The aerospace and defense industry has been hit with a double whammy over the past several years. First, the Boeing 737-MAX debacle cost the OEM and primes at least $20 billion. Second, the COVID pandemic and ensuing supply chain failures have caused bottlenecks and shortages of raw materials. The supply chain and assembly of airliners and jets is a testament to modern engineering and implementation of efficient processes. Tens of thousands of components from primes across the globe must be assembled. Any hiccup or delay in this process has a cascading effect across other primes and ultimately for the OEM and airline. These delays can cost millions of dollars, and if large enough to encompass an entire project, the cost can be much higher. With this in mind, supply chain management to maximize efficiency has risen to be a board-level issue in the last two years. Into the foreseeable future, supply chain stability will continue to capture the attention of the leadership in many aerospace companies.
The State of Aerospace Supply Chains
The current state of aerospace supply chains has far improved over their state during the heat of the COVID-19 pandemic. However, describing aerospace supply chains as robust may be a stretch. There are still several challenges facing aerospace primes and OEMs. First advanced components like microchips are currently exiting a shortage and a future with more shortages is not difficult to imagine. Also, labor reports continue to show a manifest lack of workers willing and able to engage in manufacturing activities for aerospace primes and OEMs. Bleeding edge technologies are also transforming expectations and production for aerospace companies. Finally, the very stability of various supply chains and raw material suppliers has been called into question with the recent geopolitical instability in the east.
Advanced microchip production across the board has been insufficient since the beginning of the COVID-19 pandemic. This lack of availability has been further exacerbated by China’s apparent willingness to invade the island nation of Taiwan. An invasion of this nature would almost certainly remove any TSMC microchips from the market and leave the A&D industry, as well as many others, without a viable alternative.
There are two main solutions to the microchip shortage. First, on a national level, the USA has already begun subsidizing microchip manufacturing to the tune of $50 billion. Nearly all experts agree that this level of investment is insufficient, but it is a step in the right direction. Companies that rely on microchips can contribute through private investment, to the degree that it’s possible. Primes and OEMs can also look to diversify their geographic risk exposure by sourcing from other areas that are less vulnerable like Japan and South Korea. Additionally, primes and OEMs can make a concerted effort to improve their relationships with microchip suppliers by making long-term commitments and securing future supply agreements.
Despite a modest recovery in labor markets, many manufacturers are still unable to fill positions and struggle to retain talent for those positions they can fill. These challenges are a result of high compensation expectations, competition within a scarce labor pool, and a lack of perceiving manufacturing as a viable career.
There is no single solution for solving the labor shortage and escaping the resulting supply chain issues. However, businesses must essentially bite the bullet and recognize that without workers, there are no products. Labor has its price and paying the extra amount for highly engaged and motivated employees is worth the investment. Additionally, A&D primes and OEMs must learn to sell themselves as a legitimate career path with long-term viability.
Much of the manufacturing base in the USA has been gutted, A&D manufacturers are well positioned to show their relevance and legitimacy as career options. This change in perception of manufacturing has led to many supply chain disruptions because of labor shortages. As a result, some manufacturers have gone as far as to add better dining options in plant cafes, attractive overtime pay, on-time bonuses, and more to help attract and retain talent. A&D primes and OEMs should explore any and all options that help them retain skilled and motivated talent in an ROI-positive manner to help minimize supply chain disruptions.
Bleeding Edge Technologies
Technology continues to drive innovation and advancement in nearly all industries, and A&D is no exception. New technology routinely appears that changes the way business processes are done. It is unreasonable and even inefficient to expect a business to stay abreast of new technology implementation. However, failing to adopt new technologies that increase inefficiency can leave manufacturers at a severe disadvantage.
Manufacturers should do yearly evaluations of major processes and equipment currently in use. A period any longer than a year could result in lost time using a new piece of technology. However, a period shorter than a year does not allow enough time for new technologies to be developed. Additionally, manufacturers should attend trade events where new manufacturing technologies and processes are exhibited. Finally, some manufacturers may want to consider hiring a CTO whose full-time job is to stay abreast of new technological developments within A&D manufacturing.
Aerospace and Defense manufacturers will have to be flexible to become resilient over the next several years. Many of the problems A&D is experiencing today are problems that haven’t been felt in several decades. Finding a path forward to manage supply chain turbulence will, therefore, be equal parts remembering and innovating.
Seraph can help A&D companies navigate some of the most pressing supply chain management issues. Thanks to our team of specialized operational consultants, Seraph can come alongside a new company and act as a support structure and begin adding value from day one. Our advisors are former management at many suppliers and OEMs and are experts in production and supply chain efficiency. Contact us today to schedule a discovery call, or see our case studies for more information.