In A&D, the manufacturing market is becoming more concentrated. By this I mean we often have multiple, complex relationships between contractors, based on complex contractual agreements and varying levels of capabilities.
No wonder that organizations are looking to manage the end-to-end manufacturing process in a simple manner in order to operate successfully. And putting in place this level of complex integration and control procedures has often been a challenge for ‘second Tier’ suppliers in the defense industry.
So how can Tier 2 manufacturers become more competitive and at the same time more appealing to Top Tier contractors? It’s all to do with visibility and granularity. Let me explain.
Adapt & Align
Defense products – whether that’s an engine, weapon system or military plane – often span years or decades in their use, and the contracts to manage and maintain those products can be seriously long-term.
All parties – whether the government, Systems Integrators (SIs), Top Tier manufacturers, Tier Two or component manufacturers – sit within the same constraints of defense contracts, which are often expensive to bid for and can involve a significant level of risk.
The challenges and regulatory constraints become more or less demanding depending on where a company sits within this chain. For Tier 2 manufacturers in particular, manufacturing essential components and sub-assemblies, the more they adapt and become aligned with their Tier 1 counterparts, the more successful they will become in such a landscape.
There are three key areas that this can be achieved:
1. Become less risky – With any defense contract, the cost of the actual purchase of the asset only constitutes around 20 percent of the total cost – 80 percent of the cost falls in providing the through-life support. And this is where Tier 2 manufacturers can find huge opportunity. In order to do so, Tier 2 manufacturers need to have in place robust, sustainable and transparent processes that help reduce risk to their Tier 1 manufacturers and SIs, which in turn reduces risk to government departments themselves.
2. Become more cost competitive – The second area where Tier 2 manufacturers can gain significant advantage is by becoming more competitive in their market – and the current generation of modular ‘pick and mix’ advanced Information Systems (IS) such as IFS Applications increasingly allows them to relatively inexpensively enjoy the same levels of granular understanding of their processes as the Top Tier contractors have already implemented. Manufacturers get granular visibility into the supply chain, have a better grasp on project margins, and will know exactly how much money can be made through such agreements – and how much they can lower their prices while still retaining those all-important profit margins.
3. Become more compliant – The A&D industry is highly regulated, and all parties within a contract have to adhere to strict government requirements and all of the multiple regulations they are faced with such as ITAR, Export Control, and DPAS. In any defense contract, the objective is to avoid risk and choose a supplier that is compliant with all of these regulations. Having granular visibility into which assets are held where is fundamental to ensuring compliance in these areas, as well as improving productivity and reducing asset management costs.
- For more information on how ERP can enable businesses to adhere to export control regulations, download the whitepaper from IFS here.
So Here’s the Bottom Line
In the past, governments were happy to pass on risk to the Top Tier manufacturers; now things have become stricter and they are increasingly looking for a full audit trail for all parties involved in a contract, in order to manage risk.
If Tier 2 manufacturers want to run like the bigger, leaner manufacturers, they must be able to demonstrate a comprehensive understanding of their supply chain – including the origin of all of the component parts – as well as where all of those components are at any given point in time. They must also be able to demonstrate control and security across the supply chain. In operational terms, this means being able to allow only the correct ‘sliver’ of information to be provided to employees on the manufacturing line as and when required. And if this visibility can be further configured to each shop role as with IFS Applications, then productivity can be enhanced as well – a win win situation.
It’s all to do with visibility and granularity. Tier 2 manufacturers can now do this from the new generation of IS solutions that enables them to pick and mix – and integrate – the appropriate modules from a comprehensive IS solution. IFS is the field leader in solutions for the A&D market – perhaps we could assist you in achieving more competitive success?