5 strategic supply chain and operations imperatives

As investor expectations are increasing, improving value requires addressing supply chain challenges.

In brief

• Increasing analytics and machine learning usage can eliminate inherent biases while also minimizing forecast errors and process inefficiencies.
• The digital twin capability can help predict and assess the implications of disruptions and help users prescribe the right actions.
• Using automation in the talent acquisition process can improve the quality of talent sources and address root causes of candidates exiting the process.

After two years under the cloud of COVID-19, business-as-usual has become a distant memory, but the outlines of a post-pandemic future are slowly coming into focus. Across the aerospace and defense (A&D) sector, executives face a mixed outlook, with lot of reasons for optimism overshadowed by a persistent concern around supply chain.

Within commercial aerospace, passenger air traffic has been recovering gradually, and cargo has spiked 16.7% , fueled by manufacturing output, low inventory levels, continued e-commerce growth and vaccine transportation needs. While the recovery is encouraging, concerns abound as airline debt level has almost doubled amid sustained reduction in business travel, continued uncertainty in the wide-body recovery, and the expected reversion of the near-term cargo surge back to historical levels in an economic slowdown.

The outlook for the defense industry changed dramatically when Russia invaded Ukraine, sparking near-instantaneous reversals of long-established policies and budget frameworks across Europe. Over the next five years, $500 billion to $800 billion in unplanned defense spending is expected as US and NATO countries continue investing toward immediate concerns as well as enduring strategic goals. The increased funds will be used to procure defense equipment, improve the readiness of existing equipment, and enable new warfighting capabilities in a large-scale conflict against a peer adversary.

Collectively, commercial aerospace and defense are both headed toward the same supply chain hurdles, from differing directions: material availability and supply constraints driven by capacity limitations, labor shortages, commodity price inflation and demand volatility. This is a perfect storm that can make or break A&D companies.

Because of commercial recovery and defense budget growth, investor expectations are increasing, and maximizing value requires addressing these supply chain challenges. Here are five strategic imperatives in supply chain and operations to capture that value.

1. Pursue integrated digital planning powered by machine learning

Amid so much volatility, human biases and incorrect assumptions plague many forecasting functions at A&D companies, hobbling their ability to plan and grow more agile. Most rely on legacy “rearview mirror” approaches, but greater usage of analytics and machine learning (coupled with a focus on data integrity) can eliminate inherent biases while also minimizing forecast errors and process inefficiencies.

This analytics-based approach can identify emerging trends, teasing out patterns using historical information, to better predict outcomes and project an accurate forecast. The forecast accuracy of these models can be further enhanced with unstructured data within the company and publicly available external data.

2. Gain “real time” supply risk monitoring and mitigation

A&D companies spend almost 80% of their time trying to identify risk and only 20% of their time for mitigation actions  — ratios that should be flipped, and can be, thanks to digital tools and data. First, stratify and prioritize the supply base, based on which suppliers and parts pose the biggest risk to operations. Historical supplier performance is a consideration, but so are factors like single source, long lead time, extent of safety stock, and where the part falls in the build sequence.

Second, automate the risk monitoring for the prioritized suppliers. Artificial intelligence can sift through publicly available data — for instance, supplier locations, labor issues, financial challenges and litigation — to trigger alerts when deliveries could be impacted. And automated data feeds (including raw material inventory, cycle time changes and quality trends) from critical suppliers’ systems can enable a high-confidence automated risk assessment.

Third, shift time and attention toward risk mitigation actions — from near-term supplier management actions to address delivery and quality issues, to long-term strategies to secure supply.

3. Use digital twins for rapid planning, rescheduling and better decision-making

Digital twin — a virtual replica of a supply chain or a factory, or an asset or process — can help in predicting and assessing the implications of disruptions. Besides analyzing and predicting, the digital twin capability helps you prescribe the right actions, and in its most advanced form, it involves autonomous decision-making.

For instance, what is a feasible production schedule amid changes in the mix of demand? How can downstream activities be re-sequenced to manage supplier delays? How deftly can capacity be planned on flexible time horizons considering shifting bottlenecks? Digital twins can offer answers to these types of questions to address supply chain challenges proactively.