The Defense Supply Chain — A Major Driver of Cost Overruns

Recent research from Deloitte suggests that supply chain costs will continue to be one of the top five contributors to cost overruns in the coming years. According to the announcement describing the highlights from the report, "New analysis from Deloitte on Major Defense Acquisition Programs indicates an imminent need for the Aerospace and Defense (A&D) industry to reexamine their acquisition process or risk facing cost overruns that may exceed 46 percent in 10 years, up from 26 percent today. One of the 'five root causes that lead to cost overruns and schedule delays' are supply chain challenges".

Specifically, "Supply chain challenges are [one of the] common cause[s] of problems in the A&D industry. A&D supply chains have undergone a major transformation in recent years and as a result have become multi-dimensional and complex. In order to overcome this, Deloitte suggests that companies should help their suppliers learn to be risk-sharing systems partners, should develop a supply chain strategy earlier in the program lifecycle and create a supply chain "architect" to drive integration across the supply chain's various dimensions. This will ultimately lead to streamlining supply chains, boosting efficiency and improved managed program performance."

To this I would add that one of the keys, as the cost plus contracting environment of the past looks more and more like distant history, is making sure that both the prime and sub organizations have a handle on total cost factors. Whether this involves a better understanding of raw material requirements (and cost variability) throughout the lifecycle of a contract or understanding the service parts requirements (in the case of power by the hour) types of arrangements, supply chain collaboration and understanding is key. The full copy of the Deloitte report is available here for download (no registration required).

- Jason Busch

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