Contracting with the U.S. Department of Defense (DoD) can represent a significant revenue opportunity for A&D manufacturers, but this doesn’t come without its fair share of regulatory hurdles. In fact, polling research shows regulatory pressures from import/export and security regulations and difficulties in electronic contract reporting and supplier classification are top of mind for A&D manufacturers right now.
The market opportunity is clear to see when you look at the numbers. The Aerospace Industries Association estimates that the A&D market in the U.S. alone equals 18.8% of the entire non-food manufacturing revenue at $874 billion a year—which is nearly 2% of all U.S. GDP. Further incentive comes from more short-term requirements, witness the impact of the Defense Production Act to help speed up manufacturing of critical materials and equipment to fight Covid-19.
Internal and external spending to boost U.S. A&D manufacturing outlook
We can already see a noticeable increase in defense budgets both domestically and internationally. Domestically, U.S. President Joe Biden is looking to boost spending to over $800 billion for 2023, particularly for new tanks and F-35s and shipbuilding, with further investment in space capabilities and the continued upgrade of nuclear capabilities.
Internationally, there is also an increased appetite overseas for U.S.-manufactured military equipment. For example, Germany’s new chancellor is looking to buy F-35 A’s in response to events in Europe, while South Korea, also under new leadership, is investing in new defense capabilities. This will bring in new revenue potential but put more demand on the multi-tiered supply chain that is required to manufacture military assets and equipment. And of course, these new assets must meet the same rigorous U.S. compliance requirements in order to be fit for export.
Regulatory ramp-up gives rise to secure software
These opportunities, however, bring a growing raft of regulatory hurdles. All defense assets, equipment, and services built in the U.S. for internal and external use, right down to individual parts and components for an F-35, are all subject to severe supplier classification tracking, reporting standards, and compliance. This is further complicated by the backdrop of a recent DoD assessment of defense critical supply chains in the wake of the U.S. Executive Order on America’s Supply Chains, introduced to support an effort to improve supply chain resilience and mitigate material shortages.
Recent polling results from an IFS and Aviation Week webinar underscored the top pressure points for A&D manufacturers—with over one-third of respondents (37%) citing that industry complexity comes from compliance challenges such as stringent import/export and security regulations. When specifically asked about the greatest challenges they face with the U.S. defense procurement process, there were two clear standouts for A&D manufacturers. Firstly, nearly half (47%) highlighted the labor-intensive process of reporting within the government electronic subcontracting reporting system (eSRS)—and secondly, over one-quarter (29%) cited difficulty integrating into the Invoicing, Receipt, Acceptance, and Property Transfer (iRAPT) system.
IFS recognizes the significance of the unique industry complexity and compliance challenges for A&D manufacturers. That’s why the IFS Cloud 21R2 release introduced two new functionalities for Defense Contract Management that address the two specific areas that are vital to successful contractual compliance when delivering manufacturing services to the DoD—Defense Contract Reporting and Defense Supplier Classification. Both are now available in the core IFS A&D Manufacturing solution via IFS Cloud.
1. Defense Contract Reporting – record and track key requirements throughout the entire procurement process
Not only is the DoD supply chain itself complex, but reporting requirements are also equally difficult to navigate. This has been made slightly easier more recently, with the introduction of the online process known as the Wide Area Workflow (WAWF), which has been strengthened with the Invoicing, Receipt, Acceptance, and Property Transfer (iRAPT) processes. In fact, iRAPT itself now manages over $383B of invoicing annually and has cut invoicing time by more than half.
The secure WAWF system leverages technology to manage invoicing, receipts, and advanced shipping data, which allows submission and tracking of documentation. But despite these digital elements, if this process is manually managed, it can be hugely labor-intensive, complex, and leave room for human error, all of which can cause delayed payments if done incorrectly.
The problem is solved with the new IFS Defense Contract Reporting functionality that integrates into the WAWF/iRAPT Business Suite—allowing automatic WAWF data upload to government websites. Manual labor is reduced, and payment processes are accelerated.
With IFS Defense Contract Reporting, defense manufacturers can easily record quality requirements at every stage of the supply chain, right down to the supplier and parts levels. They can then easily manage and audit quality programs, and quickly track against those key conditions end-to-end across the entire procurement process.
2. Defense Supplier Classification: Exemplify compliance even in the most complex supply chains
Supporting software is also required to help automate and simplify the defense supplier classification process, where organizations must classify suppliers and report back over a contracted procurement period. This is traditionally submitted through the DoD’s electronic subcontracting reporting system (eSRS).
IFS A&D manufacturing software supports Defense Supplier Classification, taking DoD classification mandates and enabling manufacturers to classify suppliers over a given period and present this critical information no matter what stage of the procurement process. This even allows a government contractor to calculate and set professional goals against specific classifications. As a project begins, this supports full analysis against strategic goals and outcomes, allowing organizations to detail this inside eSRS.
With this full Defense Supplier Classification support, manufacturers and their suppliers can confidently meet government reporting standards, ensure accurate project goals, and meet the most stringent compliance regulations. Ultimately, Defense Supplier Classification allows defense manufacturers to showcase their compliance with DoD regulations throughout their entire downstream supply chain ecosystem.
Turning compliance into competitive advantage
Over the coming years, there is a clear opportunity for U.S. A&D manufacturers to increase revenue as domestic and international defense budgets reach record highs—but this cannot come at the cost of compliance. Specific Defense Contract Management functionalities such as Defense Contract Reporting and Defense Supplier Classification are the difference between regulatory success and failure in the eyes of the US DoD.
The time has come for software to step up to the plate and help A&D manufacturers needing to navigate the regulatory maze.