Supply Chain Transformation in Aerospace and Defense: Strategies for Success

As professionals in the aerospace and defense sector prepare to gather and reconnect at in-person events, including the highly anticipated Paris Air Show in June, it becomes increasingly important to delve into the evolving landscape of supply chain management.

In this article, we will delve into key insights and explore the critical factors that will shape the future of supply chain management. From a skill crunch and geopolitical considerations to the importance of digital continuity and process harmonization, we will examine the strategies and solutions necessary for building a robust and efficient supply chain ecosystem.

A spike in demand and drop in skill availability: challenges in supply chain management

Recovering from pandemic disruption

According to a survey from the Capgemini Research Institute(CRI), close to 7 out of 10 organizations have taken more than three months to recover from disruptions related to the Covid-19 pandemic.

As the world moves forward, the aerospace and defense industry is facing a significant increase in demand as travel restrictions ease and the global economy starts to recover. According to the International Civil Aviation Organization (ICAO), aircraft orders and deliveries by major manufacturers Airbus and Boeing grew by 53% in orders and 20 % in deliveries over the past year. We anticipate this trend continuing as the industry rebounds from the pandemic. This steep production ramp-up has placed immense pressure on the supply chain to scale and also deliver, which makes it critical to build a highly resilient supply chain for the industry.

Skill shortage across the board

Maintenance, Repair, and Overhaul (MRO) services and manufacturing sectors are grappling with a shortage of skilled workers. This scarcity of skilled workers hampers the industry’s ability to meet the rising demand effectively. The impact is particularly acute in the United States and Europe, where the skill shortage is substantial. However, there is a relatively better availability of skills in Asia, which offers some respite to companies operating in those regions.

The ever-present challenge of managing costs

The rising demand for aircraft, components, and defense equipment pressures companies to optimize their supply chain costs. Balancing cost efficiencies while maintaining quality and compliance standards presents a delicate challenge. Additionally, fluctuations in raw material prices and geopolitical factors can impact costs, further complicating the supply chain landscape.

Addressing these challenges requires a multifaceted approach. Companies must invest in talent development and retention strategies to mitigate the labor crunch. In fact, according to a recent CRI report on Intelligent Supply Chain, “45% of organizations state that their supply chain cost base has increased over the past three years to accommodate the push to improve resilience, sustainability, and customer-centricity”.

A shift in the supply base and the need for seamlessness

The complexity of the supply chain with multiple layers of suppliers

The supply chain in the aerospace and defense industry is a complex ecosystem with multiple layers of suppliers involved. Companies often have supply bases consisting of 8 to 10 layers, encompassing tens of thousands of suppliers.

Each layer of suppliers plays a critical role in ensuring the smooth flow of materials, components, and services to the final assembly. Managing this intricate web of suppliers requires meticulous coordination and effective communication throughout the supply chain. Any disruption or inefficiency at any layer can have cascading effects on the entire chain, impacting production timelines and customer satisfaction.

Political considerations influencing the selection of suppliers

The current landscape is witnessing a shift in the supply base as companies seek stability in politically stable regions and consider the availability of skills and cost factors.

This shift in the supply base presents a challenge for seamless operations. The supplier who may have been a steady and reliable partner in the past may not necessarily be the next-generation supplier due to changing political situations or other factors. Consequently, managing the entire supply chain thread becomes crucial, demanding smarter and more agile supply chain management practices.

Smarter and agile supply chain management

Resiliency is paramount to the next-generation supply chain. Yet, fewer than 4 percent of organizations are building the capacity to be crisis resilient, according to the Capgemini Research Institute’s research on supply chain resilience for a post-COVID-19 world.

A smarter and more agile supply chain management approach enables companies to adapt to changing market dynamics, improve operational efficiency, and deliver superior customer satisfaction.

Visibility

With a vast and complex network of suppliers spanning multiple tiers, it is essential for companies to have transparency and visibility into every stage of the supply chain. This visibility allows for real-time tracking of inventory levels, production progress, and logistics, enabling companies to identify potential bottlenecks or disruptions proactively. By having a clear view of the entire supply chain, companies can make informed decisions, quickly respond to changes, and implement effective contingency plans when necessary. Enhanced visibility fosters collaboration and trust among suppliers, OEMs, and other stakeholders, promoting transparency and accountability throughout the supply chain ecosystem.

Risk mitigation strategies

One of the key aspects of smart and agile supply chain management is the implementation of effective risk mitigation strategies. With global uncertainties and potential disruptions, companies must identify and assess risks across the supply chain and develop proactive measures to identify, track and mitigate risk impact. This includes diversifying suppliers, establishing backup plans, and closely monitoring geopolitical and economic factors affecting the supply base. By being prepared for potential disruptions, companies can minimize the negative consequences and maintain a resilient supply chain.

Digital continuity for seamless communication and data movement

Achieving seamless communication and data movement within the supply chain is critical for effective supply chain management. Digital continuity plays a pivotal role in enabling this seamless flow of information. Implementing robust enterprise resource planning (ERP) systems that facilitate real-time data exchange, collaboration, and visibility across suppliers, OEMs, and other stakeholders is essential. This digital continuity ensures that relevant information is accessible to all parties involved, enabling better decision-making, enhanced coordination, and improved responsiveness.

The role of certification standards for consistency and compliance

Certifications in the aerospace and defense industry are instrumental in establishing and maintaining consistent processes across the supply chain. They provide a framework for suppliers to follow and help align their operations with industry best practices. For instance, the AS9100 certification sets the standard for quality management systems in aerospace, emphasizing risk management, process adherence, and continuous improvement. These certifications promote a culture of excellence and drive suppliers to adopt consistent and standardized processes, leading to enhanced efficiency, reduced errors, and improved overall performance.

Standards in the industry also play a crucial role in harmonizing documentation and reporting practices throughout the supply chain. They establish common guidelines for design, documentation, and key performance indicators that suppliers must adhere to. This harmonization ensures that information flows seamlessly between different layers of the supply chain, facilitating effective communication and decision-making. It enables suppliers and OEMs to have a unified understanding of performance metrics, quality standards, and compliance requirements, fostering collaboration and streamlining operations.

Supporting the A&D supply chain ecosystem

Capgemini with its depth and breadth of expertise, digital solution suite, and business solutions customized for the industry, we can enable the entire A&D Supply ecosystem – from the OEM across the multi-tier level shift to a smart, resilient, and robust sustainable future.

Becoming a supplier for aerospace giants is a time-consuming process that involves meeting stringent criteria and demonstrating the ability to deliver high-quality products and services. Becoming a credible supply chain partner can take up to a year or more, requiring thorough preparation and adherence to specific requirements.

Per the CRI report on Intelligent Supply Chain, Capgemini provides valuable support to aspiring suppliers navigating the complex process of becoming aerospace suppliers.” Achieving organizational supply chain transformation will be multifaceted. It will entail changes in technology, governance, capabilities, extended ecosystems, collaboration, and economic models for organizations.” These consulting solutions guide suppliers in meeting necessary requirements, developing robust processes, obtaining certifications, and establishing essential systems and documentation. Consultants leverage their expertise to accelerate the journey of aspiring suppliers toward becoming capable partners for aerospace giants.

Consulting firms also focus on supporting struggling markets within the aerospace industry. By targeting regions with limited resources or expertise, they provide assistance to aspiring suppliers in overcoming barriers and developing the necessary capabilities to participate in the aerospace supply chain. This support includes sharing best practices, offering training and education, and facilitating access to resources and networks. Through these initiatives, consulting firms foster inclusivity, expand the pool of qualified suppliers, and contribute to the growth and sustainability of the aerospace industry.

Key takeaways and The Paris Air Show

As the aerospace and defense industry moves forward, it is essential to recognize that the challenges and transformations in supply chain management are not temporary. They are shaping the industry’s future and will continue to influence how companies operate and compete in the years to come.

Looking ahead, the focus on supply chain resilience will remain critical. The ability to anticipate and adapt to market fluctuations, geopolitical shifts, and disruptive events will separate the leaders from the rest.