Resilinc’s President of Government, Defense, and Aerospace, Peter Guinto, provides insight into what’s top of mind for Aerospace and Defense supply chains.
In 2023, there was a resurgence in demand within the aerospace and defense (A&D) industry, according to Deloitte. On the commercial side, air travel returned to pre-pandemic levels, leading to heightened demand for both new aircraft and after-market products and services. Simultaneously, the U.S. defense sector faced new geopolitical challenges and placed a strong emphasis on modernizing the military, resulting in robust demand.
The demand for A&D is expected to continue to grow into 2024. However, with geopolitical situations and increased legislation causing sourcing disruptions, companies and governments are under pressure to find ways to mitigate risk and achieve better visibility into their multi-tier supply networks.
To understand how these demand shifts impact the Aerospace and Defense industry and what companies and governments need to think about when it comes to supply chain resiliency, we sat down with Resilinc’s President of Government, Defense, and Aerospace, Peter Guinto. In this Q&A, Peter shares his expert insights into AI, supply chain compliance, industry challenges and opportunities, export bans, and future outlooks for Aerospace and Defense in 2024.
Specifically in the Aerospace and Defense industry, what are the top 3 supply chain risk management challenges you are seeing right now?
The number one risk is hyper-complexity in the supply chains. Not knowing who your low-tier vendors are prevents companies from fixing low-tier vendor problems.
Number two is rapid geopolitical change. Companies—particularly in Aerospace and Defense‚ are being forced to better assess their sourcing strategies from low tiers. There’s a growing certainty foreign interference is occurring in marketplaces. Instabilities like these will further disrupt global supply chains. To be proactive, companies are looking at China +1 strategies. In particular, they are moving away from single and sole sourcing—which is very common in aerospace—to multi and dual sources to ensure they have more than one source of supply.
Finally, the A&D marketplace is predicting enormous increases in demand. Commercial aerospace is expected to see a demand surge greater than has ever been experienced. On the military side, demand is surging, and budgets across the world are growing.
What about opportunities—what are the positives happening across Aerospace and Defense supply chains?
One of the biggest opportunities is the projected increase in demand. Rapid changes in geopolitical demand are likely to disrupt the supply of goods. Coupled with the projected demand spike, this is a formula for companies to capture huge market share if they are well-postured in the supply chain. It’s not just the US either—it’s global demand. There is a massive push by the US government and other allied governments to enhance domestic and friendly supply bases. I took part in a round table in DC a couple of months ago with AUKUS—Australia, U.K., and U.S. It’s an agreement to enhance the supply chains of the three countries, both in terms of their ability to buy goods and in terms of their reliance on each other. There are tremendous opportunities like this between allied nations.
You’ve been doing a lot of speaking engagements and co-writing articles; what are the hot supply chain topics you have covered lately?
AI and Machine Learning have been a huge topic in supply chain. Many companies are solely using AI to map low-tier vendors. AI can rapidly determine where a supply network may be over-reliant on a single node within the supply chain. AI tools can also quickly assess where supply networks are overly concentrated in a specific geographic region. While AI is great for getting started with mapping, it ultimately needs to be verified and validated. Outside of mapping, there are a lot of other uses for AI in supply chain. For example, Resilinc’s EventWatchAI uses AI to continuously monitor the supply chain to make sure that when something happens, companies find out about it first.
As for the Chips Act and other reshoring initiatives, where are we at in terms of bringing domestic manufacturing back to the US? What does this mean for national security?
Peter: Chips Act investments are enormously positive for domestic supply chains because chips are ubiquitous to many end products. The amount of money the US is spending has created a ton of interest globally. However, there is still an enormous amount of risk associated with investing in these supply chains. For example, if domestic manufacturers are awarded Chips Act funds but haven’t assessed low-tier vulnerabilities, they could create a manufacturing and assembling capability that is still reliant on vulnerable or risky vendors. Right now, most aerospace and defense companies would have a hard time determining where low-tier microelectronics come from in their supply chain.
There have been a lot of export restrictions on critical materials lately—such as lithium, gallium, germanium, copper, and cobalt. What does the US need to be thinking about when it comes to navigating these export bans?
The only way to understand what impact raw material export bans will have on the US economy is by ensuring the government maps where they buy things down to a low tier. The Departments of State, Commerce, and Defense must all act in unison to tackle this. There are many tools at their disposal: The Defense Production Act Title 3, sanctions and export bans to reciprocate the harm, the strategic stockpile that the Defense Logistics Agency manages, and the Committee of Foreign Investment. All these groups must be better informed by better supply chain visibility into government supply chains that are relied on every day for billions of dollars of goods and services across the United States.
We’re through the pandemic, we’re building semiconductor fabs in the US, and we’re more aware of single-source dependencies—things look like they are on the right track. Looking to the future, what do the government and the DoD need to consider to ensure we stay on the right track?
The greater awareness of single-source dependencies is a good trigger for action. In Aerospace and Defense, this action means creating additional sources. If there’s no domestic source, an entire industry needs to be set up—which is often quite expensive and challenging. In A&D, compliance regulations can be even more extreme, such as the Federal Aviator Administration (FAA) Airworthiness Directives that ensure the flight parts are high-quality enough to be used on aircraft.
Here’s what I view as the two greatest threats to a resilient, secure supply chain: 1) Ensuring that the supply we create is followed by demand and 2) Mapping. For example, imagine a business solely sources from vendor A. They decide to invest in vendor B to have an alternative source. However, there’s a good chance that vendor B uses the same suppliers as vendor A. If A and B use the same suppliers, this business hasn’t created any supply chain resiliency or additional capacity.
Here’s the silver lining: as firms work to create new sources of supply, the new sources will be highly motivated to comply with what that firm wants. Usually, there is often some reluctance to share mapping data. However, as firms bring on new vendors, there’s no point in time that their leverage is stronger.
To learn more about the latest Aerospace and Defense supply chain trends, check out Resilinc’s Spotlight on Aerospace and Defense. We cover 2023 data on risk trends and disruptions affecting the industry, including exclusive insights into materials and commodity restraints (such as PFAS, aluminum, cobalt, and titanium). We also look at new policies impacting the industry and best practices for resilient aerospace and defense supply chains. Download the Spotlight on Aerospace and Defense.