Aerospace & Defense | A&D | Customer Support & Sustainment

What was once a peripheral part of most Aerospace & Defense (A&D) companies’ business strategy, Customer Support & Sustainment (CS&S), has moved to the forefront through a confluence of events around the globe, including:

A significant expansion of international commercial sales
A dearth of new, large government programs in the foreseeable future because of military spending constraints that have caused original equipment manufacturers (OEMs) to seek other revenue/margin growth channels
The tremendous acceleration of asset usage in the last five years because of the fight against terror, which has dramatically increased the demand for aftermarket services
The U.S. government's explicit decision to change its product support contracting strategy and pay for performance through Performance Based Logistics (PBL) contracts

These events have created a $105 billion global customer support & sustainment industry (70 percent government/30 percent commercial) with profit margins up to 10 times that for the original equipment. OEMs are rushing to reconfigure their businesses to support this new growth engine. Defense contractors in particular are going through significant changes with the shift away from traditional cost-plus contracting arrangements to a contracting strategy focused on pay-for-performance. Under a cost-plus contract, the OEMs have had little incentive to improve efficiencies in production and service delivery, as any benefits were required to be split with the government. In a PBL contracting arrangement, the operational mindset and incentives change, wherein:

Support providers are contracted to provide a given level of service based upon Performance Based Agreements (PBAs), which are akin to commercial Service Level Agreements (SLAs)
PBAs are expressed in terms of distribution efficiency, material availability or operational availability depending on the complexity of the support
Service providers are paid a fixed price payment
The performance risk is leveraged upon the service provider
Service providers are incentivized to enhance reliability as a means of reducing the cost of service and increasing profitability

Companies that are entering into these types of contracts have been slow to change and have underestimated the level of transformation required to profitably execute them, and consequently are scrambling to reconfigure their businesses.

Customer Support & Sustainment: How can we help?

Superior industry qualifications to serve as a strategic advisor on all issues focused on sustainment performance, including strategy development, forecasting, price/risk management, costing, culture change, supply chain management, master data management and performance diagnostics management
Knowledge to connect commercial and government customer needs with OEM requirements
Strong relationships with technology providers to implement aftermarket solutions

Our focus includes:

Transitioning from a cost-plus mentality to one where every dollar saved drops to the bottom line
Shifting the cultural mindset from viewing the aftermarket as just a "necessary evil" or peripheral part of the business to a strategic component of the portfolio driving significant margin expansion
Pricing PBL contracts to appropriately incorporate the increased risk profile
Effectively communicating the services and capabilities that can be provided to the different customers in the marketplace
Defining core competencies and where to partner to provide the best overall solution
Determining how to accurately track cost and performance data and measure performance
Optimizing performance in all parts of the business to maximize profitability on each PBL contract
Effectively flowing down performance requirements to the supply base and managing supplier/partner performance

Our Customer Support & Sustainment leadership team includes:
Dan Haynes, principal, Deloitte Consulting LLP
Tristan Whitehead, principal, Deloitte Consulting LLP

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