05 October 2015 by ADIT - The Bulletin
According to the latest KPMG Global Aerospace and Defence Outlook, firms in the Aerospace & Defence (A&D) sector are focusing on two axes: driving growth and managing cost savings.
The report is based on 68 top executives’ interviews. 53% of them prioritize sales growth; 47% cite reducing their cost structure; while maintaining their business model competitive is a top challenge for 38% of the senior executives and efforts to develop R&D is the second challenge for 32% of them.
“With growth remaining slow and prices under continued pressure, A&D organizations are looking ahead for untapped growth opportunities and then working to prepare the groundwork for future campaigns and opportunities”, said KPMG’s Global Head of A&D.
In order to do so, many respondents are looking to foreign markets to seize growth opportunities. Indeed, more than 25% of the participants said they would penetrate new geographic markets through acquisitions, JVs or alliances, and 13% declared they would rebalance their worldwide footprint. Other firms will also adapt their existing products and services to fulfil the requirements of these new markets, through assessments in culture, business behaviuors and governance structures. Furthermore, “it will be important for A&D organizations to apply more rigorous integrated business planning techniques so that revenue, investment, cost and profit are tightly coupled from both a financial and operational perspective as opportunities will emerge and vary both in timing and scale from expectation,” added a U.S. KPMG partner.
Another key-diver for growth is investments in R&D in order to seek new technologies and services. 50% of the respondents mentioned they expected new manufacturing technologies to drive future growth and innovation. The proportion of A&D organizations that claimed they would spend more than 6 % of their revenues on R&D over the next 2 years would increase from 28% to 41%. They cite for instance the commercial Unmanned Aerial Vehicle (UAV) market, the cyber security market and the various private Low Earth Orbit programmes as recent technological breaks on which they have to intensify R&D spending (46% of the participants said they would increase them to drive innovation).
In order to meet the two challenges of sales growth and cost management, A&D companies are reorganizing their supply chains. 55% of the respondents said they are focused on lowering costs and working capital levels across the supply chain. A third said that restructuring the supply chain to support growth is a top priority this year. 33% also claimed they would segment supply chain assets and process based on specific product demand profiles. Globally, the top executives of the sector intend to improve their supply chain flexibility and responsiveness. “We are seeing an increased focus on consolidating the buy capability and rationalizing spend in order to manage inventory at a more centralized level”, declared a U.S. KPMG Advisory Managing Director.
Although supplier capacity and risk are high on the A&D agenda as second and third greatest supply chain challenges, the visibility remains low. Indeed, only 10 % of A&D competitors reported that they had complete visibility and 40 % admitted they only had limited visibility. “Indeed, we see this lack of visibility as one of the greatest risks facing A&D organizations today from a delivery standpoint and a clear limitation on their ability to drive true and sustainable cost savings from the supply chain.”