A leading aircraft engine manufacturer is using 3D-printed fuel nozzles for one of its next-generation engines. As a result, the number of parts needed to make the nozzle has come down from 20 to 1, leading to a much shorter supply chain for fuel nozzle manufacturing.
2. Vertical integration.
A&D players adopt vertical integration to gain control over critical processes in the supply chain. Vertical integration helps companies in reducing their operating costs by eliminating supplier margin. It also provides them with the agility to swiftly respond to changes in product specifications as well as market demand, reducing the effective cost and time impact of the changes.
A leading commercial aircraft manufacturer adopted the strategy by establishing a new avionics and electronics unit to insource key technology and reduce costs. The company also aims to pursue more vertical integration of its aircraft manufacturing business by stepping up its capabilities in advanced materials, propulsion systems and actuators.
3. Inclusion of local players in the global supply network.
A primary driver of such an association is the offset obligation on the foreign players that sell equipment to the governments of different countries, especially in emerging economies. Another factor: cost efficiency, driven by suppliers from low-cost countries that have reasonable technological capabilities.
A leading US-based OEM has selected an Indian conglomerate as the exclusive supplier for the fuselage of an attack helicopter program. The Indian player has established a manufacturing facility in the country with an aim to sole-supply fuselages for the helicopter program globally.
Other important strategies include:
- Risk-sharing partnerships. Leading companies engage in collaborative agreements through which development and production are executed by a risk-and-revenue-sharing arrangement between the OEMs and its suppliers. Such arrangements are not only limited to production and manufacturing stages, but also include aftermarket activities.
- Monitoring of the network security of suppliers. Given that all parts of the A&D supply chain are vulnerable to cyber attacks, large A&D players should not only focus on building a robust cybersecurity framework for their own systems and networks but also ensure that their key suppliers are protected.
- Shared supply chain across common platforms. This tactic allows A&D players to leverage maximum possible advantages of the existing supplier base and control costs. Diversified companies also leverage a common supply chain across similar platforms with applications in different industries. OEMs are using cloud-based supply chain management programs, having a list of all the suppliers that can be leveraged for common products and materials.
- Building an alternative supplier network through multiple sourcing. Under these arrangements, companies sign contracts with two or more suppliers for the supply of the same material, equipment or part. For instance, OEMs are offering multiple engine options, especially on commercial aircraft, primarily to mitigate supply chain risk. Multiple sourcing options significantly minimize the risk of supply disruptions.
- Sales and operations planning and manufacturing readiness assessment. Companies need to enable their operating units to make faster, better-informed decisions through a unified data modeling solution that incorporates demand, supply and financial data at multiple levels of granularity and dimensions. It is imperative for companies to enable an integrated planning process across different markets having nonuniform processes and IT architecture.
The future state
Smart customers will likely drive the A&D business of the future. As customers become more and more technologically sound, businesses need to look beyond traditional products and service offerings.
Availability of in-flight data, real-time weather information and battlefield information will enable A&D players to offer a wide range of value-added and on-demand services to both commercial and defense customers.
Smart factories of the future A&D businesses would be supported by digitalized demand sensing, smart procurement and smart logistics. On the digital shop floor, digital technologies such as the Internet of Things, 3D printing, artificial intelligence, sensors and robotics will take a central stage.
On the other hand, the workforce of the future would not only need to strike a balance between technical capabilities and engineering knowledge, but it would also be imperative to constantly upgrade the skills of the workforce to excel in the era of continuous technological evolution. Digitalization will also be at the core of innovation and development programs, leading to smart products and services to support the future of warfare.
The smart A&D businesses would be supported by the suppliers of the future, who would be equipped with real-time information sharing platforms so as to ensure an uninterrupted supply for critical parts in real time and with minimal waste.
The relationship between OEMs and their suppliers would go beyond buyer-supplier relationship to “being a part of the business,” giving rise to a new range of risk-and-revenue-sharing business models.
Effective supply chain strategies not only help companies improve efficiency, control costs and mitigate risks, but also enable them to deliver value to the customers.