Today’s geopolitical landscape and events over the past several years have been an eye opener for the Aerospace & Defense (A&D) industry at large. The A&D industry has witnessed the lowest of the lows with the COVID pandemic and resulting demand destruction, supply chain disruptions with the resulting recovery, and an impressive road to recovery that has whipsawed the aviation industry and supply base.
We also have witnessed an unprecedented uptick in global conflicts and adversity, which have changed the calculus for Defense spending worldwide, and nation-states likely will continue to drive the defense industrial base to ramp up for decades to come.
In a world where “expecting the unexpected” is becoming the new normal, A&D firms have recognized they must be more flexible and agile to address an operating environment that is constantly shifting.
Expectations for robust Aviation growth and increased Defense budgets will require constrained A&D supply chains to continue to ramp up, and the pressure on the Defense Industrial Base to adopt will force rapid innovation and a laser focus on customer intimacy. As the threats have increased and the ramp in global defense spending will soar, it's clear that the aerospace and defense (A&D) sector is set for years of unprecedented change. A&D companies are focused on gaining a competitive edge, reevaluating their strategies, and optimizing their internal operations to secure their competitive position.
From an IT perspective, most A&D companies for decades have relied on legacy systems, which, while serving their purpose, unfortunately, don't have the flexibility, resiliency, and security posture to scale for tomorrow’s threats and customer demand. Recognizing the need for change, A&D leaders are reimagining their businesses and embracing next-generation Cloud technologies to leapfrog their capacity to address today's realities.
According to the International Data Corporation (IDC), the rapid growth of cloud infrastructure spending, which surged by 14.9% in the first quarter of 2023, hitting a remarkable $21.5 billion, speaks volumes about the transformative potential of cloud technology in addressing critical industry challenges. Legacy systems, once the backbone of A&D operations, now act as impediments to agility and innovation.
Recognizing the pressing need for modernization, A&D leaders are increasingly turning to Cloud solutions that facilitate automation, faster innovation, incorporation of AI, and unparalleled advances in data analytics. The Cloud empowers these enterprises to break free from the traditional limitations of conventional on-premises deployments and provide a competitive edge in an industry characterized by relentless evolution, dynamic upstarts, robust competition, and a demanding customer base.
As noted above, the global disruptions in supply chains over the past several years have underscored the need for sustainable, resilient business continuity strategies. Cloud technology offers real-time insights into the intricate web of supply chain dynamics, allowing for multi-level supplier risk analysis in real time, which enables executives to make informed and efficient decisions that not only ensure operational continuity but also enhance cost-effectiveness.
Amidst an aging workforce and a scarcity of new talent, A&D companies are facing the imminent challenge of knowledge transfer and talent retention. Cloud-based applications emerged as the ideal solution, providing a platform for efficient onboarding and training while also leveraging quality data to optimize employee performance and productivity.
The A&D industry is constantly reshaping itself both organically and via portfolio shaping. There has been an unprecedented number of mergers and acquisitions over the past few years, which hold the promise of growth and diversification for the companies involved, but also often bring about operational challenges to merge and integrate disparate systems and technologies. The integration of Cloud-based solutions enables these enterprises to seamlessly harmonize operations and processes, rationalize application footprints, and ensure a streamlined cost model and efficient business.
By embracing cloud technologies, leading A&D firms are equipping themselves to gain better visibility into supply chain dynamics, enhance employee experiences, harmonize post-merger operations, strengthen security measures, and deliver exceptional customer experiences. As the industry moves forward, the Cloud remains the cornerstone of resilience, offering the necessary agility and adaptability to navigate the uncertainties of tomorrow with confidence and foresight.
More A&D companies are leveraging cloud capabilities every day, whether they’re simply redefining business processes or reengineering them entirely.
For instance, look at how Lockheed Martin is betting on Cloud ERP to advance its 1LMX digital transformation program. Leveraging SAP RISE, Lockheed is looking to create a seamless digital thread that connects all elements of the design, build, and sustainment phases of a product’s lifecycle that will operate for potentially decades to come.
L3Harris is an A&D leader emblematic of the changes brought on by M&A trends in the industry. After the 2018 merger between Harris Corporation and L3 Technologies that created L3Harris, a long-term cloud strategy — focused on reducing costs and embracing advanced technology capabilities — was enacted in force. Utilizing SAP RISE as well, L3Harris seeks to improve its overall performance and continue to drive synergies with its customer base.
By leveraging cloud ERP solutions, both Lockheed & L3Harris plan to modernize their operations and pave the way for future transformational growth and innovation.
In an industry defined by innovation, enabling Cloud technologies liberates A&D enterprises from legacy system constraints and ushers them into an era of flexible consumption of advanced technologies and automated processes. As the future unfolds, the Cloud will continue to serve as the cornerstone for resilience and growth, empowering A&D companies to navigate the unknown with confidence and agility.
Greg Rietzke is the Chief Operating Officer of SAP Regulated Industries.
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