pandemic showed big shocks can create dramatic change, which suppliers may not be ready for. And when we emerge from that change – whether a day or a year later – individual suppliers may not be the same. They may have gone bust, lost key staff, pivoted to different customers, or found they are simply not setup for the new situation before them.

Hopefully the next pandemic is years away. But shocks are becoming more common and the dream of ‘borderless’ supply chains is fading. Whether its Brexit, Ukraine, lockdowns, protectionism, sanctions, fallings out, or someone getting their boat stuck in the Suez canal, the world is less stable for suppliers, which means those who rely on them need to be more vigilant.

This is felt particularly strongly in Aerospace and Defence, industries where around 80% of any finished product comes from the supply chain, and which are currently expected scale up in this time of supplier uncertainty.

Forecasts suggest 40,000 new planes will be needed in the next 20 years, off the back of a rapid scale down over the pandemic. Defence had been reducing spend for years and discontinued many products, but now must restock and reinvent as military threats rise and its support for Ukraine depletes supplies.

As they build and evolve supply chains, they will face new challenges. As example, materials from aluminium to chips are in high demand from automotive, a far more material intensive industry. And they will need to pay more attention to sustainability – new rules and pressures may mean that polluting suppliers will not be allowed to stay on the books for long.

So, they need sustainable supply chains, with long term certainty, to fuel a massive production increase, in the face of still competition for resources, in an unpredictable world.

What should they do?

Building resilient & sustainable supply chains from the bottom up

At the top level, a resilient supply chain might be seen as a control tower, with visibility of stock levels and events, backed by whizzy AI making real-time optimisations and recommendations. And indeed Capgemini has insight on how to build such a system.

But such a system is only as good as the information that goes into it. In a volatile world, that means understanding the risks facing suppliers themselves, so you can make decisions at an individual supplier level, which embeds resilience across your supply chain. 

What are the risks to resilience in your supply chain?

Some risks lead to problems that are highly specific. A broken machine will delay orders. If the supplier is slow to act, the solution may literally be to send your auditor back to oversee the ordering of replacement parts and repair.

Others may be more structural. If suppliers are becoming reluctant to sell you aluminium – eg because of a slowdown in global supply – you may need a change your approach, such as moving your commitment from six months to five years, or bidding higher to secure priority, or adding new suppliers. That needs careful analysis of your needs. If you make a commitment and the supplier goes bust or you change to a non-aluminium design, you lose out. But if you do nothing, you may not have the materials to make your product.

Increasingly, being resilient means being sustainable. As new climate regulations emerge and consumers pile on pressure, working with polluting suppliers will cease to be viable. If those suppliers are important to your product, then that poses a threat to resilience, meaning you need to make them change, or find new ones.

First action will be to be able to aggregate all GHG emissions from the Supply Chain (from raw materials to Tier 1 suppliers) to calculate Inbound emissions and generate Scope 3 reports (all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions). Define industry standards and tool for reporting is actual challenges to be tackle.

Understand the risks, and make changes to build resilience

Understanding where you have these and other problems means doing the hard work of visiting suppliers. This may be part of a continuous auditing process, part of onboarding, or a specific intervention following a shock. For example, after the pandemic reopening, we found ourselves working with a client to audit their entire 200 company supply chain in just a couple of weeks, to assess readiness to scale in an uncertain time.

Either way, it means sending experts to suppliers’ sites to understand their situation, and gather info. These must be people who can spot problems or risks that would not show up in a call or data analysis, such as lower than reported stock, incorrect storage, lack of skills, crumbling machinery, or higher than claimed emissions.

Individual supplier resilience data can be combined with Business Intelligence (BI) tools, risk models and expert analysis to build up full situational awareness across the supply chain – a moderate risk at one supplier may be manageable, but if that risk is replicated across all suppliers of that product, that may be a red flag that needs addressing.

Having understood the problems and risks, you can identify a remediation or recovery plan. That may include upgrades, training, new processes, data collection and reporting. You must also ensure your supplier implements it, using an appropriate mix of carrots (committed orders, investment) and sticks (threats to take business elsewhere).

Even with the best laid plans, suppliers fail, and many companies take months or years to onboard new ones. In a volatile world, these processes need to be revisited to allow much quicker onboarding and transferring of work. It is why implement now a Sustainable procurement strategy is critical to only select low emissions new suppliers and develop current ones to improve their current GHG emissions to anticipate future restrictions

Managing everyday issues

Supply chains are complicated and even reliable suppliers get things wrong. Another key part of supplier resilience is having quick and efficient processes for resolving day-to-day problems which can quickly add up to a large costs of business.

These are issues like rejecting defective goods. Often companies handle this at a local level, but a central team with a dedicated company-wide platform is usually more efficient. When there is an issue at any level, it is flagged in the system, resolved by dedicated experts including processing the issue, reordering, resolving payments, and closing it.

Additionally, the key to getting this right is having people with technical knowledge, change management skills, and the soft skills to get suppliers to listen and act. Having these skills in local teams is also important, as knowledge of language and culture are critical to getting results. Local teams are also vital to maintaining a low carbon footprint.

The key for success here involves mixing central expertise and a network of experts.

Conclusion

In an ideal world –we would have something like the film Minority Report – where we predict exactly what will happen, and act in advance, sending instructions straight to suppliers to change focus to adjust for the upcoming shock.

This is not realistic. The world is too complex to predict every shock, from a machine breaking at a critical moment, to a global lockdown. But we can be ready for problems, with resilient suppliers and processes to help them adapt and respond to problems including the integration of environmental protection (GHG) as a key pilar. That means a combination of on-the-ground experts, processes and technology.