Key Take-Aways From KPMG’s 2014 Aerospace And Defense Outlook Report

Aerospace and Defense (A&D) manufacturers are concentrating on improving visibility across their value chains to gain greater insights into improving profitability, reducing costs and streamlining supplier networks according to KPMG’s 2014 Aerospace and Defense Outlook Report. KPMG found that A&D manufacturers are prioritizing process and IT investments that increase profitability, drive greater levels of collaboration and partnerships to deliver greater innovation, and setting the foundation for creating global supply chain networks. Presented below are the key take-aways from KPMG’s 2014 Aerospace and Defense Outlook Report.

The study’s methodology is based on interviews with 460 senior management executives and was completed as part of KPMG’s 2014 Global Manufacturing Survey completed earlier this year in conjunction with Forbes. The study’s methodology can be found on page 17 of the study’s published results. The KPMG Global Aerospace and Defense Outlook is downloadable for free here (PDF, 20 pp., no opt-in).

Key Take-Aways:

KPMG found that A&D manufacturers are very effective in determining their forecasts against a set forecast, yet struggle with using current margin, cost and profitability information to guide decisions. 12% of A&D manufacturers rate themselves as very effective in creating and continually improving how cost and profitability data is used. 41% rate themselves as effective, and 47% consider their company’s performance to only be somewhat effective. The following graphic illustrates these findings from the study:

78% of A&D suppliers are planning to invest between 2 and 3% of revenues in R&D in the next two years, the highest percentage of R&D investment across the respondent base of companies. 67% of original equipment manufacturers (OEMS) will be investing between 2 and 3% of their revenues in R&D. The following graphic illustrates these findings from the study:

KPMG found that the majority of A&D manufacturers have strategic plans in place to move into new growth markets while taking advantage of market adjacencies. Their biggest challenges in accomplishing their strategic plans for new market entry include lack of knowledge of new market areas (47%), lack of R&D funding (43%), aligning innovation to company strategy (43%) and overcoming the complexities of collaborating with suppliers and partners (41%). The following graphic illustrates these findings from the study:

57% of A&D senior executive respondents said they are facing challenges with supplier performance, up from 35% in 2013. In addition, A&D manufacturing executives mentioned that achieving information and material visibility across the supply chain has significantly increased as a challenge to supply chain performance (up from 12% in 2013 to 49% today). 33% of A&D senior management respondents reported that aligning operations to better manage demand was a major challenge, with 29% citing inadequate supply chain visibility, planning and execution. Please see the graphic below for an overview of global supply chain challenges.

Linking product R&D to product development (61%), global demand planning (49%), supplier risk and resiliency (20%) and global procurement (18%) are where A&D manufacturers are using technology most pervasively today according to the survey. Of these four areas, supplier risk and resiliency is the area where many manufacturers see the greatest potential for gain given that underlying systems and processes are used only on a limited basis (71%).