Aerospace and Defense: Returning to Technology Leadership at Light Speed
If Aerospace and Defense leaders turns inward and take a page out of their own playbook known as systems integration and apply it to their own ecosystem (market) while digitally transforming their operations we will see Aerospace once again return to prominence as a technology leader while setting itself on a path to move forward at the speed of light.
In the last century, the aerospace and defense industry has ushered in the modern age of globally accessible travel. The aerospace industry has made unprecedented, seemingly impossible strides in revolutionizing aviation and space flight technology. Aerospace technology has surpassed basic flight; in expanding to supersonic, wartime, outer space, and airliner craft, the industry has continually redrawn the limits of flight time, destination, and efficiency.
Despite the industry’s rich history of innovation, however, aerospace technology has presently faltered. Airplane models are constantly unfit to enter the market when planned, and defense platforms have seen delays of as much as 3 to 5 years. While the technology lags behind, the demand for aerospace development remains at an all-time high. In spite of continual setbacks, the industry features an array of suppliers eager to enter at Tier 3 and Tier 4 levels or component and part suppliers. The backlog of
aircraft will sustain the market demand for the next 5 years, and the military budget should also stay high for the same period. Considering the current state of the industry, we pose the question: what is next for the industry? Can aerospace companies turn the corner on performance and development? What will the industry look like when it gets there?
As of now, we in the industry are where we are. Late programs and initial product failures over the last ten years have left us with sizable debts. We also find ourselves having to do more with increasingly less resources. Shrinking margins translate into decreased IRAD, fewer students pursuing engineering degrees means fewer employees, and fewer suppliers imply fewer products. But as technology continues to innovate, the question becomes: what does our future hold?
The aerospace industry must adapt to changing times; past approaches to problem-solving no longer apply. Historically, aerospace was once a large, completely integrated industry. Problems were directly addressed down at the factory floor, even at the board layout and connector level, expending as much manpower and time as needed until the problem was solved. This solution is simply unfeasible today. Modern Tier I or Platform OEMs have removed system details by relying very heavily on outsourcing. Engineers are unable to keep up with the ever-changing world of technology, sparking the product delays that are so common today. It only hurts that today’s leadership ranks often rely deeply on traditional methodology built upon yesterday’s model of an integrated aerospace industry. To ensure product viability, timeliness, and ultimately profitability, today’s aerospace companies must solve for end to end technology advances for the systems they provide. They must also effectively plan for future technology insertions across the long life of their systems. These necessary steps are incompatible with past problem-solving techniques.
So how do we capitalize on cutting-edge technology without having to deal with the cost of infrastructure? And how do we maintain delivery and performance quality standards for our systems?
The solution is to address the needs of the aerospace and defense market, and it consists of four phases: #1, consolidating of and across tiers; #2, moving the supporting suppliers to a matrixed market structure to become investment partners to the OEM; #3, building supply chain consolidation and architecture strategy; and #4, moving all layers of the ecosystem of the OEM to a digital transformation plan for growth.
Phase 1 is market consolidation through mergers and acquisitions. However, such consolidation must consider the firm mechanics of the market: Wall Street expects returns in the form of dividends and stock performance, and customers expect lower prices. We began by consolidating Tiers 1 and 2, effectively removing an entire layer from the market. OEM’s strategy is to squeeze tighter and tighter while protecting the intellectual property that defines our platform. However, we must ensure that all tiers have a sustainable, differentiated, value-added portfolio of business. This is essential for funding the technological advances needed for our future. As tight vertical integration is unaffordable and outsourcing is unsustainable, and technological innovation must move at the speed of light.
We then move to Phase 2: moving the Tiers 3 and 4 suppliers (such as mechanical and electrical suppliers) to a matrixed market structure and investment partners to the OEMs. Doing this involves suppliers below the platform, working and innovating in their expertise, but also across multiple markets with the Tier 1’s blessing. Tiers 3 and 4 suppliers must transition from their current build-to-print state into an OEM/ODM and build-to-print hybrid, investing heavily in automation and innovation. This transformation requires margin improvement well beyond current standards. An intellectual property (IP) of the system and subsystems of the platform, as well as hybrids who own the IP on how to best build the systems, for multiple markets beyond Aerospace and Defense.
Take the example of the Electronics market. Electronics suppliers have already consolidating across multiple industries, such as industrial, medical, aerospace, defense, and telecommunications. Now, they need to invest in design and manufacturing across these markets—for example, in robotic operations, additive manufacturing, sensor integration, automated test and testing collaboration, etc. This allows suppliers to simultaneously invest in both operations and the advancement of technology. Suppliers can then acquire the proper machining capability to drive the emerging Electromechanical integration movement. The basic idea behind this investment is improving technology to produce faster, lighter, cheaper, and efficient products. Instead of aerospace shouldering the entire responsibility of technology advancement and integration, downstream Tiers 3 and 4 partners work directly with consolidated Tiers 1 and 2 firms to advance technology efficiently and on time.
This brings us to Phase 3: supply chain consolidation. Simply put, suppliers need to partner with OEMs on a long-term basis to ensure that their supply chain architecture is sustainable and healthy. This means that suppliers must avoid the constant competition and turmoil caused by adopting the automotive strategy. When OEMs and suppliers collaborate to design a supply chain, they can manage risk effectively and ensure the health and longevity of the supply base. And when OEMs understand and proactively manage the supplier’s product mix, they can effectively service the life cycle needs of their long-term products. Current outsourcing product mixes with long life cycles is effectively a ticking time bomb for the supplier, and the cost to the OEM will exceed any short-term gain from outsourcing initially.
And lastly, we arrive at Phase 4: digital transformation of the OEM and the suppliers. It is critical that the OEM and its supply base share real-time data in order to predict expenses on resources, manage delivery and quality control metrics, and most of all, to effectively remove the weak links in the supply chain. This is one of the primary delays in time to market. The digitization of the OEM and its ecosystem allows for resources to be properly allocated in expediting and solving issues in the supply chain.
The transformation of an aerospace firm’s supply chain is necessary for future product viability. Yet, it is an arduous process, requiring mentality shifts in top leadership and direct downstream communication, consolidation, and investment. The process progresses in bite-size, valuable pieces. It begins with identifying a company’s future vision and developing a growth strategy to achieve long-term goals. The growth strategy is then used to identify necessary information within a company’s ecosystem. That information, through advanced analytics, will chart a company’s course towards sustainable success. If you seek proper guidance along this journey, contact us today at ForeOptics.