Digitization Can Help Global A&D unlock Over $20 Billion. Here’s How

For over a decade, digitization has been penned down as the next stage of improving the design, speed, and efficiency of Aerospace & Defense contractors. Thankfully, there’s new research backing this long-standing claim.

A recent research by the famed consulting group McKinsey Company, in partnership with Aerospace Industries Association (AIA), showed that A&D companies could unlock a whopping $20 billion in value through digitization.

With digitization, we can expect to see more reliable products on the market that will give consumers value for money whilst maintaining quality and innovation. As much as this is possible, it will not be an easy feat. Stakeholders should be willing to lay aside outdated manual operations for modern technological advancements.

In this post, we will take a look at how digitization in the A&D industry can unlock $20 Billion by focusing on the following:

  • Procurement and supply chain
  • R&D engineering
  • Manufacturing
  • Services
  • Support functions

Let’s delve in.

Procurement, Logistics, and Supply Chain

From the McKinsey and Company study, digitization of supply chains can add about $9 billion dollars to global A&D. To put that figure in perspective, that’s about half of the total estimated $20 billion.

While the digitization of supply chains holds great value, not many companies are using full-scale digitization across their operations—many of the companies that do operate in heavily regulated industries. For example, companies like Fastbolt, which provides military and aerospace fasteners, have invested in digitization.

A study conducted by McKinsey on how going digital can help A&D become more resilient and innovative showed that 15 percent of the companies involved in the study use digitization to optimize demand planning.

The benefits of digitization in the A&D industry are countless. Abnormalities can easily be detected, time-wasting will be reduced, and dangerous processes will be handled by machines to improve safety.

To be able to track data in real-time, companies can use sensors connected to their products. Data obtained from these sensors will go a long way in improving working capital as well as customers’ uptime performance.

Also, A&D firms can take a cue from Volkswagen. Although they are not directly involved in A&D, they plan to create a cloud platform connecting its 30,000 locations to its 1,500 suppliers. This will aid in gathering real-time data, which will, in turn, reduce production costs. For more insights on effective global supply chain management, read this article.

R&D and Engineering

Although top-notch digital and analytical skills have been developed, there are a lot more designs that exist only on paper. For a design to move to the manufacturing stage, a lot of manual checks have to be conducted to guarantee product quality.

Here is where the challenge lies. To solve this, engineers in the industry would have to carefully access the analytics about the production and design of A&D products with an emphasis on speed and quality.

According to the McKinsey and Company study, mastering digitization in R&D and engineering will contribute about 4 billion to global A&D. That is about 20% of the total estimated value.

By using digital and analytics, A&D companies will be able to improve quality by forecasting deficiencies and to create designs to solve issues that may arise.

This will limit the cases of product recall which will increase the cost of production.

In digitizing with design in mind, companies should avoid digitizing already made designs; rather, they should invest in the digitization of new designs and processes.

Finally, engineers need to have a deeper understanding of the peculiar needs of consumers. In designing parts, emphasis should be placed on making the installation process easy for mechanics.

Manufacturing

Digitization in manufacturing has the potential of contributing about $3 Billion to global A&D, about 15% of the total estimated value. A proper structure to improve maintenance and quality is needed for digitization. With technology such as IoT and robotics, companies can improve their manufacturing.

To increase equipment uptime, companies should consider investing in sensors that can be connected to machines with the aid of artificial intelligence. Digitization in manufacturing will make it easier to identify deficiencies in production and provide solutions to ensure quality and durable products, thereby reducing production costs.

Services

This might look like the area in the A&D industry that requires the least attention; however, with digitization, we will be able to see improvements in aftermarket services.

Out of the $20 Billion A&D can contribute to the global economy, the study by McKinsey and Company shows that digitizing services can add about $3 Billion. Seeing how that is about 15% of the total estimated value, digitization shouldn’t be overlooked.

With solutions such as e-commerce and workflow integration, we can look at improving customer value. Aviation companies such as Boeing include analytics to improve aftermarket services.

Expecting all A&D companies to be on the same level on the road to digitization is unrealistic. Companies will need to make incremental improvements over time.

Support Function

From the McKinsey and Company study, digitization in support functions can add about $1 Billion to global A&D. Although this is not the highest figure, it still forms an integral part of the A&D industry.

Effective and efficient support functions should be the focus of every industry, and digitization will push their efforts fourth. The A&D industry is no different; however, some A&D companies have not woken up to this realization.

Keeping how important workflow automation is in mind, A&D companies can include automation in their bidding and proposal processes to estimate design and manufacturing costs.

Final Words

With digitization in mind, the future looks promising for the A&D industry. As stated earlier, this will not be easy. However, companies can get started by looking at areas that need the most upgrades, forecasting based on data from previous projects and products.

By focusing on digitizing one aspect at a time, companies can optimize profit and channel these funds into other areas. Companies such as Boeing and Airbus are pioneering the digitization movement, and a lot of inspiration can be drawn from their successes as well as their failures. Adjusting to new and improved technology may take a while; however, the rewards are extremely satisfying.