Aerospace & defense cost management
New techniques for new cost challenges
The aerospace and defense (A&D) industry has virtually always been on the forefront of product innovation. However, increasing cost challenges and changing cost dynamics are constraining businesses.
Cost management approaches
There is a real and present mandate for change. In the commercial aerospace market there has been a 46 percent decrease in airfares since 1990. In the defense aerospace market, operating margins have been declining for years as the United States and many of its allies scale back defense spending and drive affordability mandates to their suppliers.
The very visible impact of these cost pressures is driving an increased emphasis on protecting operating margins through effective cost management strategies. Deloitte has refined and updated four traditional approaches to cost reduction using advanced analytics. The four approaches are as follows:
- Total Product Cost (TPC) — An approach to real-time, cross-functional cost trade-off management and improvement.
- Strategic Supplier Management — Cross-program, cross-commodity relationship realignment.
- Direct Material Value Transformation (DMVT) — A balanced supply chain and cost engineering approach to optimize material cost.
- Delivery Performance Optimization — A predictive approach to improve performance, while reducing total cost.