Even a small slip-up can cascade into a series of setbacks within a supply chain. Not long ago, prime contractors manufactured roughly 80% of deliverables in-house and outsourced 20% of production. In an unprecedented time of global partnering within aerospace and defence and programme technical complexity, those percentages have been reversed. To compound matters, a great deal of innovation responsibility has been pushed to the supplier. Together, these factors raise the premium on supply chain collaboration, visibility and risk management.

Because performance hinges on the supply chain's smooth operation, companies must anticipate and manage risk and have methods to prevent disruptions that can damage profitability, shareholder value, and reputation.

Far too many aerospace and defence companies have significantly reduced their visibility into programme operations by making less and buying more. They no longer fully appreciate the considerable risk they face when making investment and capacity decisions on multimillion-dollar contracts. They push work to overseas suppliers without knowing if the supplier has the ability to comply with local regulations and export controls. Working in isolation, industry suppliers make assumptions on sales backlog, cuts in capacity, and commodity scarcity without co-ordinating with the prime contractor.

Companies need a better approach to identify, understand and manage supplier risk and its impact on meeting budget schedules and technical goals.

Key to a reliable approach is communication and collaboration between suppliers and the prime contractor. Applying proven risk techniques, companies can work with their supplier to discover and anticipate risk indicators based on readily available supplier data. Using this data can enable a shared understanding of risk sources tied to the mutual success and strategic interests of their organisations. Collaboration with suppliers helps filter leading indicator data to focus on the information most relevant to uncovering hidden risks.

As a result of this collaboration, companies are more likely to increase the flow of risk data, share more sensitive information, and engage in effective dialogues on risk management. To broaden their risk knowledge, aerospace and defence companies can aggregate and integrate risk information and the related leading indicator data across functions, programmes, suppliers and portfolios.

By sharing risk information and developing co-ordinated risk responses it is possible to reduce surprises and disruptions, improve programme performance, reduce costs, and create sustainable competitive advantage.

Glenn Brady is partner, aerospace and defence operations and governance, risk and compliance at PwC. Matthew Lekstutis is managing director of PwC's aerospace and defence operations.  www.pwc.com/supplychainriskmanagement 

Source: Flight International