Solving the Aerospace and Defense back office paradigm | KPMG | GLOBAL

Solving the Aerospace and Defense back office paradigm

Solving the Aerospace and Defense back office paradigm

New back office automation technologies are giving Aerospace and Defense players an opportunity to achieve real and lasting costs savings.

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As national defense budgets tightened over the last decade, most defense companies have faced increasing pressure to achieve significant cost reductions in their back-office operations.

In some cases, the traditional response to these pressures has been to make across-the-board percentage cuts that essentially spread the pain evenly across back-office functions.

Others have taken a more targeted approach by streamlining their processes, eliminating redundancies and ruthlessly stamping out inefficiencies. Where possible, they’ve also consolidated back-office functions into centralized on-shore shared services centers. And in some back-office areas – such as information technology, payroll and benefits – Aerospace and Defense (A&D) companies have also outsourced to (mainly onshore) third-party providers to generate labor arbitrage savings.

However, due to US government contracting regulatory restrictions, A&D companies have been fairly limited in their ability to offshore back-office processes to low-cost locations, and have therefore not yet taken full advantage of the labor arbitrage potential.

But no more. Today’s robotics process automation (RPA) techniques have utterly disrupted the status quo. And that has given A&D organizations a tremendous opportunity to move to a very different cost paradigm for their back office.

A new lever for back-office cost reduction

There are a number of reasons why A&D execs should be excited about RPA. The most obvious is the potential for massive labor reductions. Our work with large (US$20 billion plus) organizations suggests that RPA could deliver between 30 and 50 percent reductions in labor in key back-office areas such as accounts reconciliation, contract setup and fulfillment, and time reporting. And this translates into significant overhead reductions and sustainable cost out-take.

The shift to RPA also provides significant productivity and performance improvements. Software robots work 7x24, 365 days a year; they don’t take vacation, get sick or suffer from ‘work/life balance’ issues; and they perform tasks significantly faster and with greater accuracy than humans.

Another big advantage of RPA for the A&D sector is that it provides unprecedented decision traceability, consistency and documentation. Bots create software logs, basically a trail of every action the bot took and the corresponding and resulting outcomes, which can be quickly and easily audited and traced. And this is key to success when implementing new systems within the US government DCAA and DCMA guidelines.

The other big benefit of RPA is that it greatly improves business scalability, which is particularly important in this time of heightened competitiveness in the A&D sector. When workloads fluctuate, software robots are able to scale instantaneously up and down at digital speeds.

The widespread adoption of automation in the back office should dramatically transform the shared services environment as resources are moved to higher value tasks and repetitive transactional processes are taken over by bots. And this, in turn, should create new opportunities for the back office to focus on generating valuable insights to support business strategies.

Why so timid?

Given the benefits that RPA could bring the A&D sector, it is surprising that only a handful of leading A&D players are now actively implementing RPA in the back office. This runs counter to the spirit of the industry. Indeed, the A&D sector has a proven track record for blazing new trails and has traditionally been viewed as being on the leading edge of product innovation.

Yet, when it comes to the introduction of RPA and intelligent automation in the back office, the A&D sector has been rather conservative in relation to other sectors. The financial services sector – in particular – has been rapidly implementing new RPA and intelligent automation approaches in their back office and have seen significant benefits. So, too, have telecoms companies and retailers.

The A&D sector, however, has allowed itself to lag. Some are taking a wait and see approach, concerned that possible US government system recertification requirements could slow adoption and limit the potential for cost savings. Others seem unsure of the technology or are unable to separate the hype from the reality.

Whatever the reason, the reality is that only a few leading A&D organizations have implemented a back-office RPA project of any size or scope. Most are still playing with pilot projects and proof of concepts.

To be sure, there will be difficult technology challenges to overcome. But our experience suggests that the more difficult problems will have less to do with technology and more to do with the people and the processes that it is meant to enable.

Time for action

We believe there is significant competitive advantage awaiting those bold enough and strategic enough to take action on RPA. The key to success is to create a robust and integrated road map that leverages automation to balance needs, capabilities, innovation and costs in a way that achieves a new paradigm in back-office performance.

For those just starting out on the road mapping process (or for those that are unhappy with their current automation progress), here are five suggestions to help ensure that your road map delivers real value.

  1. Think at the enterprise level. While some of the greatest benefits of RPA may flow from the automation of finance processes, A&D executives must remember that RPA tools, capabilities and technologies can create significant advantages across the back office. When developing your road map, think at the enterprise level and look for opportunities to leverage advances across multiple aligned process flows.
  2. Develop a holistic strategy and road map. RPA is not simply an IT issue and any road map should therefore include key business considerations and requirements such as an opportunity assessment, a business case, various use cases, a governance center of excellence, an implementation road map and a plan to rapidly achieve scale when needed.
  3. Gain insight into the vendor landscape. Once the candidate processes have been identified and documented, organizations can start thinking about the right RPA solutions and vendors. This is about finding the right solutions to meet the organization’s specific long-term goals and requirements rather than buying a solution and force-fitting it into the organization.
  4. Embed the regulatory requirements. When implementing new systems and technologies, A&D players must consider how their advances might impact their Approved Business System status with DCAA and DCMA. True, RPA offers significant benefits (such as improved auditability, improved quality and consistency) for DCAA/DCMA, but A&D organizations will want to build in ‘checkpoints’ along the road map to ensure alignment to government requirements.
  5. Recognize the impacts to people. The introduction of RPA creates new ways of working and new operating models. And that means A&D players will need to create a change management strategy that ensures effective adoption of automation throughout business functions.

At KPMG, we believe that the time for pilot projects and proof of concepts has passed. The benefits of RPA are achievable, well documented and amply demonstrated across other industry sectors. Now is the time for A&D organizations to take bold steps, using the introduction of automation as an opportunity to redefine how back-office performance can be taken to the next level to enable the business to compete and grow.

The benefits of RPA for the A&D back office are clear. So, too, is the competitive advantage that could be achieved. The big question, therefore, is which A&D player will be the first to fully transform their back office and reap the rewards.

Contacts

Doug Gates
Global Sector Chair, Industrial Manufacturing and Global Head of Aerospace & Defense
T: 404-222-3609
E: dkgates@kpmg.com

Fuad Abdelhadi
Managing Director, Shared Services and Outsourcing
T: 703-286-8000
E: fabdelhadi@kpmg.com

David Neely
Managing Director, Digital Enablement
T: 267-256-2734
E: dneely@kpmg.com

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