Aviation and Defense Sector: Strategic Risk Management

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The aviation and defense (A&D) sector plays a critical role in the economy of the United States. The industry is the country’s third-largest exporter and accounted for up to $142 billion, translating to about 9% of total exports (A&D Edge, 2018). The supply chain is crucial in creating the $78 billion of the nation’s cumulative A&D exports. Records show that in 2015, 56% of supply chain exports were made up of various parts and assorted components, while 44% were yielding final items (A&D Edge, 2018). Therefore, supply chain management (SCM) is fundamental to the success of an A&D firm. However, sometimes, companies are faced with challenges owing to the ever-changing and vast scope of SCM in the A&D field.

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In the modern world, the A&D industry supply chain is sophisticated, universally wide-ranging, and more susceptible than ever. Companies need to be more organized and ready to adjust swiftly to the new circumstances to survive the challenge. Some of the issues are large data requirements, cyber threats, and complex supply chains. Others are prolonged lead times, contingent on a host of sole-source suppliers, and running collaboration across an intricate and complex supply chain (A&D Edge, 2018). Organizations face multiple enterprise resource planning, and the cost of updating is prohibitive and making it impossible for some (Cheater, 2017). Data thefts and cyberattacks pose a threat to SCM networks and can cause a multiplier consequence.

Further, complex products and engineering changes pose a challenge to A&D companies. Engineering modifications intended to meet consumers’ needs are expected in the A&D industry, but the alterations often have an immense impact on SCM. When a sole-supplier cannot deliver materials within the agreed timeframes or delivers substandard products, then the production within the A&D firm may have to stop leading to cost overruns (A&D Edge, 2018). Furthermore, longer lead times for A&D companies require the organizations to have a colossal inventory level, exposing them to the risk of supply scarcity. All the SCM aspects of A&D make their collaboration complex, as it involves multiple suppliers, subcontractors, and raw materials. Nevertheless, these SCM challenges in the A&D sector can be avoided and solved using sound strategies.

Successful companies in the A&D sector employ various initiatives to overcome the SCM challenges to manage costs effectively, enhance efficiency and alleviate risks. Firms apply vendor-managed inventory (VMI) programs and partner with reputable suppliers for timely delivery of quality parts. Under VMI, the purchaser provides specific information on the requirements, and the seller assumes full responsibility for ensuring the established inventory levels. Organizations are also adopting digital technologies like joint innovation centers and hosting production sites, which are impacting the development of the A&D ecosystem. Some companies are relying on vertical integration to gain control over the critical processes to reduce operating costs. Several companies are building alternative supplier networks from multiple sourcing, thus mitigating the risk of disruption arising from supply disruptions.

A&D industry plays a significant role in the economy of the U.S. but is associated with a number of challenges around procumbent, sourcing, and outsourcing. The industry is complex, and if the three aspects are not effectively handled, then the companies in the sector are at risk of failure. Therefore, there is a need for sound strategies regarding risk management if the industry upholds its immense contribution to the nation’s economy. Strategic planning in line with the possible solutions such as VMI adoption, vertical integration, and creating alternative supplier networks are among the efficient strategies to adopt. Therefore, the whole scenario falls under procurement, sourcing, and outsourcing; the methodology lies under risk management while the planning level is strategic.

References

A&D Edge (2018). Supply chain management in aerospace and defense. Web.

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Cheater, A. (2017). Supply chain pain points in the aerospace and defense industry. Kinaxis. Web.

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DemoEssays. 2022. "Aviation and Defense Sector: Strategic Risk Management." June 8, 2022. https://demoessays.com/aviation-and-defense-sector-strategic-risk-management/.

1. DemoEssays. "Aviation and Defense Sector: Strategic Risk Management." June 8, 2022. https://demoessays.com/aviation-and-defense-sector-strategic-risk-management/.


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DemoEssays. "Aviation and Defense Sector: Strategic Risk Management." June 8, 2022. https://demoessays.com/aviation-and-defense-sector-strategic-risk-management/.