Customer Support & SustainmentDriving value to Aerospace and Defense companies through performance based support |
What was once a peripheral part of most Aerospace and Defense (A&D) companies’ business strategy, Customer Support and 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
- 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.
CS&S: 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 experience includes:
MRO Operations and Supply Chain
- Increasing MRO Efficiency: Ways to better manage repair capability and capacity
- Breaking Down the Barriers to Sourcing Services in the A&D Industry
- Small Improvements. Big Savings Potential
Performance Based Logistics (PBL)
- Performance Based Logistics in Aerospace & Defense
- Building a Road Map to Performance-Based Logistics Success
- Turning Risk into Profit: A Path to Performance-Based Logistics Maturity
- Profitable Performance Base Logistics - The Cultural Imperative
Pricing & Profitability
- Aftermarket Pricing for the Military Market: The forgotten profit lever
- Driving Profitability Through Aftermarket Parts Pricing
- Pricing Performance Based Logistics Contracts: A Risk-Based Approach
Technology-Based Solutions / ERP Implementation
- The Deloitte Consulting Aerospace & Defense Preconfigured Solution (DCAPS)
- DCAPS Overview
- DCAPS: Integrated Fleet Planning and Management
- DCAPS: Service Parts Forecasting and Optimization - Integration of SAP with MCA
- DCAPS: Strategy Management - Managing Customer Support and Sustainment in a Performance Based Environment
Case Studies
- Engine Manufacturer Flies High with On-time Delivery, Supplier Network Transformation and Aftermarket Planning
- Performance Based Logistics SAP Implementation for a Major Helicopter Supplier
- Managing Performance Based Logistics Success for a Multibillion-Dollar Aeronautics Company
Our CS&S leadership team
Dan Haynes, principal, Deloitte Consulting LLP, and U.S. Consulting Aerospace & Defense leader
Tristan Whitehead, principal, Deloitte Consulting LLP
Mark Fedro, principal, Deloitte Consulting LLP
Harlan Irvine, principal, Deloitte Consulting LLP
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