Aerospace & Defense
Optimizing portfolio strategy
In a time of decreasing government spending, aerospace and defense industry players need to engage in decisive portfolio management if they are to continue to create shareholder value. We have significant experience in helping companies optimize their product and R&D portfolios from supporting exhaustive analyses of current investments and identifying divestment opportunities, to developing strategies to redeploy capital and resources to new, high-potential segments, products and service offerings and technologies.
In light of the current economic cycles and pricing pressures from customers, aerospace and defense prime and sub-contractors need to make bold efforts to identify growth opportunities. We help companies identify international markets in which to extend their traditional capabilities, develop services in adjacent sectors, and expand within the aerospace and defense verticals. Working with functional and industry experts from across the firm, we can help companies identify attractive white space areas in the defense and security industries and to capture these new business opportunities.
Improving program affordability
Aerospace and defense contractors face an affordability imperative. This requires strategies to weather the retrenchment in government spending in the short-term while building capability to be competitive in the long-term. We help companies achieve both objectives, with the overall goal of improving their agility and market responsiveness.
Our current work includes developing processes for significantly reducing costs of direct labor, direct material, and indirect costs to achieve lean, cost-efficient operations. We help organizations to improve affordability by adopting design-to-value principles and redesigning critical processes and capabilities, including product development and production models, supplier relationships, and program operating models and risk management.
Transforming operational performance
We help clients design and implement manufacturing processes to increase plant performance and improve supplier coordination. This includes in-depth evaluation of network configuration, capital productivity, and plant-level information and communication flow. Working with McKinsey experts in operations and supply chain logistics, we help aerospace and defense manufacturers build their capabilities in areas such as modular manufacturing, green manufacturing and IT-enabled manufacturing to reduce cost, increase efficiency, and enhance growth opportunities.
Increasing supply chain agility
Commercial aircraft and defense contract manufacturers are continually looking for ways to reduce the cost of inventory and increase responsiveness. McKinsey supports manufacturers by bringing best practices in supply chain management and lean manufacturing. Our work extends from performing basic scenario evaluations to complex optimization analysis of entire value chains, including the impact of achieving different economies of scale and employing varied production technologies.
Departments and Ministries of Defense
Improving equipment acquisition performance
Equipment acquisition is a source of both frustration and opportunity for most Ministries of Defense (MoDs) and Departments of Defense (DoDs). Complex requirements processes and procurement systems can lead to inappropriate or unaffordable portfolios. McKinsey has deep experience in understanding these issues and helping MoDs and DoDs resolve them.
We have successfully collaborated with clients to adopt a whole-life approach to substantially improve equipment acquisition performance. Our goal is to help MoDs and DoDs streamline the acquisitions processes and apply outcomes-based frameworks to managing contractor-supplier relationships.
Transforming defense logistics
Duplicative but non-integrated processes and infrastructure result in uncontrolled inventory, poor spare parts availability, and limited visibility of repairables and consumables for MoD and DoD units. Many use multiple organizations to deliver outcomes, adding complexity to both processes and timetables for fulfillment. McKinsey can help clients transform defense logistics by addressing three distinct and related dimensions: The operating or technical model, managerial oversight, and a culture that favors complexity over simplicity. Our success across a range of platforms and consumables with one MoD demonstrates that defense logistics can be simplified and delivery expedited with redesigned incentives, aggressive targets and an outcomes-based approach to managing logistic structures such as warehouses, transport and maintenance.
Enhancing deployed supply chain performance
Overall supply chain performance for many MoDs and DoDs is low and variable yet expensive. The result is that deployed personnel can suffer shortages of critical provisions, including food, medical supplies, and fuel, that compromise unit effectiveness. For many MoDs and DoDs, a common root cause is the lack of systems that can provide end-to-end visibility into inventory, creating a fragmented view of assets and commodities. McKinsey’s work in supply chain performance focuses on developing standardized, integrated systems and processes that improve asset tracking and logistic communication and reduce costs and duplication while improving operational effectiveness.
Conducting defense budget audits
McKinsey takes a comprehensive approach when helping MoDs and DoDs evaluate budgets and reduce spending in an era of defense austerity. In conducting audits of defense budgets or individual programs, we assess all segments of spend, from administrative and external services to personnel, procurement, maintenance and operations. We collaborate with clients to redesign key processes such as recruiting and training so they can align personnel and assets to better support defense strategies and priorities.
Our audits deliver substantial results: A recent audit for a MoD resulted in a 50% reduction in the operating costs per flying hour for an advanced aircraft system, while another MoD captured nearly $2 billion in savings as a result of a total budget review. Beyond conducting audits, we build our clients’ capability to analyze and prioritize future spend, allowing them to respond quickly to new priorities.