New York — January 15, 2008 — Information released today from the Deloitte Consulting LLP Aerospace and Defense industry group indicated that achieving top-tier supply chain performance proves more elusive than expected. The risk of disruption and incremental costs for A&D companies is "real and significant" if companies don't implement changes now to help ensure the longevity and success of their supply chains.
"The risks are imminent," said Jim Schwendinger, vice chairman, Global Aerospace & Defense, Deloitte Consulting. "Costs and inventories are growing, service levels are lagging and products are not making it to customers on time or on budget. We have found that significantly optimizing your supply chain for high-speed performance is an effective way to deliver what customers and the market expect."
To build a top-performing supply chain, Deloitte Consulting says, requires CEO attention, since it will likely involve changes across the enterprise. As programs become larger and more global in scope, the complexity of managing the supply chain grows tremendously. This growth increases the stress on old methods of managing the supply chain, making them incapable of meeting new challenges. Therefore, aligning supply chain capabilities with the company's corporate strategy and growth objectives is key to building a sustainable and integrated delivery model.
"Over the past year the A&D industry has suffered numerous service issues, many as a direct result of inefficient supply chains," said John Coykendall, principal, Deloitte Consulting. "These difficulties have resulted in enormous cost overruns, delayed new product rollouts, missed delivery dates and have forced companies to make serious adjustments in production which, in turn, has affected their entire supplier network."
These major setbacks, Coykendall said, are all too often the result of breakdowns in supply chains. While companies frequently attempt to improve supply chain performance, too often the approach to solving one challenge creates sub-optimal performance elsewhere in the supply chain. However, by taking an integrated view of supply chain capabilities, companies can actually drive improvements in performance while also reducing total costs.
"The traditional view of supply chains is just not good enough anymore," said Schwendinger. "Supply chains have traditionally been depicted as linear streams, and unfortunately this narrow view can lead to missed opportunities for improved integration of both external and internal supply chain capabilities."
Through its experiences helping A&D companies improve their supply chain performance, Deloitte Consulting has identified five techniques that A&D companies are using to boost their supply chain performance:
1. Drive alignment of supply chain and business strategy: Many critical decisions about a product are made early in the product's life cycle. Careful thinking about how to align supply chain strategy with business strategy early on can drive performance down the road.
2. Integrate multiple supply networks: Knowing when and where to integrate supply chain networks that support each business model (e.g. aftermarket, OEM) is critical to improving performance. Single supply chains that serve all businesses will typically under-perform on both cost and service objectives.
3. Align and integrate supply chain planning: Poorly integrated planning activities can be detrimental to overall performance. Companies need to exercise tight coordination and integration of demand plans, inventory plans and production schedules to drive the required outputs.
4. Strategically manage the supply network: Aligning the supply chain organization to facilitate better decision-making is imperative. Businesses must manage multiple linkages and dependencies within the network to gain flexibility and competitive advantage.
5. Mitigate tiering risks: Companies need to provide a consolidated view of demand down multiple levels within the supply chain. As visibility has shifted away from OEMs to tier one, supply chain managers must increase their focus on tier-two and tier-three players that have dropped below the radar.
Companies that are ready to get the process started now, Deloitte says, should first begin by asking questions such as:
- How many supply chains do you have in your company?
- Where do you need to build capabilities to meet expected cost and performance objectives?
- What are the three to five areas within your supply chain which, if significantly improved, would dramatically enhance your cost and performance position?
Also, remembering that this is a broad-based initiative and not a situation where companies will have a single, easy fix is important to staying committed and focused on the improvement program.
According to Deloitte Consulting, integrating a company's supply chain is neither quick nor easy. It often takes years and involves a number of strategic steps. "However," said Coykendall, "this is less about the destination and more about the journey. There must be a commitment to a long-term program in order to achieve desired results. But, while a long-term program may be required, with proper focus at building a few key capabilities, supply chain improvements should start rolling early in the journey."