WHITE PAPER

CONTROLLING THE UNPREDICTABLE:

ERP DECISIONS FOR
AEROSPACE & DEFENSE

June, 2015

HIGHLIGHTS

1 2 3
Pure commercial ERP selection Unpredictability and a A&D companies need
criteria are simply not applicable transforming industry create a selection criteria for an ERP
to the A&D sector specific set of challenges for solution that can meet the
A&D organizations challenge of ’what’s next’
with agility and functional
depth
CONTENT

LESSONS TO BE LEARNED............................................................................................ 1

THE FOUR ERP SELECTION KEYS................................................................................... 6

ABOUT IFS................................................................................................................... 8
 CONTROLLING THE UNPREDICTABLE: ERP DECISIONS FOR A&D

CONTROLLING THE UNPREDICTABLE:

ERP DECISIONS FOR A&D

When it comes to selecting Enterprise Resource Planning (ERP) solutions for asset-
intensive industries such as aerospace & defense (A&D), the ‘tip of the iceberg A defense organization
theory’ applies. cannot predict ‘what’s next’
—where equipment and
personnel will need to be
A commercial organization such as a bank approaches ERP selection with a deployed to counter
criteria that’s pretty consistent and rigid. It knows its customer base, has years
unpredictable insurgency-
of data on their needs and behaviors and also their more predictable require-
based attacks, the next
ments—transferring funds, depositing and withdrawing money, taking and
enhancement to stealth
repaying loans. Large global organizations are looking for a solution that can
support them for half a decade or so in managing consistent processes required
technology or political
by a known customer base and hundreds of identical high street branches. decisions in relationships
In the A&D industry this consistency simply doesn’t exist. A defense between countries.
organization cannot predict ‘what’s next’—where equipment and personnel
will need to be deployed to counter unpredictable insurgency-based attacks,
the next enhancement to stealth technology or political decisions in relation-
ships between countries. Airlines have no idea when the next volcano will erupt
and cause widespread and costly flight disruption, or the impact of global
strategies on aviation fuel prices or long-term cycles in economic trends. For a
start, A&D processes are anything but consistent and they are certainly complex
—think new operational tasking, new equipment and technology and the
increasing unpredictability of global warfare. A solution that may fit an
organization’s immediate requirements on the first day after selection could
prove a shock when your business tries to transform to meet market forces in
such a dynamic and forward-looking industry.

LESSONS TO BE LEARNED
There are some eye-opening recent cases which should provide a lesson to would-
be software selectors in defense and civil aviation. One such example can be
seen with the US Department of Defense trying to deploy an unadaptable
out-of-the-box ERP solution to manage 3,400 high-tech aircraft and 330,000
personnel. The result was a mismatch of military processes to a solution
designed for business performance, without the ability to integrate and establish
a beneficial middle ground. To date, $1bn lost and a spiraling completion time.

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 CONTROLLING THE UNPREDICTABLE: ERP DECISIONS FOR A&D
Both defense and aviation
organizations now have
firm dependencies on the
industry to meet operational
objectives. Will your ERP
be able to accommodate
this complex matrix when
managing process and the
end-to-end support chain?
2
This Institute for Defense analysis cites one of the key reasons for its failure:
“The structure of a military organization and its focus on operational capabilities
rather than financial performance meant that using a COTS (Commercial
off-the-shelf) system that was designed for a profit making organization was a
poor fit.”
The UK MOD also recently tried to put in place a computer system to
better manage army recruitment. The resulting IT system required a further
investment of £50m ($70m) of workarounds to right the wrongs of the first
solution.
So what are the key considerations to take into account when selecting the
ERP?
First , both defense and civil aviation are transforming industries, and have
been doing so for some years. They are continuing on that journey from being
an engineering and manufacturing oriented industry to one that has a greater
focus on through-life and asset availability services. The ERP selection criteria
must consider the solution agility for a transformational journey that an
organization will inevitably make, not just a here and now set of requirements.
Second, on top of this provision for change, A&D companies are now
judged on product availability and performance as well as asset lifecycles that
might last 50 years. Very few other industries retain such complex equipment,
that needs to be maintained so far out from initial procurement, so the selected
ERP needs inherent capabilities to deal with ‘what’s next’ over such timelines.
Third, while the industry changes from within, there are also outside
pressures that organizations must be able to react to. On the one hand, unpre-
dictable operational tasking and natural occurrences are commonplace in
A&D. On the other hand, driven by the consumerization of IT and disruptive
technologies—such as the Internet of Things, big data and augmented reality—
organizations are realigning business processes as digital transformation provides
opportunities for better operational and budgetary effectiveness. Can the ERP
accommodate this ‘what’s next’? Is the vendor a though leader or a follower?
Fourth, A&D organizations are extremely complex in nature with huge
numbers of personnel and assets. Departments of defense must manage navies,
armies and air forces—while often being responsible for a number of other
unique branches—the coast guard and weather forecasting to name a couple of
examples. Civil aviation organizations must manage aircraft at varying stages
of lifespan and scattered across the world at any one point. In addition, both
defense and aviation organizations now have firm dependencies on the industry
to meet operational objectives. Will your ERP be able to accommodate this
complex matrix when managing process and the end-to-end support chain?
 CONTROLLING THE UNPREDICTABLE: ERP DECISIONS FOR A&D

So it’s clear that the ‘what’s next’ question is a serious challenge for defense or
aviation organizations and that ERP selection using conventional commercial If you’re an A&D company
wisdom can, and has, led to some headline failures. in the highly competitive
Before selecting an ERP solution for an A&D organization, decision makers market, you should be
need to assess these four points in more detail: thinking about system
flexibility and functionality
1. Transformation from manufacturing to in-service support... and beyond options that are going to
For certain, product design and manufacturing excellence will always remain support your company’s
crucial disciplines within A&D, but increasingly, the way to excel and grow transformation into an
revenue is through life services and support. So what does this shift mean for
asset services organization.
ERP software selection?
If you’re an A&D company in the highly competitive market, you should be
thinking about system flexibility and functionality options that are going to
support your company’s transformation into an asset services organization. In
other words, look beyond the first-glance perception of what ERP should be,
and focus on system agility and the functional depth around maintenance,
logistics and Enterprise Asset Management (EAM) that will support your
evolution into a services-focused company that excels at providing asset
availability.
There is ample evidence in A&D that the lifetime cost of a product, and
thus the value that a manufacturer can provide, spans multiple decades. There
is also plenty of evidence that the biggest cost benefits can be found by making
support more efficient.
Organizations are typically judged on availability and performance over the
entirety of these increasing asset lifecycles. In mature arms markets such as the
US and UK, contracts such as Performance Based Logistics (PBL) agreements
are now generally mandated for major new procurement projects.
As with the military, organizations in the civil aviation sector are striving to
improve quality in certain critical operations while reducing costs. In order to
square this circle, many industrial manufacturing companies across these sectors
have turned to offering integrated maintenance, repair and overhaul (MRO).
PBL has achieved some notable success as a tool for sustaining defense
operational capability at reasonable cost. Very few PBL contracts are alike, in
fact almost all contracts have local process variation. However, the underlying
ERP solution needs to be agile and adaptable to manage varied and changing
circumstances.

2. Equipment lifespan increasing

In addition, military equipment is characterized by very long in-service life
periods and so high in-service life costs, more than almost any other asset-

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CONTROLLING THE UNPREDICTABLE: ERP DECISIONS FOR A&D

intensive industry. The Tornado jet for example, which entered service in 1979,
will not be retired until 2025—almost 50 years later—the USAF is using
1950’s-era Boeing B-52s, and plan to use them until the 2050s, and the USMC’s
helicopter fleet consists almost entirely of Huey and Cobra aircraft, the first
versions of which first flew in the Vietnam War.
At the other end of the spectrum the next generation of military jets are
now arriving, with the F-35 Joint Strike Fighter being one example.
Manufacturing and procurement constitutes only 20 percent of the total cost
associated with modern fast jets—with the remaining 80 percent of costs being
spent through-life on in-service support. Decision makers should select ERP
which can assist in making this 80 percent more efficient—for example, a 10
percent saving on through-life maintenance and support could equate to the
procurement cost of many more military aircraft.
Similar models apply for civil aviation. While headline civil aviation fleets,
cross type, show a typical 10 year age average, the European A319 fleet age is
now averaging more than 15 years, and the global Boeing 747 fleet, introduced
in 1969, is typically more than 20 years with the 767 fleet even older.
The one area where an airline can help reduce costs is that of maintenance,
be it indigenous or contracted out, where costs are typically the equivalent of
11 percent of revenue. By selecting ERP with capability to change MRO and
its associated supply chain into a more holistic efficient and effective enterprise
approach—as well as accommodate maintenance management issues 50 years
out that may not have been considered at design—it is possible to achieve
increased through-life value from investments. The sums indicate that if
operators can reduce their maintenance costs by just 10 percent, they could
double their profits.

3. Outside influences—dual pressure

The other characteristic of this industry is that change that’s outside your
direct control happens! This is not surprising considering the window for
change generated by the typical size of the organizations, changing business
models, the complexity of operations and the length of in-service life. It is
therefore essential that software selection is focused upon these characteristics
and not the typical narrow commercial selection model. A&D organizations
must deal with far more dynamic situations than a typical bank or retailer. What
needs to come to the fore in the selection criteria is agility, modularity, open
architecture and adaptability of the product to accommodate transformational
change that can’t be predicted, documented or contracted for during initial
selection.

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 CONTROLLING THE UNPREDICTABLE: ERP DECISIONS FOR A&D

For defense organizations it is difficult to predict who, or what, may be about

to attack them. Reduced levels of major military conflict around the world
have been counter-balanced by significant increases in less predictable, counter-
insurgency style operations. When a force needs to be scrambled to respond to
an immediate threat, equipment needs to be ready for deployment that instant.
In the civil aviation environment, freak natural occurrences can tear fleet
schedules apart. For example, the 2010 eruptions of Eyjafjallajökul, the Icelandic
volcano which caused ten days of disruption to air travel in Northern Europe.
In total 20 countries closed their airspace to commercial jet traffic and it affected
about 10 million travelers. The International Air Transport Association (IATA)
estimated the total loss of revenue due to disruption cost airlines $1.7bn.
But what about global trends such as digital transformation? Digital trans-
formation is no longer just a technology trend for A&D organizations. It’s a
core business approach that needs to be at the heart of enterprise strategies,
being both driven and enabled by mobile and cloud computing, big data,
analytics and the Internet of Things (IoT)—underpinned by enterprise breadth
solutions. Witness a recent RFI1 from the US Department of Defense on how
to best harness the potential of the big data made possible by the advancement
of IoT enabled components now emerging with next-generation aircraft.
Some 80% of A&D companies acknowledged the benefits of digital trans-
formation according to a recent Accenture survey2. For many organizations,
the path to digital transformation often starts with attempts to apply new
technologies, but digital transformation is not just about technology, it’s about
new approaches that change established business practices. To do this, companies
need the support of an agile and reactive ERP solution, geared to adapt in the
future, not just looking to the ‘now’.

4. Organizational and operational complexity, a different order of magnitude

Unlike a relatively vertical and simply organized banking institution, which
has an HQ in each country and nearly identical branches on every high street,
A&D organizations are almost unique in their complexity. They don’t only
need software that is flexible and that fits functional needs for operations, they
require a solution that will help keep them on track with strategic operational
goals across the ‘enterprise’ whatever that enterprise may consist of.
Military ERP solutions must straddle a complex network of players and
processes, from manufacturing to maintenance, industry to operator and repair
to at-base operations and field deployment—making it difficult to give an
‘enterprise-wide’ view of these considerations.

1
Witness a recent RFI from the US Department of Defense
https://govtribe.com/project/request-for-information-rfi-for-internet-of-things-iot-analytics-at-the-edge
2
Accenture survey: www.accenture.com/us-en/insight-digital-supply-network-survey-2015

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CONTROLLING THE UNPREDICTABLE: ERP DECISIONS FOR A&D

The running theme across support chains, industry, defense departments and
even military bases is complexity, and the need for this complexity to be
understood, processed and subsequently optimized.
Civil aviation operations are also incredibly complex, and must be carried
out in a dynamic environment where an issue in the supply chain can potentially
ground planes and have a huge bottom line effect.
Fleet sizes are increasing and passenger demand is higher than ever before.
Back office functions such as HR and Finance are key to keeping control of
the business, but this is a maintenance-heavy and safety management-heavy
sector where the ability to efficiently maintain aircraft and engines is critical to
profitability. The support of complex assets and spares via EAM functionality
is essential.
Instead of behaving as a business intelligence (BI) tool to simply assess
business performance on a point by point basis, selected ERP solutions need
to give Command-level personnel complete visibility of strategy and perfor-
mance and the means to act on it across the enterprise—whether that’s one
naval vessel, an entire industrial support chain, a whole defense department, or
even a military base.
This is where ERP features such as enterprise operational intelligence
(EOI) and role-based user interfaces come into play. With traditional ERP
systems, transactional, technical and performance data can get locked into
modules and functional domains, making it difficult to manage trends within
the context of corporate strategy. ERP solutions with operational intelligence
should provide planners with a 360 degree view and map, monitor and manage
processes, personnel and performance across the enterprise.

THE FOUR ERP SELECTION KEYS

Think of ERP selection in A&D as spanning four key areas of inquiry:

• First, the system being looked at should have an agile, modular construct
that supports a company’s transformation journey and long asset lifespan—
often a ‘what’s next’ journey that cannot be predicted on day one

• Second, it needs functional breadth and depth, not only in standard ERP
areas, but also for EAM functions as organizations move from manufactur-
ing to in-service support as asset lifecycles also increase

• Third, a system should be agile and reactive enough to enable organizations

to cope with change caused by outside influences, be that individual events
or longer term digital transformational trends

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 CONTROLLING THE UNPREDICTABLE: ERP DECISIONS FOR A&D

• Fourth, and perhaps overlooked in the selection process, is the ease of use
of the system and its business intelligence capabilities for managing opera-
tional intelligence. After all, you not only need software that is flexible and
that fits your functional needs for operations, you will also want a solution
that will help you stay on track with strategic goals

Overall, the biggest needs are around the agility and flexibility, from an open
and modular system architecture. The ability to support change not just to
service immediate requirements. A&D organizations need to evaluate ERP in a
way that looks beyond the surface understanding of what an ERP system
should be. Then they can move toward a deeper understanding of solutions
that are agile enough to have the functional depth to support their long-term
needs—as part of an industry layered in complexity, constantly under transfor-
mation and often pitching curve-balls at a moment’s notice.

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ABOUT IFS
IFS is a globally recognized leader in developing and delivering
enterprise software for enterprise resource planning (ERP), enterprise
asset management (EAM) and enterprise service management (ESM).
IFS brings customers in targeted sectors closer to their business,
helps them be more agile and enables them to profit from change.
IFS is a public company (XSTO: IFS) that was founded in 1983 and
currently has over 2,800 employees. IFS supports more than 1 million
users worldwide from its network of local offices and through a growing
ecosystem of partners.

For more information about IFS, visit IFSworld.com

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