Improving Program Profitability in Aerospace and Defense

The Aerospace and Defense industry finds itself under ongoing pressure from cuts in military spending, while the uncertainty of the global political and economic environment continues. With western economies – traditionally the largest spenders on defense - still struggling with economic turmoil and sovereign debt, spending has yet to show any signs of returning to its peak levels. In an Accenture point of view a few years ago examining these same issues in the industry, the economic situation has deteriorated and shows continued volatility and uncertainty ahead, making program profitability an area of concern going forward.

All of the challenges facing Aerospace and Defense (A&D) businesses in 2006 remain today. But they have intensified and increased the pressure on businesses. In response, they must develop strategies that enable them to deal with what is now the ‘new normal’ when it comes to complexity, intense competitive pressure and the need to seek profit growth from new ways of approaching business opportunities.

Aerospace OEMs have in recent years transformed themselves from manufacturers into integrators, coordinating and managing a diverse network of suppliers to deliver critical major assemblies. The last decade has seen the accelerated emergence of more complex and interdependent relationships, trade and capital flows between economies and geographies in developed and growing markets. Accordingly, the supply chains to which this new world gives rise have become increasingly complex and diverse. While creating major opportunities, they also generate some hefty challenges. To meet the demands of this reconfiguring world, A&D supply chains have become complex networks of supplier partnerships. The various risks associated with supply chains – including political, financial, environmental, economic and so on – and the various impacts of not managing those risks effectively are growing. The industry’s ability to manage and predict supply chain risk in this fast changing setting has not yet been able to meet this growth.

In Accenture’s view, Aerospace and Defense companies must improve profitability across a program’s lifecycle, not just in one or two areas, to achieve high performance. They need to recognize that the value drivers and value creation opportunities are different in each phase. What’s required is not a single program for profitability, but an adaptive methodology that can be continually reapplied throughout the lifecycle and supported by appropriate enterprise management and financial metrics.

To be effective across entire programs, PLM must be integrated from the outset, across all parties, starting with the design and development of both new and existing programs. Achieving that integration is more important than ever. The development of key partnerships to form extended enterprises creates greater complexity and higher levels of dependency between different parties along the duration of a program. Ensuring that there is a common, consistent and shared view of progress and visibility of the key, relevant production inputs for each participant is essential. Those abilities should be in place as early as possible.

Accenture’s extensive industry experience and process knowledge can help businesses to assess and define their change requirements, develop the transformation roadmap and implement operational improvement. Our services extend beyond conceptual strategy development as we have the ability to work alongside clients in the field with our people integrated in client delivery teams. We are also able to help lower costs through outsourcing some aspects of engineering services and other elements of PLM activities.

To address the challenges that OEMs face, a rigorous and integrated approach to assess and confirm suppliers’ readiness and capabilities is essential. Accenture works with A&D companies to create a comprehensive and sustainable approach to supply chain risk management. This includes using standardized assessment categories and defined benchmarks for supplier maturity and readiness. We conduct ‘as-is’ assessment for every site and supplier (including those at lower tiers) and use those to tailor a development plan to confirm each supplier is able to meet future requirements as they change and programs ramp up. Development plans are constantly monitored – including thorough on-site visits –and sanctions for non-compliance are defined and agreed.

Our approach to driving program profitability covers three key phases.

First, we diagnose by identifying and prioritizing improvement opportunities, define the business case for change and implement the roadmap to achieve the identified outcomes. During this three-to-six week phase we use a range of proprietary tools to identify the areas with the greatest scope for improvement, including program lifecycle and value tree frameworks, opportunity assessments, business case and prioritization examples.

Having diagnosed the opportunities, we move into deploy mode in order to help the client capture and realize the benefits. This activity takes place in two stages: the implementation of quick wins over a four-to-twelve week period and working on longer term capabilities, such as changes to the operating model, processes, organization or technology over three-to-six months. With changes underway we then create and apply metrics to measure performance over a two-month period to confirm that the enhanced capabilities and profit improvements in place are continuing to deliver.

On the journey to high performance, Accenture stands ready to help—with a value-driven methodology and robust tools that can be deployed today to help companies rapidly identify and capture new profit improvement opportunities.