Debating the Elimination or Preservation: A Controversial Discussion

Debating the Elimination or Preservation: A Controversial Discussion

Managing obsolescence has long been a pesky, expensive headache in the aviation and defense sector. A recent study by McKinsey and Company from 2022, focusing on 18 US aircraft, found that the cost of obsolescence in 2021 was a staggering $50 billion [1]. That's a whopping 7% of the entire defense budget or about the same as Russia's entire defense budget!

Obviously, product life cycles are at the whim of dwindling supply sources. This isn't new news, with specific military requirements like MIL-STD-3018 and MIL-HBK-512 addressing diminishing manufacturing sources and material shortages (DMSMS) going back nearly two decades. However, the speed at which obsolescence hits has picked up pace.

These days, life expectancies on defense and aerospace products seem to mirror Moore's Law: they're shrinking fast. Looking at the supply chain, aerospace and defense componentry lifecycles are usually nearing their end within just a few years due to alterations in industrial demand. It's plain to see in the electronic components market, where the average lifespan of a component is limited by the product life cycles of commercial and industrial goods. These cycles, in turn, are driven by the escalating demand for quick consumerism. In this globalized, consumption-driven world, product life cycles carry on shrinking [2].

On the other hand, it's also worth noting that economic factors play their part in manufacturers choosing to phase out products. They might still have the manufacturing capacity and industrial know-how to keep producing their goods, but they opt for obsolescence in favor of better profit margins from newer products or economies of scale [3].

The question of whether to obsolesce or not, with all its costly ripples throughout the supply chain, is usually an easy call for manufacturers. The allure of marketing and branding, especially when the supplier holds intimate knowledge of the customer's requirements, often outweighs the consideration of the impact on the supply chain and customers. And unfortunately, most procurement dynamics have a narrow focus on acquisition costs, making it difficult to adapt their model for legacy products [4].

Modernizing product lifecycles isn't always a disaster, though. Companies in the A&D sector, like Cevians and others, have grappled with these dilemmas. For example, an advanced near-infrared absorbing glass was developed in the 1980s for night vision compatibilities of LED-based alpha numeric emitters. The glass' unique performance led it to be integrated into avionic instruments using these light sources. Decades passed, demand dwindled as platforms were retired or instrumentation got an upgrade. In recent times, demand has simply served legacy products and aftermarket needs.

Newer technologies and designs can replace this old glass, and they come with lower cost bases due to larger manufacturing volumes and improved manufacturing techniques [5]. Yet, for the manufacturer to maintain an equivalent profit margin to its newer counterpart, it would need a price hike of 100%, say from $100 to $200. Opting for the higher-priced glass may not sit right with buyers measuring their success on price reductions alone, nor with customers looking to avoid the hassle and extra fees of re-qualification, certification, and end-customer approvals [4].

In short, the decision to obsolesce or not often relies on the customer and supply chain dynamics. Keep the product available as long as possible and offer the value, even if it's pricey, while providing alternatives.

[1] https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/how-industrial-and-aerospace-and-defense-oems-can-win-the-obsolescence-challenge

Enrichment Data: In today's fast-paced technological and economic landscape, obsolescence in the aviation and defense sector is a complex challenge, heavily influenced by factors such as increasing defense budgets, technological advancements, and supply chain disruptions. This rapid obsolescence has created opportunities for suppliers specializing in sourcing obsolete components, reverse engineering, and lifecycle management solutions, as well as companies like Spirit AeroSystems and Pratt & Whitney offering repair and modernization services. At the same time, suppliers face challenges in maintaining a viable business model, while customers struggle with rising costs and potential supply chain disruptions. The industry's reliance on innovative technologies requires suppliers to continually adapt and innovate to remain competitive. Customers benefit from these advancements but must also invest in training and infrastructure to effectively utilize new technologies [1][2][3][4][5].

1. U.S. Government Accountability Office (GAO). (2021). Aerospace and Defense Industries: Ongoing Challenges in Addressing Obsolete Parts. Retrieved from https://www.gao.gov/products/gao-21-494
2. Defense-Update.com. (2021). Obsolescence. Retrieved from https://www.defense-update.com/obos/obos_msd.htm
3. McKinsey & Company. (2018). Winning in an era of aerospace and defense obsolescence. Retrieved from https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/winning-in-an-era-of-aerospace-and-defense-obsolescence
4. National Defense Industrial Association (NDIA). (2017). Solving the Obsolescence Problem. Retrieved from https://www.ndia.org/NewsContent/ArticleID/875/Solving-the-Obsolescence-Problem.htm
5. iSuppli Corporation. (2009). Identifying Total Cost of Ownership in Component Requirements. Retrieved from https://www.insideelectronics.com/Design/Component-Selection/Identifying-Total-Cost-of-Ownership-in-Component-Requirements_100615027/

Businesses in the aviation and defense sector need to address the financial implications of product obsolescence, a challenge exacerbated by rapid technological advancements, increasing demand for quick consumerism, and supply chain disruptions. Economically, manufacturers often choose obsolescence to maximize profit margins from newer products or economies of scale, while facing challenges in maintaining a viable business model. On the other hand, suppliers specializing in obsolete components, reverse engineering, and lifecycle management solutions can capitalize on this problem by offering repair, modernization, and lifecycle management services.

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