Smaller suppliers need larger primes and Pentagon officials to engage more to keep the US supply chain healthy, write Spirit AeroSystems executives Josh Boehm and Wendy Crossman.
Supply chain resiliency was thrust into the spotlight during the pandemic — and with the war in Ukraine and ongoing worldwide economic pressures, it will remain a topic of considerable attention from Congress and the Pentagon. In the following op-ed, Josh Boehm and Wendy Crossman, two executives from Spirit AeroSystems, layout three steps the primes and the Pentagon should take to help lower-tier suppliers. In its 2022 State of Competition in the Defense Industrial Base report, the Department of Defense (DoD) even identified supply chain resiliency as one of five solutions for increasing competition in the defense industrial base (DIB). However, strengthening the resiliency of the defense supply chain won’t be an easy task in the current climate.
Companies inside and outside of the DIB are navigating inflation on labor, energy and other goods; labor shortages and personnel turnover; longer lead times on materials and processing; and alternative work pressures. Increasing the resiliency of the defense supply chain amidst these challenges will require a collaborative approach between the private and public sectors. The best opportunity for strengthening supply chain resiliency is establishing a strong supply base. We’ve seen this firsthand as a global manufacturer of aerostructures and working with roughly 1,000 suppliers globally, in both defense and commercial sectors. Certainly, we’re not the only company that has had success with large numbers of suppliers, but our vantage point has given us a view at commercial best practices and DoD’s struggles.
Here are three actions defense manufacturers and the DoD can take to build a resilient supply base for America’s warfighting needs:
Treat Suppliers as Teammates and Partners
Often, the dynamic with suppliers is too one-directional, short-term and transactional. They are receiving requests for proposals and simply responding to them. This arms-length approach doesn’t give suppliers the visibility needed to operate as strategic partners and limits the exchange of information between the supplier and customer. The better approach is a partnership-based relationship that prioritizes open dialogue and supplier retention. A partnership-based approach will help facilitate knowledge transfer and efficiency of business operations for both suppliers and customers. A good example of this is knowing what suppliers are best suited to execute and where they have capacity. Having this information can help defense manufacturers and the DoD support the success of suppliers, and in return, supply chains. It’s why we’ve established collaborative relationships with our biggest customers, as suppliers to them. We want to have a better understanding of their requirements, timelines, and business operational needs. And have taken a similar approach to engage our supply base. Doing so has enabled us to support our suppliers when needed through shortened payment terms, access to supplier bank financing, acceptance of additional inventories to assist with job retention and cash conversion, and in several instances, the provision of materials without charge. In other words, retain suppliers by supporting their operational health.
Coach Suppliers
Defense manufacturers and the DoD are going to work with suppliers that lack the resources and/or time to maximize their operational efficiency. These suppliers can benefit when larger organizations offer lessons learned and share ideas for knowledge capture and operational improvement. We have worked with our suppliers to coach and advise on a wide range of business operations issues, including how to handle clean sheet designs, raw material cost estimation, workflow management, time allocation, and general product management. We also share our insights about how new technologies are being adopted by the primes and OEMs, such as digital engineering, so they can plan to operate as part of the digital thread and ultimately, prepare their businesses for future customer needs.
Yes, this takes time. But time invested up front can pay back by multitudes down the line.
Support Consistent Workloads
One of the most valuable lessons of the last few years is that workload variations often have harmful effects on smaller niche suppliers that don’t have the human or financial capital to absorb the impact of lag times. We, along with many other manufacturers, saw this first-hand during the early days of the global pandemic, when many of our suppliers experienced extreme stress caused by lost business orders. To ensure the future viability of our supply base, we directly helped over 600 different suppliers, ultimately investing over $2.3 billion in support. The private sector, however, cannot manage workload disruptions without assistance. The DoD, particularly the Office of the Assistant Secretary for Industrial Base Policy, has a special role to play here. The office needs to have an ear on the ground, listening for indications of stress in the DIB supply base and step in when needed. We recommend the DoD evaluate incentivizing prime contractors, OEMs, and large tier-one manufacturers to help suppliers via contract extensions, expedited payment terms, and access to raw materials contracts. And work with its largest contractors and its interagency partners to identify cross-industry opportunities where suppliers can support other sectors of the manufacturing economy and direct those suppliers, accordingly. Those are two recommendations for what industry can do, and one requiring support from the government. We’ve proven out that all these actions can help maintain a strong, robust supply chain. We’d encourage others — including, yes, our competitors — to adopt these approaches. A healthy supply chain is key to a healthy defense industrial base — and a healthy industrial base is too important for our national security to not go the extra mile to support.