Playing catch-up: How defense and aerospace can improve the component procurement of DMSMS productsStory
September 08, 2022
The ongoing global chip shortage and difficult time sourcing components and raw materials has escalated a decades-long issue for the defense and aerospace industry. It has steadily been losing its purchasing leverage in the marketplace to other powerhouse industries, thus pushing the technological road maps of the component manufacturers. What events led up to this overarching issue and how can defense and aerospace more effectively source the parts they need in such a dynamic market? They are a very small fish in a very large pond, without many options in front of them to quickly source their legacy parts. Short-term, there are solutions available to maintain a market footing. Long-term, to avoid a critical point, defense must be willing to adapt its systems to the newest technology that will only grow in availability.
Remember the golden era of defense and aerospace? Defense and aerospace were once a beacon of R&D and technological advancement as the main user of technology-leading semiconductors. Their systems evolved, albeit slowly, to accommodate new chip advancements, but the rate of change was so slow compared to today’s standards that it did not make substantial everyday impact, though defense’s technological efforts did pave the way for the use of semiconductors in everyday life as we know it now.
Defense and aerospace manufacturers originally sourced their components from specialty suppliers, with some companies even manufacturing them in-house. To reduce costs, they moved to commercial off-the-shelf (COTS) sourcing, which in hindsight became a cost-saving win but created a difficult-to-manage supply-chain situation when seen in the longer term.
The paradigm shift
The move to COTS sourcing became a problem for defense and aerospace in the 1980s and 1990s as more industries began using semiconductors in their products. Most notably, personal computers boomed during this time and therefore complex technology was no longer siloed to government entities or large organizations – anyone could have access in their homes, and soon in the palm of their hands.
The results of this change were twofold: incredible profit potential for suppliers to cater to new markets and increased demand for chips for consumer-facing companies. This incited a paradigm shift for defense and aerospace – demand increased in the consumer market, and so did technological innovation. This innovation, frequently referred to as Moore’s Law, was progressing at a faster speed than the military and aerospace manufacturers needed or could accommodate in their product life cycles. Chip production was evolving to accommodate new markets, making those legacy chips the defense and aerospace industries had traditionally relied on more difficult and expensive to produce and thus source. (Figure 1.)
[Figure 1 | Demand for technologically advanced chips increased across the consumer and industrial markets, leaving legacy chips used in defense more difficult to produce and procure.]
Since that changeover happened, defense and aerospace manufacturers have seen their market position consistently diminish as semiconductors touch nearly every part of modern life. The current semiconductor shortage is only exacerbating an existing problem, making even common and so-called available products seemingly unavailable.
The core problem
Defense systems run counterintuitive to the current technological market. Consumer-driven manufacturing develops products with the assumption that they will be replaced in two or three years, driving chip suppliers to abandon low-demand, older technology products at a faster pace. In contrast, defense manufacturers seek to prolong the life of their components, a situation driven mostly by their product road map, intense engineering efforts, and the support needed over the lifetime of a weapons system.
These factors create a problem known as diminishing manufacturing sources and material shortage (DMSMS). DMSMS endangers the life cycle support and viability of weapons systems or equipment when a specific component supplier designs out, or when their component is replaced with the next generation.
Maintain market foothold in the short term
Add to this the high-reliability components needed by defense and aerospace, and the situation becomes more difficult to manage because there are not many substitutes that can perform at the level and length of time that weapons systems require.
The current chip shortage has brought several potential solutions for all industries to the forefront, with onshoring chip production gaining the most notoriety. The larger challenges of onshoring aside, this move would not necessarily relieve the pressure for those relying on legacy components – namely, the defense market – as the new chip-fabrication plants and technology will focus on cutting-edge devices and not current or even legacy technology products. Defense industries will still be left struggling to source the components they need. Defense and aerospace must develop a strategy of quick decision-making using the best information they have at hand.
To assert a better position in the market, companies can make a number of moves:
- Inventory-sharing: The benefit of a shift to COTS is that there are commonalities between defense manufacturers themselves as well as some consumer components. In instances where there is not a components shortage, inventory-sharing, or pooling components, is a viable option to ward of DMSMS and EOL [product end-of-life] constraints. Although capital-intensive and coordination-heavy, if managed well, it can be a reliable option.
- Aftermarket goods: Genuine OEM goods and the aftermarket need not be seen as a last resort, especially in difficult times of inventory planning.
- Follow the data: Lead times are changing faster than ever, and supply-chain constraints make it difficult to plan more than weeks ahead. Quick decisions informed by up-to-date (and historically predictive) data will be key to understanding when and where to source.
Avoiding critical limits long-term
While these solutions are viable in the short term, the defense and aerospace industries will be swimming upstream until their complex systems become compatible with current technology platforms and road maps. Without concerted investment into updating its systems, the defense industry will be perpetually stuck in a scenario of its technology always being behind and will be unable to reap the benefits of multi-function chips or future inventory-sharing.
Frank Cavallaro is CEO of A2 Global Electronics (A2), with nearly 30 years of experience in the electronic components distribution industry. Frank leads A2 as a global distributor of electronic components and supply-chain solutions that operates in North America, Europe, Japan, and Asia.
A2 Global Electronics • https://a2globalelectronics.com