Aerospace & Defense
Overview
Aerospace and Defense is one of the most complicated industries we have tackled. Budget constraints and contract structures frequently create incentive structures that put OEMs and purchasers at odds. Multiple stakeholders in the value chain, including OEMs, engine manufacturers, and material & MRO suppliers frequently create double and triple marginalized situations. DPO&Co has the operational and government expertise to help clients navigate these complexities.
CASE EXAMPLE
6-Month Project: Planned negotiations for $6B U.S. Airforce contract, identifying $1B savings from labor, material and SG&A throughout the very complex aircraft supply chain
Situation
- Represented USAF in collaboration with the Secretary of Airforce in charge of acquisitions (SAF-AQ) when Prime supplier was proposing cost increases on 60 year-old aircraft
- Manufacturing of the aircraft was highly complex, with parts from hundreds of tier 1 & tier 2 suppliers and thousands of engineers and assembly workers
- All suppliers were highly reluctant to accept any cost reductions due to cost plus margin structure within government contracts
Approach
- Developed detailed fact base using bottom-up rebuild of aircraf
- Analyzed Tier 1 and Tier 2 supplier proposals, benchmarking against goverment and commercial applications
- Traveled to supplier sites to develop "should cost" models
- Conducted time studies and shop floor visits to identify value engineering and outsourcing opportunities
- Analyzed spans of control and layers against commercial companies to develop an indirect labor optimization package
- Convinced Prime supplier of mutual value created through the process and trained counterparts on how to use the robust framework for future supplier negotiations
- Supported Secretary of Airforce (SAF-AQ) in direct negotiations
Impact and Results
- USAF captured $1B in savings on a $6B contract (17%), ultimately reducing tax payer liability
- A more collaborative relationship with the prime, with added value from proving efficiency advantages when selling to foreign allies