Air travel is soaring and investment and innovation in new aircraft have taken off. Meanwhile, media are reporting about supply chain improvement. So, when our parent company, Siemens, was preparing to sponsor a survey of aviation and defense companies across the Aviation Week Network, it entered into the research project thinking: maybe the supply chain is getting better.
Supply chain improvement is happening on some fronts. The supply chain is opening up, and no longer are loads of ships amassed off the coast of California waiting to get in. However, the new Siemens research show the depth of the supply chain problems that persist in the A&D industry.
Todd Tuthill, vice president for the aerospace and defense industry at Siemens Digital Industries Software, and Ryan Chan, vice president of solutions consulting at Supplyframe, recently joined forces on a webinar to analyze the research results, explain how the A&D industry got here, and provide advice on how companies can unlock market intelligence to mature their supply chain strategies. Patty Russo, A&D industry global strategy and marketing senior manager at Siemens Digital Industries Software, moderated the Sept. 27 webinar, which is now available on demand.
Four in Five A&D Companies Still Have Supply Chain Issues – and Those Problems Are Pretty Bad
The new Siemens-Aviation Week Network research revealed that supply chain disruptions continue to plague the A&D industry, leading to late deliveries and significant revenue losses.
A whopping 84% of survey respondents said that supply chain issues have caused late deliveries to customers. More than half (56%) of the A&D companies that Siemens surveyed said that they have experienced lost revenue or profits due to supply chain issues, and 59% said that supply chain issues will have an adverse effect on the A&D industry over the next three to five years.
Clearly, supply chain will remain a big challenge for the A&D industry in the foreseeable future.
The fact that A&D is a heavily regulated industry, has low volumes relative to industries such as automotive and consumer electronics components with which it competes for some electronic components, and may not always have direct line of sight to suppliers only add to the pain.
The inability to get something as simple as a memory IC or a capacitor can trigger the need for a redesign. But it’s not just a matter of picking out and ordering a new part. The hard part for a highly regulated industry like A&D is that if you change the design in a material way, you now have to retest and recertify your aircraft – and that’s a very expensive, time-intensive exercise.
While volumes of new A&D product designs are certainly scaling up – Boeing and Airbus are trying to get above 100 to 110 commercial aircraft a month – the scale of A&D compared to the automotive and consumer electronics investments in electronics components is low. That puts aerospace as a disadvantage when it comes to having any leverage with those specific suppliers.
A&D companies work with a lot of custom parts from specific suppliers with which they are in close contact. For electronics, however, the source of components may be one or two levels deeper, limiting visibility for the A&D companies and creating risk that may come as a surprise.
A&D Landed Here Due to the Pandemic, Lack of Collaboration, and a Sole Reliance on Enterprise Data
The pandemic certainly elevated supply chain challenges and demonstrated that existing risk management approaches are insufficient in a post-COVID world. Companies have established processes for managing risk, including approved vendor lists and static lists of prequalified parts they are allowed to use in design. However, what A&D organizations and businesses in many other sectors have quickly realized is that it’s not just the lifecycle that can prevent you from producing something – it’s whether you can buy parts and get them within your timeframe.
That’s become a major problem. Although the supply chain landscape has shifted, Siemens’ data shows that businesses can’t return to their pre-pandemic behaviors. Sticking with outdated processes and practices will keep businesses in firefighting mode, spending more time searching the internet to find parts, talking to lots of suppliers, buying more inventory when possible, and sometimes even repurposing expired inventory. Reacting like that doesn’t necessarily make things any better; in fact, buying more inventory than you really need can actually make things worse by creating shortages. It’s akin to what happened in the early days of the pandemic when people hoarded toilet paper. There was plenty of TP to go around until people got reactive.
Another problem that has led to A&D’s supply chain problems is that many companies in the industry have programs that are not helping each other. That means one program may have inventory that another program within the same company might need but can’t source. Different functions like engineering and procurement also tend to be siloed, which limits cross-functional collaboration during the design process and that acts as a barrier to A&D evolution.
The third root cause that got A&D into this tricky situation is its complete reliance on enterprise data. Depending solely on enterprise data, such as static databases and data collected from transactions and other past events, is insufficient. It’s like trying to drive forward while looking at your rearview mirror. In today’s ever-changing environment, organizations need outside intelligence to guide them in making better decisions and driving their businesses forward.
A&D Manufacturers Can Vastly Improve Their Businesses with Digital Transformation
Todd said engineers like him tend to focus on how to design the coolest thing that will fly faster and further. But we also should consider how to design programs with parts that can be sourced and when a part goes obsolete, as will inevitably happen, it’s simpler for us to make an upgrade.
Building in resilience at the point of design – or shifting left – decreases risk and increases opportunities. That’s why it’s critical for A&D companies to invest in and act on real-time market intelligence. When professionals across disciplines can access a simplified but comprehensive risk index that incorporates everything from design to supply market intelligence, and defines what each level of risk means for their company, it creates a bridge across the organization and allows everyone – from design engineers to procurement teams – to make the best decisions.
Leveraging new forms of intelligence in this way is a crucial part of the digital transformation needed for A&D manufacturers to lower their risk and empower their businesses to reach new heights. Comprehensive digital twin is another extremely valuable part of such transformations.
Think about everything it takes to make a craft airworthy and ensure that it’s safe to fly. Traditionally, that work had to happen in the physical world. Every time a company made a design change, it would have to do that on a physical product, do a dry run in its factory, then build and test the aircraft. But the comprehensive digital twin approach allows companies to analyze design changes in the digital world to ensure new products will work in the physical world.
Comprehensive digital twin also works on the manufacturing side, enabling a digital dry run so that companies have a very high level of confidence that once they begin manufacturing or change from part A to part B they can source and certify the product and it’s going to work. As with supply market intelligence, building a comprehensive digital twin allows companies to make their mistakes as far left as possible so that they only have to do things once in the physical world.
The bottom line is that integrating smart technologies across the supply chain helps mitigate issues that the A&D industry, among other sectors, have been facing for years and came into high relief in the past few years. Digital transformation can truly transform the A&D industry.
There’s no need to wait on standby.
A&D companies should start now to make their supply chain strategies proactive not reactive.
About the Author: Richard Barnett is the chief marketing officer and SaaS sales leader at Supplyframe, where he drives go-to-market and communications strategy for the company’s unmatched industry ecosystem and pioneering Design-to-Source Intelligence (DSI) Solutions, which transform how people and businesses design, source, market and sell products across the global electronics value chain. With more than 25 years of leadership experience in strategic marketing, sales, and product management, Richard is recognized as a thought leader on supply chain and strategic sourcing transformation as well as digital marketing engagement with design engineers. A resident of Austin, Texas, Richard has also lived in Japan, Brazil, Mexico, and Spain. He speaks Japanese, Portuguese, and Spanish. He holds a bachelor’s degree in political science and a master’s degree in international policy studies from Stanford University, where he further developed his critical thinking skills as a member of the Stanford Debate Society.