Aerospace and defence: from risk to value through digitisation
With great expectations for revenues in 2018, the pressure is on for business leaders in aerospace and defence.
However global trade developments make it hard to reach the goal.
In 2018 new production records were forecast for aerospace and defence (A&D) firms.
Deloitte predicts a revenue growth of 4.8% in the commercial aircraft sector in their '2018 Global aerospace and defence industry outlook' – and a 3.6% growth for the defence sector.
That is all good news, whilst the outlook for operating profits is even rosier. However this is where the sticking point lies and the challenges for leaders in A&D pile up. How can they ensure to meet targets and deliver promises amid the current turmoil in global trade? Some of the most recent challenges include:
• Newly imposed US tariffs on steel and aluminium products imported into the US
• EU retaliatory measures with tariffs on US products imported into the EU in different stages
• Fragmenting globalisation further fuelled by a more protectionist approach by the US and Brexit
All ongoing developments have a direct impact on companies’ balance sheets and sourcing strategies. Any global trade in-house expert will attest that these developments come with numerous changes that strongly impact a company’s operational performance. The devil is in the detail – this is especially true for global trade operations in highly controlled environments such as the aerospace and defence sectors.
Also, while export and shipping teams are struggling to manage additional tariffs, new customs procedures and changing suppliers to process all incoming and outgoing global orders without delay, it is the business leader’s responsibility to ensure compliance with all applicable regulations. Financial and criminal penalties for violations of export control laws are serious. As are reputational damage and loss of customers.
In late 2017, for example, Airbus made headlines when it reported to US authorities certain "inaccuracies" in past statements to the US State Department over the sale of defence products and services. It has been widely reported that the US export rules that may have been broken fall under the International Traffic in Arms Regulations (ITAR), which require disclosure on third-party agents used to win export deals. Just an example for the trouble businesses can get into.
It is clear that in the digital age, businesses need a flexible IT landscape to efficiently manage global trade operations. Considering the volume of regulations to comply with, the speed of trade developments and the ongoing uncertainty about Brexit, it is virtually impossible to be compliant and competitive at the same time without powerful IT support. Global trade operations need to be agile and adapt to new requirements as the markets around the business change.
However global trade operations of course also include relevant data, declarations and classifications from all involved suppliers in the supply chain. How can a company be compliant and efficient without closing the loop beyond the boundaries of the business?
Classifying products is generally considered an onerous and time-consuming task that requires a high level of expertise. For companies in A&D managing controlled goods or dual-use items, this also includes determining if goods are subject to export controls, whether they require an export licence and whether they can even be exported at all. In many cases, businesses also need to consider US export control law due to its extra-territorial reach.
Compliance and efficiency throughout the classification process is a great challenge and many exporters sift through volumes of datasheets, drawings and other technical documentation to determine the right assignments.
Yet in the digital age, is it really necessary to comb through datasheets? Of course not. Should there not be a way to have materials classified directly by the supplier and manage the relevant data consistently in all involved systems? There is, of course.
With great digitisation pressure and continued uncertainty under Brexit developments, A&D business leaders really cannot afford to run manual and inefficient processes for export control classifications beyond the boundaries of their business. The risk is too great and the global competition too strong. The only way to manage the process effectively is with an automated solution for digital product classification exchanges .
Digitisation in this area of global trade and export control compliance significantly accelerates and simplifies the classification process. It also avoids unpleasant surprises at customs audits, prevents mistakes arising from misunderstandings, disruptions in the digital data flow, processing delays and input errors.
More and more businesses are digitising their international supply chains to improve the visibility of goods in transit, accelerate their processes and ultimately drive down transaction costs through automation. Unfortunately, global trade, export controls and customs processes still represent often-neglected areas in the current race for digital transformation across global industry sectors and marketplaces.
Regulatory processes are still seen as a burden rather than a value contributor. This is such a missed potential, as global trade processes lend themselves particularly well to digitisation. They involve several business partners, global authorities and frequently changing laws, tariffs and regulations. This is just perfect for automation as a first step of digitisation – and from there to digitalisation and all the way to a full digital transformation of a business. Especially in times of global trade uncertainty, when flexibility is key.
