The aerospace and defense (A&D) industry reported an 8% decrease in revenue since 2019 and a 61% decrease in operating profit, primarily due to the impacts of the pandemic.
A&D has virtually always been on the forefront of product innovation. However, increasing cost challenges and new market dynamics are dramatically changing the way companies serve their customers, collaborate with partners, and take ideas and solutions to market.
Let’s take a closer look at some of the major challenges the A&D industry is facing, and how to overcome them.
Free Download: Five Techniques to Reduce Aerospace Project Costs
Increasing Profitability and Reducing Cost Pressures
The rise in the costs of various raw materials is driving down the industry’s profitability. According to AlixPartners, the A&D industry on average paid 27% to 44% more for raw materials in 2021, making protecting profit margins the “number one worry” for the industry.
Today, progressive companies are following the total project cost management framework to use analytics to evaluate the project as a whole to determine the best targeted cost improvements.
Developing a Sustainable Supply Chain
An inadequate supply chain management strategy can lead to unwanted delays and downtime. Given the current supply chain disruptions, the requests for metal parts by OEMs have been met with delays from suppliers that don’t have the capacity to meet increasing demand. Therefore, aerospace and defense OEMs are on the hunt for alternative suppliers with an abundant of un-utilized capacity to fulfill orders with quick turn-around times.
With proper supply chain visibility, managers will have better insights into mitigating potential issues, contributing to cost control. Steps to increase visibility include:
- Identify pain points: Determine the most pressing issues and processes that would benefit the most from increased visibility.
- Invest in technology: Choose a sophisticated system that will support supply chain data management needs and increase visibility through dashboards with real-time data.
- Implement standardized internal processes: Establish standardized processes for all critical elements in the supply chain – material procurement, warehousing, shipment, packaging, and delivery.
- Keep communication clear: Create open communication between suppliers and distributors to gain greater visibility in the organization and improve transparency.
Effectively Managing Talent
Attracting and retaining critical talent is increasingly viewed as a top strategic issue. A&D organizations are in dire need of science, technology, and engineering talent to continue to support future growth. This is aggregated by the fact that low employee engagement leads to decreasing productivity which dampens project quality, spikes costs, and results in unplanned attrition.
To overcome the challenge of talent management, organizations need to invest in their staff.
Companies that maintain a high development culture are more likely to have happier, more engaged employees which will improve staff retention and enhance performance, benefitting the production process and overall revenue in the long run.
Implementing Digital Transformation Strategies
A&D companies are expected to embrace the smart factory shift to ensure efficient production and faster design to delivery. But even the OEMs that understand the value of implementing digital transformation initiatives to optimize processes struggle with extracting data from the factory floor and putting it to use.
IIoT is a technology-driven approach that uses interconnected IoT devices to make the manufacturing process “smart”. For example, predictive maintenance uses sensors to monitor machine performance indicators and enables companies to optimize the use of workers, better allocate resources, and inform and predict when a part or equipment failure may occur. These
IIoT solutions ease the data collection process providing extensive insight on how to streamline factory floor processes.
With the aerospace industry facing its tightest conditions in decades, companies are expected to focus on innovation to develop new technologies and solutions, create new markets, and expand growth opportunities. Those players that see lack of change as a fundamental business problem and seek an enterprise-wide solution will be in the best position to prosper in the coming years.
Looking for more information on how to overcome the current challenges in the A&D industry and reduce costs? Check out our Five Techniques to Reduce Aerospace Project Costs!