#9 - Increasing strategic IT investments

According to the 2023 edition of PwC’s Global Aerospace and Defense: Annual Industry Performance and Outlook, revenues reached $741 billion in 2022, just 3% higher than 2021. This modest improvement fell short of expectations as growing demand ran into production constraints due to supply chain and labor challenges.

Industry performance remains below pre-pandemic record levels – 2019 revenues were $780 billion. To get a renewed sense of what aerospace and defense (A&D) manufacturers are most concerned about in today’s post-pandemic world, Rootstock Software sponsored a survey conducted by IDC. The research sought out responses from various levels of leadership, as well as from business and information technology (IT) managers.*

Questions were aimed at determining what manufacturers in this segment viewed as key challenges, top technology priorities over the short- and long-term, and what they hoped to achieve in digitally transforming operations.

We found four key takeaways.

Market volatility & workforce challenges

A&D manufacturers are still highly concerned about supply chains being stressed. Additionally, geopolitical issues, climate events, and trade agreements are affecting availability. As such, key concerns included:

• 37.5% – Suppliers would become unreliable, unpredictable
• 37.5% – Transportation and logistics would be more unreliable, unpredictable
• 30.4% – Staffing issues would continue to be problematic

Just as PwC reported, many manufacturers are also feeling the pressure of the tight labor market. Workforce issues include attracting and retaining talent and experienced staff reaching retirement age. Defense manufacturers also have the added hurdle of needing employees to pass security clearances for confidential and top-secret government projects.

Increased investments in digital transformation

Most A&D manufacturers want to progress in digitally optimizing business processes. However, 50% believe they lack the awareness and knowledge of available technology solutions. At the same time, they understand if they don’t advance digital transformation efforts, they will face the following consequences:

• 48.2% – An inability to use a growing multitude of disconnected data sources (internal and external)
• 42.9% – A lack of digital competencies will limit their ability to transition to new business models
• 28.6% – An inability to garner deep insight into their customers
• 25.0% – Continuing to lack supply chain visibility and/or resilience

Many A&D manufacturers are turning to the cloud to accelerate digital transformation efforts and, hopefully, avoid the scenarios above. They’re planning a 12.1% increase in investments in cloud enterprise applications and platforms during the next 12 months.

This increase comes as other sectors are moving to protect profit margins. However, the survey showed A&D manufacturers are savvy enough to understand they must make strategic IT investments so they have the infrastructure to adapt, scale, and grow.

The cloud

Rather than deal with disconnection and data silos, manufacturers feel a single cloud platform will enable them to centralize information in one common data model. Through this platform, they’ll have access to an ecosystem of capabilities, including regulatory compliance, business intelligence, and analytics to foster improved decision making.

In the survey, A&D manufacturers revealed factors driving them to the cloud. Many were using systems coming to their end of life, or legacy applications failing to keep up with the demands of business. They saw the capabilities to future-proof operations as cloud applications with low-code configuration capabilities can easily adapt to meet changing needs. Once on the cloud, A&D manufacturers experienced the following benefits:

• 52.9% – Improved industry and geographic regulatory compliance
• 47.1% – An ability to drive innovation and digital transformation efforts
• 42.3% – Improved IT security
• 39.4% – Improved time to market or support to expand into new market segments

The most tech-savvy manufacturers have been early cloud adopters. They touted the value and return on investment (ROI) of cloud platforms, such as Salesforce, AWS, and Microsoft.

Short- and long-term investments

From the survey, we know A&D manufacturers are increasing tech investments, and most are looking to the cloud for deployment, but for what types of solutions and capabilities? Here are the findings around their short- and long-term IT priorities:

Key short-term drivers

• 42.9% – Resiliency/agility
• 28.6% – Growth
• 26.8% – Financial performance
• 26.8% – Regulations

Key long-term drivers

• 33.9% – Sustainability
• 33.9% – Operational/ performance
• 25.0% – Cybersecurity
• 25.0% – People: Development and acquisition of talent

We observed resiliency and agility rated highest in short-term priorities, related to their need to respond and recover quickly from supply chain disruptions and other market changes. In the short- and long-term, manufacturers want to expand into new markets, segments, and geographies – while also improving efficiency, throughput, and productivity.

These are key reasons why 68.2% of manufacturers foresee the need to upgrade their enterprise resource planning (ERP) solutions – as these systems can help support expansion and automation. Manufacturers plan to replace either their primary or secondary ERP solutions – or both. This means existing systems are likely legacy and non-cloud, making them difficult to adapt within a rapidly evolving market.

Strategic IT investments increase

A&D manufacturers are facing an unprecedented level of challenges. Inflation is high and skilled labor is hard to find. Supply chains remain unsteady. Further disruptions could lead to part shortages and the inability for suppliers to meet orders.

In the past, these manufacturers could operate with a low production rate. Today, demand is on the rise, so they’re having to transition to a higher level. The survey showed A&D manufacturers are taking proactive steps to leverage cloud technology to help balance demand, supply, and production capacity.

Some manufacturers may feel they lack awareness of today’s available solutions, but they can turn to cloud software providers and consultants for additional expertise. They can also learn from the strategies being deployed by their peers, summarized in the IDC InfoBrief: State of Manufacturing Technology Survey.

Rootstock Software https://www.rootstock.com

About the author: Stu Johnson is vice president of product marketing at Rootstock Software with more than 35 years of experience in manufacturing. *Note: Manufacturers could select their top three choices.