Aerospace and Defense: Seven Principles

Seven principles for supply chain agility for an aerospace and defense company

1. Intimate customer knowledge: The first rule of any successful business is to fully understand customers and their needs. This knowledge must include an understanding of the company, industry dynamics, and overall market environment. To gain—and keep—the confidence of their customers, companies must develop a sales plan, not a sales forecast. Historically-based forecasts should just be the starting point. To encourage customers to collaborate and share accurate information, companies should offer incentives such as price reductions, better terms, and preferred allocations. To gain a true understanding of their customers’ businesses, companies must focus on market knowledge, not just on direct customer demand or forecasts. Consistent, continuous monitoring is crucial in maintaining long-term valuable customer relationships.
   
2. Intimate supply knowledge: Over-forecasting and delays as well as a high number of engineering change orders cause suppliers to add judgment. To counteract that effect, companies must require suppliers to commit to requests in terms of a “supply plan” and to provide visibility into the status of the supply plan. Capturing lessons learned and performance scorecards keep suppliers accountable, ensure goals are communicated, and allow for continuous business evaluation.
   
3. Living and dying by “the plan”: Most plans are “dead on arrival” due to lack of visibility, modeling errors, and other constraints. Plans need to be owned by the teams that are accountable and are empowered to make them happen. Companies must implement rapid, constraint-based planning, and track any threats or deviations to the plan. The planning process must incorporate root-cause analyses of deviations, actions to overcome threats, and rapid re-planning as a last resort, as well as post-mortems and performance management.
   
4. Cross-silo synchronization: Plans usually propagate in one direction only. To achieve agility, companies need to implement multi-directional cross-silo synchronization. The closed-loop management process includes monitoring for deviations of actual execution from plan, enables systematic root-cause analysis, and creates proactive and concerted response. By enabling cross-silo synchronization across the ecosystem, organizations can move to one version of the truth that is shared and acted upon.
   
5. Rapid, reliable fulfillment: Order fulfillment is usually slow, rigid, and opaque. But companies can overcome this by responding to customer requests with immediate commitments based on a firm, optimized, execution plan. Rapid, reliable fulfillment can be achieved by pegging sub-plans to customer requests, tracking progress to customer request fulfillment plans, and taking actions to compensate for any deviations.
   
6. Supply chain design: Supply chains are usually designed for cost rather than agility. To achieve supply chain agility, companies must redesign planning and execution processes, organizations, and measurement. At the same time, companies need to reinvent network, inventory, and fulfillment strategies, as well as component and sourcing strategies.
   
7. Business reconfiguration management: The supply network is constantly changing. Today’s business environment is characterized by new products, suppliers, and customers, as well as new forms of production and fulfillment. Changes to a physical network are expensive to replicate in computer systems, as multiple ERP systems, legacy systems, and spreadsheets need to be synchronized.
   
   To keep system models in sync with the current business reality, companies must implement flexible IT systems. A synchronized, closed-loop cycle of “planning, doing, checking, and acting” enables companies to make constant adjustments to keep the entire supply chain on track.