Value chain integration – interdependence of the A&D ecosystem

In recent years, open collaboration and tighter integration among A&D manufacturers and suppliers have become increasingly important. These more collaborative working partnerships, if managed well, can reduce costs, improve time to market, speed innovation, and provide improved support over the lifetime of a platform.

Today, the direct success of an individual company is intertwined with the performance and capabilities of others within the A&D business ecosystem. Successful companies need to understand complex, strategic issues, such as:

• Which collaborative actions potentially enhance or damage operational productivity
• How to align ecosystem partners’ goals, when risks and rewards must be shared
• Ways to improve supplier/partner performance and capability to deliver inter-dependent and integrated systems, rather than just components
• How to encourage a more creative environment in which innovation and new products emerge
• Ways to best coordinate global projects with diverse country requirements and regulations, cultural and communication challenges, and logistic complexities
• How to build in flexibility (including new partners and technologies) for long-term commitments and changing market conditions

However, A&D companies’ processes and infrastructure are not keeping pace with value chain integration. As they cross corporate, cultural, and geographic boundaries, value chain challenges multiply. Today, it is not unusual to have 3, 4 or even 5 tiers between the prime contractor, or systems integrator, and the lowest member in the value chain.

Although companies’ objectives vary, building and operating a successful value chain depends on a number of required actions:

1. Identify product/service demand and define needs (aligned with overall business strategy)
2. Determine value chain role (e.g., integrator, sub-system integrator, ODM, Tier 1, etc.) at various product/service life-cycle stages
3. Find best partners (goal and capability alignment)
4. Structure agreements to enable required capabilities (recognizing the spectrum of relationships from strategic partners to transactional suppliers)
5. Establish value chain governance and operational principles (e.g., intellectual property sharing and management)
6. Establish connectivity and IT decision and transaction support
7. Develop metrics (how each partner will measure success)
8. Establish process for evaluating and adapting (integrate new partners and separate existing ones)

A.T. Kearney has extensive experience working with aerospace and defense companies in supply chain management, organization transformation, and performance-based partnering to create sophisticated partnering models, which achieve the benefits of value chain integration. We help clients align products, technologies, partner capabilities, and services to emerging demand and market needs. Our approach is based on nine key principles, ranging from soft behaviors to hard contractual factors. A.T. Kearney continues to help many global aerospace and defense companies integrate their value chains for greater efficiencies, improved time to market and un-wavering support over the lifetime of a platform.