2012 Aerospace & Defense Market Survey
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- Engineering, operations, and supplier collaboration are seen as having the highest potential to positively impact companies' bottom lines. Engineering in particular is cited as an area of high potential. - Companies are focusing on improving productivity within their core competencies and growth in domestic markets using existing product extensions, as looming defense budget cuts and increased global competition weigh heavily on the industry. - Suppliers perceive the greatest challenge as meeting schedule and lead time commitments across the global supply chain, while also facing expectations to take on more product development and cost reduction responsibilities. Lack of reliable schedule and plan information is a primary concern.
2012 Aerospace & Defense Market Survey
- 1. U.S. Air Force photo/Staff Sgt. Larry E. Reid Jr. 11th ANNIVERSARY Aviation Week and CSC A&D Market Survey 2012 A&D MARKET SURVEY
- 2. The Flight to Safety Looming sequestration and associated reductions in Department of Defense and government expenditures combined with strong but uncertain government demand amid growing commercial markets is weighing heavily on the industry and its supply base. The 2012 Aerospace and Defense Industry Survey sponsored jointly by Aviation Week and Space Technology and CSC received strong industry backing with good representation across industry segments through a broad range of company sizes. Fully one third of the respondents identified themselves as Director Level or above. Where until recently federal and government markets were seen as the source of growth and prosperity, companies are instead focusing on the commercialization of existing products — first domestically, then internationally. Goals of reaching for new areas of growth as full service providers, performance based logisticians or System of Systems Integrators have given way to building better relationships with existing customers in existing markets with existing products and services. Furthermore, business leaders appear to believe that commercial growth opportunities are fairly evenly split between international and domestic markets. This appears to be a shift in thinking as perceived commercial growth over the last couple of years has been heavily focused on international markets. As suppliers, respondents perceived the greatest challenge within the global supply chain as meeting lead time and schedule performance. Risks associated with pushing additional product and service responsibility down the supply chain to partners and the cumulative impact on overall quality also weigh heavily on the industry. In our technology-driven industry, Engineering is cited as the area of highest bottom line business potential. When asked about changes in what area of business would have the greatest positive impact on the bottom line, Engineering, Operations and Supplier/Supply Chain collaboration came up in that order. Similarly, Engineering is seen as a source of competitive advantage enabling business systems and processes. Aftermarket support and performance based logistics (PBL) are still seen as a source of continued revenue and margin, but growth has and is being constrained. Those firms providing PBL continue to increase their offerings and business, especially in the commercial market, where PBL is now as prevalent as it is in government business. Those not offering PBL have no immediate plans to get into the business, citing a lack of demand, a lack of knowledge in the area and the perception that PBL is not particularly profitable business. These uncertain times are spawning a flight to safety where companies are focusing on increased productivity within core competencies and growth in more familiar domestic markets by way of existing product extensions. 2012 A&D MARKET SURVEY
- 3. 3 Strategy and Growth Strategically, the pendulum and growth emphasis has swung away from government procurement and towards providing goods and services for the commercial market with an emphasis on the design and production of innovative products and increased productivity. Question 8. Percentage of responses indicating that the objective is either the highest (1) or second highest (2) strategic objective over the next 1 to 2 years. 0 10% 20% 30% 40% 50% Grow the sustainment/ aftermarket business Improve internal efficiency/lower cost Manage the total product lifecycle to include service support Improve customer service/satisfaction Design and produce innovative products Establish new relationships with commercial suppliers and customers Establish new relationships with government suppliers and customers Of interest is the low level of emphasis on lifecycle service management and aftermarket sustainment, where respondents ranked field asset sustainment lowest in a list of functional areas offering the greatest commercial and financial value to the company and where changes to aftermarket services were ranked as having the lowest positive impact to bottom line results. Question 25. Respondents selecting the following area as highest (1) or second highest (2) area of innovation providing greatest commercial or financial value to the company. 0 5% 10% 15% 20% 25% 30% Fielded asset sustainment Manufacturing operations Production planning Supply chain management Material planning Product design/ configuration management Logistics Question 6. Percentage of responses indicating that the functional area has the highest (1) or second highest (2) potential for positively impacting bottom line results. 0 10% 20% 30% 40% 50% Aftermarket services Sales Program management Supplier/supply chain collaboration Operations Engineering
- 4. 4 The reasons cited for the low interest in aftermarket services are a lack of customer demand (a market) and a lack of knowledge in the area including a lack of skilled personnel. Question 45. Greatest constraints to increasing performance based logistics based on the combined answers for each area representing greatest constraint (1) and next greatest constraint (2) for respondents with PBL contracts. 0 5% 10% 15% 20% 25% 30% Government restrictions on labor and usage Lack of systems, tools or processes — parts and/or use visibility Not economical/profitable Lack of knowledge/experience in the area including skilled personnel Lack of customer demand/market Furthermore, business leaders appear to believe that commercial growth opportunities are fairly evenly split between international and domestic markets. This is a major shift in thinking as perceived commercial growth over the last couple of years has been heavily focused on international markets. Question 18. Percentage of respondents focusing on Domestic or International markets for growth. Domestic 50% International 48% We are not looking at growth markets 2% Percentage of respondents focusing on commercial vs. governmental/public markets for growth. Commercial 61% Governmental 37% We are not looking at growth markets 2% In looking for commercial growth opportunities, companies appear to be focusing on new and existing products as well as existing services, seeing limited potential in adjacent products and services or in developing new services. Similarly, growth through mergers and acquisitions is not seen as a macro force impacting our industry. The macro forces of reductions/reallocations of defense spending and globalization of markets has drastically changed industry priorities — deemphasizing workforce shortages, access to affordable capital and the push for the role of system of systems integrator.
- 5. 5 Question 19. Percentage of responses selecting products or services as the highest (1) or second highest (2) focus area for growth. 0 5% 10% 15% 20% 25% 30% Other Highest growth potential is in adjacent services Highest growth potential is in products Percentage of responses selecting existing, adjacent or new products or services as the highest (1) or second highest (2) focus area for growth. 0 5% 10% 15% 20% 25% 30% Other Highest growth potential in new products or services Highest growth potential is in adjacent products or services Highest growth potential in existing products or services Question 7. Percentage of responses indicating that the area has the highest (1) or second highest (2) impact to the organization over the next 2 to 3 years. 0 10% 20% 30% 40% 50% Compliance with export, tariff/trade, Intellectual property, environmental and security regulations Workforce demographics — a growing shortage of talent Reshaping the industry through mergers, acquisitions and divestitures or vertical integration Reductions and reallocations in defense spending, pricing pressures in commercial markets Affordable access to capital Globalization of markets, localization of manufacturing Accepting greater responsibility for “systems”vs. product specific innovation, design, sourcing, manufacture, and aftermarket support Supply Chain and Collaboration The industry is feeling the cumulative impact of growing demand in the commercial sector atop continued strong but increasingly uncertain demand in the DoD and government sectors. As suppliers, respondents had the greatest concerns with achieving schedule and lead time requirements while maintaining high levels of quality. While suppliers perceived the greatest challenge within the supply chain as meeting lead time and schedule performance across the global supply chain they also expressed concerns with the expectation that suppliers will continue to bear an increased responsibility for product development and cost reduction. Risks associated with pushing additional product and service responsibility to partners and the cumulative impacts on overall quality also weigh heavily on the industry.
- 6. 6 Question 23. Percentage of respondents choosing the area as the greatest concern (1) or second greatest concern (2) as a supplier. 0 5% 10% 15% 20% 25% 30% Supply stability Misuse/loss of control of intellectual property with partners Achieving cost objectives Achieving quality requirements Achieving schedule/lead time commitments Question 35. Respondents identifying the following areas as their greatest (1) or second greatest (2) challenge to the global supply chain. 0 5% 10% 15% 20% 25% 30% Lead time and schedule performance across the global supply chain Expecting suppliers to take additional responsibility for product development and cost reductions Scarcity of global inventory (i.e., raw materials, semi-finished goods, and finished goods) Global trade volatility (e.g., currency imbalances, sovereign economic stability) Collaborative design across the global supply chain partner community The lack of reliable information regarding schedules and plans is cited as one of the primary drivers for the concerns around meeting lead times and schedules. In addition, suppliers are feeling constrained by the lack of information available for creating and maintaining effective relationships with customers. Question 24. Percentage of respondents identifying the following areas as highest (1) or second highest (2) drivers for their primary concerns as suppliers. 0 5% 10% 15% 20% 25% 30% Caution about expanding/ contracting too quickly Difficulty getting financing for capital improvements or cash flow Difficulty finding qualified suppliers Difficulty finding qualified employees Lack of reliable information regarding schedules and plans
- 7. 7 Question 41. Percentage of respondents choosing the following areas as most constrained by a lack of business information as identified by choosing the area as highest constraint (1) or second highest constraint (2). 0 5% 10% 15% 20% Compliance with government regulations (e.g., Sarbanes Oxley Act) Avenues for growth and innovation Facilitating analysis and decision-making Maintaining effective relationships with customers and vendors Integrating strategy with business operations and rewards Measuring product profitability Reducing enterprise operating costs Difficulty finding qualified employees surfaced as a primary driver of Industry concern. By a margin of almost two to one, respondents identified that they are seeing shortages in the domestic workforce, especially in the areas of Aerospace and Mechanical Engineering and the skilled trades. The consensus appears to be that the shortages will probably continue for another 5 to 7 years. As a result, many companies are actively working to generate interest in math and the sciences with local high school programs. Despite the challenges of meeting schedules and lead times and the difficulties finding qualified employees, we see no significant increases or decreases in the number of firms outsourcing work or bringing in additional supply chain partners. To the contrary, we’re actually seeing a larger number of respondent companies bringing work back in house as opposed to outsourcing. Question 30. Has the number of supply chain “partners” your company collaborates with increased or decreased over the last year? Increased significantly (greater than 20%) 14% Hasn’t changed perceptibly 14% Decreased but only slightly 17% Decreased significantly (lower by over 20%) 13% Increased but only slightly 42% Question 31. Has your company insourced (taken work once outside the company back inside the company) or outsourced more work over the last year? Outsourced significanly 13% Outsourced but only slightly 18% Insourced significantly 8% Increased but only slightly 30% Hasn’t changed perceptibly 31%
- 8. 8 Programs, Productivity and Innovation The message is clear: while people believe the level and competency of industry wide program management is improving, training, increased use of experienced resources and better management participation would accelerate overall program management effectiveness. Almost 60% of respondents believe their companies do a moderate or superior job of program management while 75% of the participants thought their suppliers and partners did a moderate or better job of program management. With that in mind, very few respondents thought they overspent on program management, and the overwhelming majority thought they either spent about the right amount or didn’t spend enough on developing and maintaining program management capabilities. Similarly, a full 63% of the respondents believe they are getting value for their program management investment. Question 12. Rate your company’s overall program management effectiveness. Moderate to superior program management effectiveness 48% Between poor and moderate program management effectiveness 31% Superior program management effectiveness 10% Poor program management effectiveness 10% Question 16. Rate the program management effectiveness of your partners (e.g., customers, suppliers, peers). Moderate program management effectiveness 51% Between poor and moderate program management effectiveness 17% Superior program management effectiveness 3% Moderate to superior program management effectiveness 21% Poor program management effectiveness 7% Question 20. Does your group/company spend too much, too little or just the right amount of effort on program management? We put about the right amount of effort into managing programs 38% We don’t put enough effort into program management 42% Too much effort goes into program management 11% Don’t Know 10%
- 9. 9 Question 14. Do your program management expenditures deliver the value you expect? Yes 63% No 37% Despite increased confidence in program management capabilities, there is still room for improvement. If spending isn’t the impediment to improving program management, what do respondents see as the primary impediments to better program management? Program management tools, reporting and visibility came out as the least impactful areas for improvement, whereas qualified resources and proactive management participation were identified as having the greatest impact on improved program management. Question 15. Percentage of responses indicating that the area has the highest (1) or second highest (2) potential for improvement in the company’s program management approach. 0 10% 20% 30% 40% 50% 60% 70% 80% People/qualified resources Program management tools Proactive management participation Program management visibility and reporting Maintenance, Repair, Overhaul and Sustainment Aftermarket support and PBL are still seen as a source of continued revenue and margin, but growth has and is being constrained. Those firms providing PBL continue to increase their offerings and business, especially in the commercial market where PBL is now as prevalent as it is in government business. Those not offering PBL have no immediate plans to get into the business, citing a lack of demand, a lack of knowledge in the area and the perception that PBL is not particularly profitable business. Question 43. Do you currently hold performance based logistics contracts? Yes 49% No 51%
- 10. 10 For those company’s with PBL or equivalent contracts are they with government or commercial customers? Commercial customers 53% Government customers 47% Question 44. For respondents with PBL contracts, has your PBL business increased or deceased over the past year? Increased PBL 65% Decreased PBL 35% Question 45. Greatest constraints to increasing performance based logistics based on the combined answers for each area representing greatest constraint (1) and next greatest constraint (2) for respondents with PBL contracts. 0 5% 10% 15% 20% 25% 30% Government restrictions on labor and usage Lack of systems, tools or processes — parts and/or use visibility Not economical/profitable Lack of knowledge/experience in the area including skilled personnel Lack of customer demand/market For those companies providing PBL, utilization is evenly distributed around a mean of 60% with about 18% of the companies reporting utilization in excess of 90% and a similar percentage reporting utilization lower than 20%. For these companies, the focus is on reducing turn time and improving quality and reliability. Question 47. What is the current capacity utilization for your MRO operations? 30% – 60% 19% 60% – 90% 22% Less than 30% 11% Over 90% utilization 11% NA, we don’t do MRO/aftermarket support 37%
- 11. 11 Question 49. Top three improvement areas aftermarket support providers are focusing on as measured by the percent of top (1) and next highest (2) responses by area. 0 5% 10% 15% 20% 25% 30% Reduced set up time Improve materials management/parts availability Improved planning and scheduling Improved offerings — greater breadth and/or depth of MRO Offerings Improved quality/reliability Better schedule adherence Reduced turnaround times Engineering In our technology driven industry, Engineering is cited as the area of highest potential. When asked about changes in what area of business would have the greatest positive impact on the bottom line, Engineering, Operations and Supplier/Supply Chain collaboration came up in that order. Similarly, Engineering is seen as a source of competitive advantage enabling business systems and processes as opposed to Information Technology, which is more often seen as a cost to be controlled, or Supply Chain Management, which is viewed as neither an enabler nor a deterrent to growth and diversification. Question 6. Percentage of responses indicating that the functional area has the highest (1) or second highest (2) potential for positively impacting bottom line results. 0 10% 20% 30% 40% 50% Aftermarket services Sales Program management Supplier/supply chain collaboration Operations Engineering Question 57. Your corporate management’s view of engineering is: (select one) Other 2% As an investment 15% A source of revenue 6% A cost to be controlled 32% A source of distinctive competitive capability 44%
- 12. 12 Similarly, most of the respondents do not see product delivery issues as engineering based. As a result, most companies see Engineering spend year over year increasing over 5% this year in an environment where engineering and engineering based tools and processes are reasonably current. And most companies use a single product data management system that is integrated with shop floor control and ERP. Most respondents model parts digitally, have electronic bills of material and have done a major engineering system or process upgrade in the last 4 years. Question 51. Does your group/company use a single enterprise wide product data management or engineering tool? No 38% Yes 44% I don’t know/not applicable to our business 18% Question 52. Is your engineering system integrated with your shop floor control system? No 28% Yes 50% I don’t know/not applicable to our business 22% Question 53. Is your engineering system integrated with your ERP system? Yes 58% No 42% Engineering is constrained by both process inefficiencies and the continued issue of recruiting, hiring and retaining or otherwise accessing qualified staff. Perhaps its industry based restrictions or the nature of the work that keeps us from shifting production offshore or relying on offshore engineering staff augmentation. Despite that, Design Engineering as a function would be considered for outsourcing before manufacturing or procurement/sourcing.
- 13. 13 Question 61. Would you say your engineering related issues at your company are primarily due to: Lack of effective policies and standards 10% Other 10% Access to effective tools 7% Access to qualified staff 41% Process inefficiencies 32% Question 40. Percentage of respondents identifying the following areas as the source of engineering related issues 0 10% 20% 30% 40% 50% Other (please specify) Lack of effective policies and standards Access to effective tools Process inefficiencies Access to qualified staff Information Technology More than half of the respondents believe that they are either leaders or early adopters of new/emerging business processes and Information Technology (IT), and that their IT investments yield the expected value to the business. For those who did not see the expected results from their IT investments, most felt it was because they did not adapt their business processes to the new technologies. Question 9. Is your company’s attitude toward the adoption of new or emerging business practices and information technology that of a: (select one) Late adopter — wait until it’s proven and then consider 31% Early adopter — quickly follow the leader(s) 34% Leader — at the cutting edge 24% Non-adopter — don’t adopt new technology unless it becomes a requirement 8% Don’t know 3%
- 14. 14 Question 10. Do your information technology expenditures deliver the value you expect? Yes 56% No 44% Question 11. If no, what was the most significant reason? (select one) Company did not change business processes to fit with the technology 37% Didn’t provide the expected functionality 34% Costs to implement were too high 21% Insufficient employee adoption 5% Other 3% Demographics The 2012 Aerospace and Defense Industry Survey received strong industry backing with good representation across industry segments within all sizes of companies. Respondents were fairly evenly split between large companies (annual sales >$5B) and smaller companies (annual sales <$100M) with a strong showing of industry executives. Fully one third of the respondents identified themselves as Director Level or above. Question 1. Identify your organization’s aerospace and defense business segment(s). (select all that apply) 0 5% 10% 15% 20% 25% 30% Other (please specify) Missiles Aftermarket components manufacturer Tier 2 component supplier Field service, sustainment, MRO service provider Prime contractor/original equipment integrator (OEI) Consulting and professional services Commercial space systems, lift vehicles, payloads and launch services Business aircraft manufacturer/integrator Commercial aircraft manufacturer/integrator Commercial airline 1. Total percentages greater than 100% as respondents may select more than one category 2. Other is comprised of multiple business areas with DoD/Gov’t, IT and Retired representing almost one-third of the “other”.
- 15. 15 Question 2. Select your primary functional area. (select one) Other 21% Contractor management (technical/administrative) 2% Purchasing 2% Human Resources 2% Manufacturing Operations 6% Field Service Operations and Management 8% Manufacturing Engineering 3% Supply Chain Management 3% Materials Management 2% Program Management 11% R&D/Product Engineering 21% Sales and Marketing 20% Question 3. What are the annual revenues in U.S. dollars for your parent organization? Less than $100M 32% Other 4% N/A, Government or Public Entity 4% $100M – 500M 12% $500M – 1B 7% $1B – 5B 13% More than $5B 27% Question 4. What is your organizational level and role? Director 15% CEO 6% Other 12% Program Director 2% CFO 0% CIO 0% CTO 1% President 7% Vice President 6% Engineer/ Analyst/ Specialist 25% Manager/ Supervisor 26%
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