With conflicts arising across the world, defense companies are being pressed to meet greater demand increases than have been seen in many years. The defense industrial base (DIB) has struggled to increase throughput, keep their supply chains moving, and still keep their costs under control. Missed deliveries, rising lead times, quality issues, and contract penalties are common.
This increased demand is underlined by the nearly unprecedented increases in defense funding, from about $775 billion in 2022 to over $830 billion in 2024. Although the immediate opportunities and benefits of meeting demand are clear (higher revenue, stronger margins, stock growth), higher demand also comes with certain long-term risks: what if the budget suddenly contracts, what if shifting technologies and market dynamics make a product obsolete or even more desirable, what if the supply chain is disrupted? Any changes that increase throughput must be cost effective and also allow for flexibility as the company ramps up and down along with the ebb and flow of business conditions.
In a typical case, an innovator in developing and producing composite parts for the aerospace and defense industry struggled with a major ramp up in production across three different production programs in the defense and business aviation sectors. They needed to more than triple their manufacturing capabilities over the next two to three years and switch their manufacturing mindset from engineering/prototype to a much higher production process. They suffered from high overrun costs, excessive rework/waste, bottlenecks, poor work instructions, inefficient use of space, and nonconformance of parts. By working closely with senior management, engineering and production, more than 100 identified improvements were categorized into 19 value creation initiatives, allowing them to focus on the most critical issues and begin transforming the business to meet strategic objectives.
The initiatives they implemented increased both the capacity and the capability of existing facilities. In doing so, the C-suite controlled capital expenditure, strengthened and de-risked the supply chain, identified opportunities for further improvement, expedited implementation, and drove sustainable change. The initiatives that delivered those results included:
• Data analytics to identify process issues and constraints.
• Asset utilization and footprint rationalization.
• Production readiness.
• Cultural change and leadership and organizational improvement.
For companies manufacturing highly engineered products as in aerospace and defense, these and other Operational Excellence initiatives drive greater productivity within the same footprint without compromising EBITDA, quality, and on-time, in-full (OTIF) delivery, the essentials of customer satisfaction.
Data Analytics
The lack of information about and visibility into production processes and metrics creates a roadblock to increased throughput. Data is often managed through multiple disparate systems and manual spreadsheets, not standardized and not supportive of company goals. Creating a single source of truth from a collection of data sources brings multiple elements into a cohesive approach to process change, including:
• Hands-on, “day-in-the life of” observations and studies.
• Value-stream (process) mapping
• Standardization of company-wide KPIs and metrics in alignment with goals
• Alignment of strategic and operational goals with processes, tools, and systems.
• Cross-functional collaboration, accountability, and continual feedback loops.
Once the data is available and clean, in-depth data analytics reveal any roadblocks in equipment utilization, gaps in planning, and issues with manufacturing quality, waste and rework, and supplier quality.
That data can also be used to build a digital twin of the supply chain that accesses current information to drive accurate decision making. With greater visibility, companies can control spend while continuing to find areas to improve production and increase throughput even while production needs escalate.
Asset Utilization
Asset utilization and overall equipment effectiveness (OEE) are key components of throughput. By tracing the critical path of equipment and people, a company keeps everyone operating to plan, reduces downtime, and avoids shortages. That strategy requires a company to:
• Track uptime and utilization of tools and equipment
• Use preventive and predictive processes to establish maintenance, repair and overhaul (MRO) schedules
• Use predictive analytics to maintain adequate inventory for MRO.
• Drive a standard OEE program to monitor how assets operate based on demand and production schedules.
Footprint rationalization enhances a company’s facilities in order to reduce redundant or inefficient operations and potentially delay or avoid the cost of building or adding on to existing facilities during high demand.
A global provider of high-tech systems for the transportation and defense industry needed to drive revenue recognition in the final quarter of their fiscal year. A footprint rationalization analysis combined with a labor productivity and cost analysis showed that the company would benefit from moving entire product lines from their U.S. plant to their Mexico plant. Because they also moved equipment no longer needed in the U.S., they created more space in the U.S. plant to focus on newly contracted product lines.
The shift lowered overall labor costs by about $2.7 million in just six months; brought some manufacturing in-house for a 35% cost reduction; enabled more cohesive systems for managing production; and accelerated delivery of billable product. As the CEO stated, these strategies not only reduced costs in operations and increased throughput, but also allowed them to increase revenue recognition by 70% in under 80 days.
Eliminate Bottlenecks, Increase First Pass Yield and Quality
Increasing throughput begins with the key fundamentals of eliminating bottlenecks, increasing first pass yield and quality, and reducing downtime on the production floor. Bottlenecks have many underlying causes but are made apparent by the low production of a machine or cell, usually on a continual basis. Bottlenecks can be traced to poor maintenance, lack of clear work instructions (too many “red lines”), poor technician training, and lack of direct engineering support on the floor, among other causes. The key to eliminating bottlenecks lies in proper process mapping, accurate data, and reduction of gaps.
One of the best KPIs for understanding throughput comes from tracking first pass yield and quality (rework, waste, COPQ). Often, first pass yield percentage is the first early warning indicator for poor throughput and quality and shows up quickly as a cost when tracked properly. Sometimes, there may be design or engineering changes that create a problem for production resources; however, it is very common for bottlenecks and waste/rework to result from tooling issues, training, and even a poor supplier quality process that allows sub-par parts and materials into production.
Downtime can come from many sources, including:
• Excessive engineering change orders (ECOs).
• Lack of predictive maintenance and scheduled MRO.
• Inconsistent or poor root cause corrective action (RCCA) and material review board (MRB) processes.
• Lack of cross-training of technicians which limits the ability to shift resources and optimize uptime.
• Front-line supervisors spending too much time on non-value added activities as opposed to being hands-on and available to workers on the floor
LOI to Motivate the Workforce
A specialist in advanced component manufacture for DOD prime contractors was driven to achieve a significant increase in labor productivity and throughput. Although the company was already profitable with greater than 20% margins, its new owners needed to achieve threefold growth over the next five years. To achieve this goal, they needed to dramatically lower costs in operations and procurement while maintaining high quality and accelerating delivery standards. This would allow them to be more competitive and innovative in existing and new commercial markets. A boots-on-the-ground analysis revealed that the company could reduce its workforce by more than 30%, while improving quality and delivery to customers. They achieved a 31% productivity improvement, improved direct labor productivity by 25% to 53% at each client site, improved quality, and drove leadership and organizational improvement (LOI) to support workforce commitment to change.
The bottom-line benefits were enabled by cultural change and LOI strategies that engaged all levels of the company to eliminate silos and create cross-enterprise collaboration. Among other effects, the new management operating system and workforce communication led to a reduction in engineering changes, a company-wide commitment to saving costs, and a continuous improvement mindset.
Cultural change and LOI strategies include:
• Management operating systems.
• Owner, responsible, consult, and inform (ORCI) accountability.
• Formal training.
• On-the-floor coaching of supervisors and managers.
• Clear work instructions.
• Sales, inventory, and operations planning (SIOP).
• Root cause corrective action (RCCA).
Stabilize, Enhance and Accelerate Change
Aerospace and defense companies are being challenged every day to meet escalating demand. By deploying a three-stage approach — stabilize, enhance, accelerate — they have the opportunity to move on from being reactive to external demand forces and begin driving the business through strong processes and accurate data, increasing throughput, and improving quality, delivery and customer mindshare. Using a total value optimization process at each stage, aerospace and defense companies can keep planning, procurement, operations and logistics aligned, so that the entire supply chain is focused on initiatives that meet demand and create long-term value.
Beyond meeting current increased demand, the approach of focusing on process analytics, asset utilization, footprint rationalization, production readiness, cultural change, and leadership and organizational improvement prepare aerospace and defense companies for future growth and fast adaptation to a changing world.
Chris Brumitt serves as the managing director of aerospace & defense at SGS Maine Pointe, bringing over 36 years of experience in supply chain and operations consulting. Specializing in guiding CEOs and senior management, he helps clients drive measurable and sustainable EBITDA, cash and growth improvements across the end-to-end supply chain. With a background collaborating with Fortune 500 companies, Brumitt’s experience spans aerospace-defense, aviation, industrial manufacturing, electronics, high tech/computer systems, energy, airlines, and financial services. Contact him at cbrumitt@mainepointe.com.