Executive Brief

Bracing for change in the A&D industryHow modernizing business systems can help A&Dorganizations seize opportunities in commercial aviation

Modernizing business systems will allow A&D organizations to:Gain business agility

Meet industry-specific requirements

Improve decision making

Grow revenue

Be ready to do business in thecommercial aviation marketDefense contractors are bracing for unprecedentedchanges. The days of cushy, cost-plus contracts thatreward inefficiency are long gone, and sequestration-levelbudget cuts have sharply reduced US Department ofDefense (DOD) spending. In its 2015 budget request, theUS DOD projected that defense spending cuts for 2012through 2021 will exceed $1 trillion. While this projectionmight be exaggerated, there’s no denying that there willbe significant reductions in revenue streams for allorganizations in the defense industry—no matter wherethey fall in the supply chain.

On the other hand, the global commercial aviation marketis growing. A Deloitte report attributes this growth to the“accelerated replacement cycle of obsolete aircraft withnext-generation fuel-efficient aircraft, as well as thecontinued increases in passenger travel demand.” Inaddition, Deloitte estimates that there will be a 5%increase in air passenger travel over the next 20 years.

This growth in the commercial aviation market is creatingan opportunity for aerospace and defense (A&D)manufacturers and suppliers, and aftermarket parts andservice providers to move into new regions and markets,and bid on new contracts for subassemblies, parts, and services.

Unfortunately, many A&D organizations are woefullyunprepared for operating in the world of commercialbusiness because they’ve spent decades following theextremely rigid—and very different—business practiceslaid out by the Federal Acquisition Regulation (FAR)system. This type of business model lacks the flexibilitythe commercial market demands, such as being to ablequickly respond to changing business needs, regulations,and requirements. This creates functional challenges forA&D organizations trying to do business in the commercialaviation market. For instance, a KPMG study that polledsenior A&D manufacturing executives found that “57% ofA&D respondents said they were having challenges withsupplier performance,” and 49% reported havingchallenges “related to achieving information and materialvisibility across the extended supply chain.”

And if an A&D organization’s business processes aren’tready for the commercial market then the businesssystems that drive those processes are also likely not

ready for prime time. According to KPMG, A&Dorganizations are finding that their business systems lackthe necessary functionality to compete in the commercialaviation market:

“29% [of respondents] said that their IT systems wereinadequate for their supply chain visibility, planning, andexecution needs; 43% said that a lack of maturetechnology was creating obstacles to communicating dataacross the supply chain; an almost equal number (45%)said that they did not think their top-tier suppliers’technology was sophisticated enough to share real-timecapacity and demand data.”

The challenges don’t stop there. According to anAccenture survey of A&D engineering executives, A&Dorganizations “cite the lack of a single system of record(45%) and of integration between engineering functions(39%) as the most common challenges aroundengineering product configuration and designmanagement.” Accenture further reports that “otherchallenges highlighted by survey respondents included alack of traceability from requirements to product designand lack of collaboration with external suppliers.”

Many of these challenges stem from the use of isolated,legacy business systems that don’t support modern,commercial business processes. This ultimately meansthat these obsolete business systems can be the biggestfactor preventing A&D organizations from taking on new business.

So before an A&D organization can even considercompeting in the commercial aviation market, it needs toupdate its business systems to support the commercialmarket’s business processes. Let’s take a look at howmodernizing business systems can help position A&Dorganizations to take advantage of the growingcommercial aviation market.

2 Bracing for change in the A&D industry

Many A&D organizations are woefullyunprepared for operating in the world ofcommercial business because they’vespent decades following the extremelyrigid—and very different—businesspractices laid out by the FederalAcquisition Regulation (FAR) system.

Gain business agilityToday’s commercial business processes requireimmediate access to information from anywhere acrossthe organization, the tools to act on that information, andthe ability to seamlessly adjust business practices ascircumstances demand. To some, this might sound likethe opposite of how the isolated and regimented systemsof defense contractors have been operating for yearsnow. According to Rob Barrett, managing director ofsupply chain & operations at KPMG, one critical area thatsuffers from siloed systems is supply chain management:

“Many of the larger organizations, where the different linesof business contract separately, are starting to strugglewith an increasingly fragmented view of supplierperformance because there is often no ‘aggregation’ layerwhere the organization can achieve a full view of thesupplier relationship. In today’s data-driven businessenvironment, you simply can’t manage a complex globalsupply chain without leveraging technology.”

Real-time access to current and accurate data across anorganization provides decision makers with criticalinformation in other areas as well, such as program andproject execution. It also helps foster “collaboration andcoordination within design engineering, across functionalboundaries,” according to Accenture. This helps give A&Dorganizations greater visibility into product data, andallows them to make better use of that product data.

Looking beyond data visibility, A&D organizations can gainever further agility by embracing cloud technology. Notonly does cloud technology allow organizations to “spendless time and money managing IT, and more time focusedon their real priority—growth,” it also allows organizationsto implement new systems much more quickly. When anorganization puts its business systems in the cloud, iteliminates all the internal IT infrastructure and associatedoverhead. Cloud technology also makes it much easier fororganizations to easily support new locations globally,without having to depend on local IT resources. Accordingto cloud computing expert, Rick Blaisdell, the advantagesof cloud-based ERP solutions for manufacturing include:

• Minimized initial investment

• Minimized technical staff implication

• Increased ROI of the ERP application investment

•     Increased scalability

This last point—increased scalability—often gets the leastattention, but is perhaps the most important factor thatA&D organizations need to consider. By its very nature,cloud technology facilitates an infrastructure that is muchmore open to change and has the flexibility to stay currentwith the latest technologies. This means that A&Dorganizations can easily scale resources and implementbusiness process changes—whether these changes arefrom growth or the result of industry transformations.These are especially important skill sets for defensecontractors to have as they make the transition to doingbusiness in the commercial aviation market.

Meet industry-specificrequirementsNo industry’s business practices remain stagnant. The shiftto more commercially accepted business practices in theA&D industry is a perfect example of this. Whethersystems are on-premise, in the cloud, or exist in hybridenvironments, A&D organizations need business systemsthat are designed to meet the specific needs of theirindustry. These systems need to be able to manage thehighly complex, multi-step (and often multi-location),made-to-order (MTO), and engineered-to-order (ETO)manufacturing processes. They also must permit closeinternal collaboration between multiple departments, aswell as foster external collaboration with customers and suppliers.

These systems must also have the flexibility to quicklyadjust to the inevitable changes in the industry—whetherthey come from changes in business practices, customerrequirements, or regulatory oversight. And they need todo this without requiring time-consuming and costly customizations.

3Bracing for change in the A&D industry

With the right business systems in place,A&D organizations can gain the agility,speed, and access to relevantinformation they need to take advantageof growth opportunities in thecommercial aviation market, meet theirbusiness objectives, lower costs, andgrow revenue.

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Maintenance, repair, and operations opportunities

One huge revenue opportunity for A&D organizations is inmaintenance, repair, and overhaul (MRO) services. With anA&D-specific system for MRO services, organizations canoptimize the utilization of materials, tools, and personnel,so they can forecast, plan, and procure more effectively.Beyond managing core repair and overhaul operations,such a system can also help organizations provideadditional services such as engineering management,exchange programs, maintenance programs,modifications, upgrades, and warranty follow-up.

Improve decision makingBecause of the changes taking place in the defenseindustry, decision makers are going to be faced with somedifficult choices, and they’ll need access to the rightbusiness information—such as project and contractperformance, and statistical process control—in order tohelp drive and support their decisions. With seamlessaccess to this level of information, A&D organizations canmake better decisions to take advantage of opportunitiesto increase revenue and lower costs.

A modern system that’s designed specifically for the A&Dindustry that also includes robust, real-time businessintelligence (BI) functionality, can give A&D organizationsimmediate access to the tools they need to efficientlymonitor costs, processes, and workflows for ongoingprojects. The right tools empower A&D organizations tostreamline and accelerate the processes of gathering,

analyzing, and reporting key business information.Depending on an organization’s specific needs, these BItools might include capabilities for:

• Financial and operational reporting and analysis

• Dashboards

• Planning

• Budgeting

• Forecasting

• Role-based analytics

• Data mining

And by integrating a BI solution with existing systems,A&D organizations can gain a single source of the truththat gives them access to historical information and allowsthem to perform more accurate forecasting.

Grow revenueThe unprecedented paradigm shift in the defense industryis forcing defense contractors to either change how theydo business or simply close up shop and go out ofbusiness—there is no middle ground here. But instead ofa burden, A&D organizations should look at this as anopportunity. With the right business systems in place, A&Dorganizations can gain the agility, speed, and access torelevant information they need to forge a path that allowsthem to take advantage of the growing opportunities inthe commercial market, meet their business objectives,lower costs, and grow revenue.