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Value Creation in the Digital Aerospace and Defense Network

Value Creation in the Digital Aerospace and Defense NetworkInspire and Shape a Digital World That Reinvents A&D Products, Services, and Core Processes

2017 Edition

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Value Creation in the Digital Aerospace and Defense Network

Dear Aerospace and Defense Community,

The impact of our industry is impressive. In 2016 alone, the aerospace and defense (A&D) industry provided the infrastructure to transport over 3.7 billion passengers,1 delivered over 1,800 new commercial aircraft,2 and launched 85 orbital space missions.3 Many innovations today depend on technology out of the A&D world – for example, imagine smartphones without GPS capabilities.

To be successful, strong engineering and collaboration with customers is a must. Customers, however, expect more for less in terms of cost and time. How do you balance customer requirements of shortened time and lower costs with high quality, safety, and innovation? Very often, A&D companies are excellent at finding individual solutions. But as Aristotle once said, “The whole is greater than the sum of it’s parts.”

Unfortunately, A&D companies are like living organisms that constantly change, thus creating more information. A holistic system approach requires a different technology that will allow information to be gathered automatically based on existing business principles. In parallel, this technology will determine the optimal solution for the organization and customer based on any planned or unplanned event – a digital core within a living business.

In working with leading A&D companies across the globe, we see investments and energy in the following strategic priorities:

• Customer centricity

• Digital business networks

• Innovation

• Agile manufacturing

• New business models

To enable A&D companies to build a live operation, they require infrastructure to connect all elements of manufacturing and the supply chain. To build more agile manufacturing environment technologies – like the Internet of Things (IoT), machine-to-machine communication, artificial intelligence, machine learning, and business networks – utility and business value are absolutes. All these tools require a digital foundation with a common set of business definitions and rules that must be supported by security. The result is a platform to support the “whole,” not only the parts. Enabling A&D companies to gain insights for optimization based on customer needs will drive innovations.

Our goal at SAP is to help the A&D industry successfully master the digital transformation and evolve into a Live Business.

Torsten Welte

“We envision the digital aerospace and defense network to help achieve near-zero unplanned downtime for commercial travel and missions, allow aircraft production at the highest rates and lowest cost, and provide a superior end-customer experience.”

Torsten WelteGlobal Vice President Aerospace and Defense Business SolutionsSAP SE

TORSTEN’S POINT OF VIEW

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Value Creation in the Digital Aerospace and Defense Network

The Digital Economy

Big Picture

The Future

4

4

5

Reimagining

Reimagine Business Models

Reimagine Business Processes

Reimagine Work

6

7

8

9

SAP Digital Transformation Framework

The Digital Core

SAP Solutions and SAP Digital Transformation Framework

The Digital Platform from SAP Enables Critical Business Capabilities

How Does It All Come Together?

10

11

12

13

14

From Your Current State to Digital

The Keys to Success

SAP Digital Business Services

A Comprehensive Ecosystem

15

16

17

18

Why SAP?

SAP Is Committed to Innovation

19

20

TABLE OF CONTENTS

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Value Creation in the Digital Aerospace and Defense Network

The Digital Economy

Big Picture: The Digital Economy Continues to Transform A&D

Digital business models are disruptive. The rules have changed.

• Airbus DS Optronics GmbH is using SAP S/4HANA® as a digital core – a major milestone within the company’s digitalization initiative to increase the efficiency of financial and controlling processes, moving toward a fully digital financial process.4

• The Boeing Company believes the future of the aviation industry lies in “the digital airline” –connecting information from airplanes through technology for smarter airline operations.5,6

• Spirit AeroSystems Inc. accelerates production with real-time shop floor dashboards, expecting benefits such as 25% reduction in flow times.7

• Lockheed Martin’s digital vision is an end-to-end initiative using the explosion of digital transformation in manufacturing (model-based design, additive manufacturing, advanced materials) as a key enabler to shrink cycle times and drive costs down. Its “digital tapestry” approach connects everything from concept to realization.8, 9

While technology trends change everything, the digitalization of aerospace and defense (A&D) products is nothing new. Supporting functions and processes are now being digitalized. Technologies such as in-memory computing, cloud, 3D printing, and enterprise mobility have already started to make an impact in A&D companies. Many A&D companies have extensive experience in these areas. Other technologies provide new and exciting opportunities critical to the success of A&D companies, including:

• The Internet of Things (IoT)• Cybersecurity and blockchain• Artificial intelligence (AI) and machine learning (ML)• Augmented reality

Leading A&D companies are fully embracing digital technologies as a strategic priority. They have started to evaluate the impact these trends have on their business, which will ultimately transform them into “live” enterprises. At the center of this idea stands a fully connected digital architecture to help drive operational excellence, reimagine business processes and business models to power growth, and delight customers.

A Digital Core Is NeededA&D companies have always been at the leading edge of technology innovation. Consequently, ideas like “smart“ aircraft or factories are nothing new to the industry. However, the success of a digital transformation and the value of new technologies are based on a business process platform – the digital core. The alignment of customer and strategic company priorities is critical.

Here are a few examples of where a digital core can create business value in the A&D industry today:

• Enhance existing core processes with real-time insights by embedding IoT systems and enabling machine intelligence and data science for Big Data. Make core processes responsive and insightful. Turn them into a competitive business differentiator. Lower costs by reducing – not adding – technical complexity to the IT landscape.

• Capitalize on the massive amount of data generated by modern machines and digitalized products to enable smarter factories and differentiated service offerings. Harness IoT data from customer equipment in the highly competitive aftermarket.

• Extend digitalization to supply chain and logistics to enable better-connected, dynamic multitier production and sustainment networks that foster cross-domain and partner collaboration. Support secured data exchange with technologies like blockchain. Synchronize and collaborate within the digital ecosystem to optimize products over their entire lifecycle, improving the customer experience.

• Offer opportunities to create new revenue streams and business models with “information as a product” using data collected and consolidated from different systems and exchanged on digital commerce platforms. Provide opportunities for nontraditional players with a strong technology background to enter the market and profoundly change the playing field.

Early Adopters Are Winning Research shows that companies that embrace the digital world and execute on their digital strategy are growing shareholder and stakeholder value faster than their peers.

Access more information on the latest technology

trends here:

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Value Creation in the Digital Aerospace and Defense Network

A&D companies need to redefine their core competencies and rebuild the business strategies around them. Successfully embracing the opportunities from new technologies and addressing these strategic priorities will be the foundation of successful digitalization and staying ahead of the innovation curve.

ReimaginingHow do you act on these strategic priorities? The starting point of the digital journey is the ability to reimagine your business together with customers. That means reimagining your business models, your business processes, and your work.

Where opportunity is enormous but new market entrants threaten traditional A&D companies, it is essential to focus on the right strategic priorities to drive digitalization across business. In working with leading companies across the globe, we see thatinvestments and energy are being focused on five strategic priorities.

1. Customer centricity

Putting the customers‘ point of view at the center of every decision is vital for success in the digital age. This does not stop with business development or product design, but also applies to how products are built and what services are offered. Digital services must provide tailored benefits, improve product performance, and support outcome-oriented service models to reduce cost and risk.

2. Digital business networks

Many A&D stakeholders agree there is substantial potential in expanding business views across the enterprise. Designing network value streams, which enable collaboration, benefits all business partners, while leveraging the knowledge of the best breed of partners. Scalable and secure, many-to-many networks can distribute critical business information across the network, automate real-time network-level analytics, and enable secure, streamlined collaboration across departments and companies.

3. Innovation

Continuous innovation is impacting A&D products and processes alike. With even more technology embedded, OEMs aim to make products smarter, more reliable, and affordable for customers. Process automation benefits from greater IoT integration, while 3D printing is further adopted across the industry.

4. Agile manufacturing

Smart, connected factories with advanced automation and integration of shop floor processes deliver granular data for optimizing products and processes and proving compliance. Production and supply chain processes gain flexibility and accelerate reactions to change in demand, supply, and resources, driving optimization in virtual capacity and operational efficiency.

5. New business models (revenue diversification, data-driven)New business models are disrupting traditional business models and forcing them to evolve. They create new markets and generate new revenue streams by delivering outcomes. They utilize data as a product, for example, for new aftersales services. OEMs invest to access new levels of innovation, for example, by strategic acquisitions, to extend cybersecurity or 3D printing functions to upgrade products quickly for their customers and enter new business domains.

10% Of the data in the digital universe will be coming from embedded systems by 202010

$6.2 trillionEstimated global worth of IoT technology by 202511

$1 trillionEstimated size of the machine-to-machine market by 202012

The Digital Economy

The Future: Strategic Priorities for A&D Companies

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Value Creation in the Digital Aerospace and Defense Network

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SAP Digital Aerospace and Defense Whitepaper

REIMAGINING THE DIGITAL ECONOMY OFFERS INFINITE OPPORTUNITIES

In a connected world, where every company is a technology company, smart products and services refocus commerce on outcomes, blurring industry lines.

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Value Creation in the Digital Aerospace and Defense Network

Customer Centricity

Customers across all industries demand not only production innovation, but increased focus on outcomes. They want streamlined, contextual customer engagement end to end.

• OEMs continue to invest in advanced capabilities to plan, execute, and measure outcome-based contracts in order to meet customer service–level profitably.

• Business-to-business (B2B) spare parts portals that provide omnichannel, consumer-grade, e-commerce experience are becoming the norm.

• A&D OEMs optimize digital customer interaction across all engagement steps, providing 360-degree holistic customer insight.

• Customer interaction during the phases of innovation, contract definition, and business capture will be more collaborative. Customers will exchange ideas and terms digitally with OEMs early on. Examples include new performance-based logistics (PBL) programs and joint work on future aircraft connectivity solutions.

Digital Business Network

As A&D OEMs enhance their global presence to access additional markets and extend production capacities, distributed product development and collaboration across the product lifecycle are becoming the norm. New technologies will enable better coordination of complex value networks and provide agile integration, global visibility, network intelligence, and secure collaboration from design to service.

• Broad coverage of digital collaboration with suppliers allows OEMs to increase volume and sophistication of outsourcing and supplier quality assurance. It gives OEMs the flexibility needed to model their preferred global capacity mix.

• Information-driven, multitier networks with cross-enterprise intelligence and advanced analytics help OEMs drive process compliance and manage risk and vendors smarter.

• Distributed manufacturing enables cloud-based integration of 3D printing service providers.

Driving Innovation

A&D OEMs embed more and more software and partner technologies into their product architecture, enabling a next generation of smarter product models. This creates greater volumes of operational data to fuel new business models.

Increasing numbers of viable applications and availability of entry technology at lower prices affect OEMs as well as many new players in the unmanned aerial vehicle (UAV) and space segment. Production volumes increase as does the investment in capacity and know-how.

A&D OEMs invest in disruptive technologies for their core processes as well as for their products. Leading OEMs look at smarter robots, wearables, additive manufacturing, virtual reality, and AI to shape future assembly lines and entire plants.

The digital economy increases competitiveness within the market. Companies must reduce their engineer-to-market timeline and react faster to market changes.

Enable New Business Models (Data-Driven)Harnessing massive amounts of IoT data across the product lifecycle, managing Big Data economically, hosting digital services, and investing more in software innovations like microservices allow OEMs to diversify their portfolio.

• OEMs can access technology platforms to process IoT, cybersecurity, and Big Data with data science to gain revenue in adjacent markets, for example, in situational awareness.

• OEMs can increase focus on revenue from aftermarket engineering, for example, for life extension or health monitoring services.

• Digital aviation platforms can be enabled to collect, enrich, and host asset data, for example, to help customers optimize flight operations or extend reach to crews and passengers.

$150 million per yearPotential savings for an airline that manages to increase airtime for a fleet of 70 aircraft by 70 hours a week14

$109 billion Size of aircraft service lifecycle management industry14

REIMAGINE EVERYTHING

REIMAGINE BUSINESS MODELS

The volume and variety of data accessible during the A&D product lifecycle give A&D firms new ways to innovate and grow in new markets.

85%Of service parts suppliers will incorporate 3D printing into their business in the next five years13

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Value Creation in the Digital Aerospace and Defense Network

The use of digital technologies in A&D extends beyond the products to all core elements of the value chain –engineering, manufacturing, supply chain, and MRO.

REIMAGINE EVERYTHING

Design and Build: Driving Innovation

Visualization technologies provide a better understanding of product design throughout a company. Google-like searches and searches based on geometries increase reuse of part design and decrease the number of design variants. IoT will provide more data from the manufacturing process as well as in-service usage in order to improve future design.

A compliant design for a global product is no longer possible without intelligent support to identify relevant regulations (for example, the EU regulation REACH) and automated generation of compliance reports.

Design and Build: Agile Manufacturing

Pressure to reduce costs and align with demand has created the need to improve production processes and quality on an ongoing basis. Advanced automation and integration of shop floor processes (IoT, Industry 4.0) deliver the data that is the basis for optimizing products and processes and proving compliance. This provides substantial potential to improve throughput in order to address record backlogs. Real-time production dashboards with simulations, recommendations, and predictions for supervisors revolutionize how companies run their shop floor operations, providing quality, scope, and granularity of information that never existed before.

Predictive and root-cause analysis allow OEMs to understand sources of nonconformance and machine failures earlier and more accurately. These new analytical tools help companies make adjustments to products and process definitions early to avoid waste, reduce production cost, and stabilize the production flow.

Responsive Supply Networks: Digital Business

Control towers with early-warning systems using real-time alerts for material flow deviations reduce supplier risks, impacting production master plans. Digital B2B collaboration natively integrated with core supply chain planning allows for closer integration of critical suppliers and, for example, better coordination of changes.

Embedded network intelligence and machine learning analyze diverse structured and unstructured supplier data points to assess the health of the entire network and predict future risks to avoid expensive firefighting.

Blockchain technology can provide a new layer of trust, traceability, and integrity. It can secure provenance of transactions and product genealogy in a distributed network.

Aftermarket Services: Customer Centricity

Big Data coming from equipment sensors and advanced analytics to combine a multitude of structured and unstructured data points will become an integral part of MRO. For example, Big Data can help evolve maintenance resource planning from preventive to predictive and help customers increase uptimes.

Field service effectiveness can be dramatically improved by equipping technicians who use mobile solutions and wearables with 3D product visualization, real-time context data, and virtual collaboration. This can enrich their work environment to help them solve customer problems better than ever before.

“The digital factory is a must for us to be able to in increase our production capacity.”16

Jens Graffs, Vice President of Assembly and Installation, Airbus

90%Of CEOs believe the digital economy will impact their industry, but less than 15% have a digital strategy15

REIMAGINE BUSINESS PROCESSES

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Value Creation in the Digital Aerospace and Defense Network

The introduction of technologies – smart glasses, 3D printers, geospatial technologies – impact the A&D world, changing what people do and how they learn.

Every substantial business transformation automates manual tasks, enriches jobs, and creates more valuable work.

Automation with digital technologies replaces manual transaction work in procurement, inventory management, invoicing, and payment processing. Digital processes have access to real-time analytics to support rule-based decision making.

The right information is delivered at the right time on the right device. Shop floor, logistics, and service processes are supported by 3D asset visualization, virtual coaching, voice control, and wearable devices. Big Data and unstructured data sources, such as equipment sensors and text documents, become natively integrated into business processes. Systems automatically distinguish the signals that matter from the noise.

Predictive and self-learning systems interact with machines and business processes, accelerating the delegation of decisions from people to machines. People who need the knowledge have digital access on demand and in real time –regardless of whether they are part of the core or the extended workforce.

Digital learning is revolutionized by 3D visualization.

Technicians, mechanics, and supervisors, whether on-site or remote, can now use SAP® Mobile Platform to access and complete work orders, review technical documentation and production progress, and raise nonconformance issues – all directly on a mobile device.17

Northrop Grumman: “Where SAP 3D Visual Enterprise applications are used, our delivery times have been reduced by 15% to 20% due to less rework and more efficient operations.” 18

REIMAGINE EVERYTHING

Interactive technologies reflect the transition of people’s roles from transaction workers to exception workers who engage when the digital rulebook needs human creativity and ingenuity. Collaborative knowledge workspaces increase the efficiency of problem solving, empowering employees and linking experts and context to create “collective intelligence.”

A single source of the truth results from the transformation to a digital A&D ecosystem, which creates a substantial need to orchestrate across teams and company interactions. Real-time digital information is critical. It enables flexible decision making on the boardroom level based on a unified, up-to-date view of the entire ecosystem. It also creates closed-loop information systems.

REIMAGINE WORK

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Value Creation in the Digital Aerospace and Defense Network

DIGITAL BUSINESS FRAMEWORK PROVEN APPROACH TO VALUE CREATIONAll companies across all industries require a simple digital approach to building a pragmatic and executable vision of their digital strategies.

SAP Digital Aerospace and Defense Whitepaper

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Value Creation in the Digital Aerospace and Defense Network

3. Your customers require flexibility in the way they interact with you through multiple channels. Deeper customer collaboration supports outcome-based business models.

4. Flexibility and adaptability when working with suppliers and partners are key in order to onboard new suppliers quickly and shift supply to alternates. Business networks provide intelligence and collaboration across multitier supply chains.

5. A great deal of flexibility is required when building and maintaining an agile workforce.

The value of SAP is in the integration we deliver across every part of the digital transformation framework. SAP is the only industry partner that can help customers digitalize every aspect of their business value chain.

As companies reimagine their entire business, they need an IT architecture that provides stability and long-term reliability for the core enterprise processes. At the same time, the architecture must allow for flexibility in areas where changes are being constantly applied.

This concept, often referred to as “bimodal IT” 22, is brought to life through the SAP® Digital Transformation Framework methodology (see Figure 1). 1. The digital core is the foundation for the core enterprise

processes. It must run consistently without interruption. It provides real-time business transactions and intelligent insights, facilitates work with Big Data, and provides connectivity to the four other pillars of the framework.

2. By harnessing the Internet of Things to connect your assets, supply chain, and the digital products that you provide to your customers, your digital core supports real-time insights.

Figure 1: SAP Digital Transformation Framework

Every company needs to think about digitalization across five key pillars.

We looked at the five strategic priorities that A&D companies are pursuing. We discussed how they need to reimagine their business models, products, processes, and work to act on those priorities.

Let’s now look at how SAP can further enable them with the following architecture.

SAP® DIGITAL TRANSFORMATION FRAMEWORK

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Value Creation in the Digital Aerospace and Defense Network

SAP has innovated its portfolio to provide for a stable digital core as well as flexible line-of-business (LoB) extensions.

SAP SOLUTIONS AND SAP DIGITAL TRANSFORMATION FRAMEWORK

We cover the digital transformation framework with SAP S/4HANA® as the digital core. The other pillars are covered through additional products that are closely coupled with SAP S/4HANA and provide extended functions across the various lines of business. Together with the digital core, they form the SAP S/4HANA suite. The suite allows us to interconnect the entire A&D value chain to drive live business outcomes. SAP Cloud Platform is an open “platform as a service” that provides unique in-memory database and application services. It is the proven cloud platform that enables you to develop new applications rapidly and extend existing ones.

Learn more about SAP solutions today and discover planned innovations for

aerospace and defense businesses

Digital core: Core solution capabilities delivered as part of SAP S/4HANA Enterprise Management

Digital Core: Solution capabilities that are also part of SAP S/4HANA Enterprise Management, but added/purchased as needed.

Extensions: Cloud-based (LoB) solution extensions that are fully integrated with SAP S/4HANA Enterprise Management, but added/purchased as needed.

Leonardo: Solution capabilities that are powered by a Leonardo technology and included in the Leonardo suite and how to add/purchase is not shown on this diagram.

Customer

centricity

• Streamlined customer experience

• Mobilized and empowered program

manager

• Understanding of program cost versus

budget

• Customer-focused, contextual engagement

from sales to service

• Design for product lifecycle sustainability

and operating costs

• Collaborative requirements engineering and

equipment definition

• R&D prioritization through enhanced market

analysis and simulation

• Streamlined handover process

• Agile and responsive manufacturing network

• Configurable product to shorten delivery time

• Customer visibility of build progress

• New manufacturing capabilities, such as 3D

printing, to simplify design and reduce weight

• Demand-driven collaborative networks

• Improved supply chain predictability and

delivery reliability

• Visibility into preferred supplier network

based on project or proposal

• Early warning systems and real-time alerts

using network-level intelligence

• Mobilized and empowered teams

• Customer data flow across channels

• Personalized service process

• Access to service knowledge database

• Predictive analytics to anticipate demand

and preposition services

• Pay- for-performance contracts

• Collaboration with external service-parts

suppliers for rapid, high-quality delivery

• Flexible procurement contracts aligned

with end customer

• Strategic customer portfolio management

• Instant analysis of profitability across

multiple dimensions

• Support for on-demand soft close and

billing compliance

• Attract and secure top talent and identify

succession needs

• Support flexible customer contracts

• Support social collaboration among teams

• Train and certify workforce

• Capture and package the knowledge of

retiring employees

Digital

business

networks

• Visibility into program-specific business

partners

• Precise production forecast and flow-down

of contract deliverables

• Collaborative planning across program

ecosystem

• Collaborative project and resource planning

with partners

• Secured collaborative-engineering platform

• Scalable platform, adapting to A&D

development resource requirements

• Maintenance of production machines by

specialized partners

• Extension of the supply chain to additive

manufacturing

• Contingent workforce network

• Distributed manufacturing

• Multitier supply chain risk, performance and

capability analysis

• Flexible integration of (alternate) suppliers

and local logistics providers

• Data security and integrity for distributed

logistics and track and trace

• Coordination and provision of third-party

repair services and spare parts

• Online presence to support service and

support and spare parts store front

• Market exposure

• Global track and trace for components

• Management of a strategic and agile

global supplier network

• Flexible onboarding of (alternative)

suppliers

• Management of increased financial risks

accociated with new partrnerships

• Instant analysis of profitability across

multiple dimensions across network

• Onboard and train employees quickly and

seamlessly

• Empower employees to make decisions in

real time

Driving

innovation

• Simplified contractual framework

• Digital collaboration on customer

innovation

• Alignment of product configuration and

costing

• Effective proposal development

• Incorporation of value chain feedback and

state-of-the-art technologies

• 3D printing and virtual or augmented reality

to expedite prototype process

• Product architecture to embed even more

partner technology and software

• Simulation capabilities for resource

shortages

• Automation with machines, robots, and

artificial intelligence (AI)

• Network of machines by machine-to-machine

integration

• IoT on production lines

• On-demand additive manufacturing to reduce

inventory levels

• Integrated material management from shop

floor to warehouse with flexible, intelligent

replenishment

• Improved visiblity

• Tailor-made service offerings

• Full transparency of product lifecycle

information

• Use of IoT for predictive maintenance,

maintenance cost forecast, and service

support

• Procurement strategies for 3D- printed

service parts

• Simplified sourcing of product and

service innovation from nontraditional

suppliers

• Inclusion of payment models for digital

services into product calculation and

financial reporting

• Simulation and analysis to evaluate

financial implications of strategic business

choices

• Train and certify workforce on new digital

technologies

• Work with universities and external entities

in a flexible way

• Share knowledge and build communities

Agile

manufacturing

• Efficient routing of contract changes to

production network

• Alignment of customer communication,

supply chain, and sales planning

• Joined evaluation and introduction of

customer configuration changes

• Streamlined and fast introduction of

engineering changes

• Simultaneous and highly efficient

manufacturing engineering process

• Data collection and quality prediction

• Maintenance schedule based on product

quality and not on cycles

• Controlled resource consumption

• Localized 3D printing

• Digital multitier visibility and collaboration

• Agile planning and response cycles,

connecting demand signal to shop floor

• Integrated optimization

• Proactive anticipation and handling of supply

shortages and schedule delays

• Network for collaboration on equipment data

• Seamless as-built information handover to

aftermarket services

• 3D printing for service parts

• Agile, contractual enablement of global

supply chains with multitier supplier

management

• Automated and simplified integration of

material suppliers

• Optimization of working capital

• Management of increased financial risks

associated with highly flexible supply

chains and manufacturing operations

• Empower employees to make decisions in

real time

• Manage external contractors flexibly

• Build flexible and collaborative teams

• Ensure workforce compliance

New business

models

• Software packaged for new offers versus

hardware only

• Selling of digital services

• Value selling and contract management

(performance-based billing)

• Aftermarket engineering services as strong

revenue stream

• New revenue streams designed with

capabilities of Big Data and the (IoT)

• Estimating of performance-based logistics

contracts

• Availability of manufacturing parameters to

service processes

• Sale of free capacity with constraint -based

production planning

• Offering of more data about individual

products with track and trace

• Monetization of supply chain capabilities sold

as services

• Optimization of parts inventory with 3D

printing, availability-based service level

• Alignment of supply network design, financial

and business planning

• Delivery of performance-based service and

products as a service

• Remote condition and performance

monitoring leveraging IoT

• Predictive services

• Digital value-add services

• Efficient integration of contingent labor to

augment own workforce

• Buying power as new procurement

service-based revenue stream

• Talent with unique noncore skills to drive

new business ideas

• Real-time financial controlling of

performance-based service contracts

• Effective managment of revenue streams

• Digital payment services

• Management and compliance with digital

rights

• Procure and manage contingent labor and

services for optimized service delivery

across regions

• Identify, forecast , and address skill gaps

• Train and certify workforce on new digital

technologies

They pursue five key

initiatives that require

new business

capabilities along the

value chain.

Business CaptureProgram Delivery

ResponsiveSupply Chain

Aftermarket Service Procurement Finance Human ResourcesBuildDesign

Design and Build

Aerospace and defense (A&D) companies need to transform their business and process models now to pave the way for a sustainable future through:

2. Generation of new business by offering new, innovative, data-driven services1. Digitally enabled core processes

Studio SAP | 51467enUS (17/05) © 2017 SAP SE or an SAP affiliate company. All rights reserved.

Digital Innovation

SAP LeonardoResponsive Supply ChainBuildBusiness Capture Program Delivery ProcurementDesign Aftermarket Services Finance Human Resources

Extensions

▪ Integrated business planning

▪ Collaborative supply chain

▪ Transportation management

▪ Extended warehouse management

▪ Global trade services

▪ Inventory and basic warehouse

management

▪ Production planning (MRP on SAP

HANA)

▪ Basic ATP

▪ Production orchestration and execution

▪ Quality and maintenance management

▪ Inventory management and material

valuation

▪ Production planning

▪ Manufacturing engineering

▪ Constraint-based production planning

▪ Production scheduling

▪ Asset operations and maintenance

▪ Environment, health, and safety

▪ Digital manufacturing insights

▪ Quality issue management

▪ Supply network collaboration

▪ Enterprise portfolio and project

management

▪ Billing and revenue innovation

management

▪ Advanced available to promise (ATP)

▪ Project financial and logistics control

▪ Order and contract management

▪ Invoice management

▪ Innovation management

▪ Enterprise project connection

▪ Cloud for sales

▪ Commerce, marketing

▪ Jam

▪ Supplier management, sourcing

▪ Integrated business planning for sales

and operations

▪ Supplier collaboration

▪ Collaborative sourcing

▪ Spend analysis

▪ Buying and invoicing

▪ Collaborative finance

▪ External workforce management

▪ Operational purchasing

▪ Invoice and payables management

▪ Supplier management

▪ Procurement analytics

▪ Enterprise portfolio and project

management

▪ Enterprise product engineering

▪ Environment, health, and safety

▪ Product stewardship network

▪ Strategic sourcing

▪ Innovation management

▪ Engineering control center

▪ Product development foundation

▪ Quality management

▪ Maintenance execution

▪ Service agreement/warranty

▪ Maintenance planning and scheduling

▪ Order and contract management

▪ Cloud for service

▪ Marketing, commerce

▪ Billing, charging

▪ Service parts management

▪ Analytics cloud for predictive analytics

▪ Business planning and consolidation

▪ Digital boardroom

▪ Governance, risk, and compliance

for finance

▪ Shared service framework

▪ Collaborative finance

▪ Financial planning and analysis

▪ Accounting and financial close

▪ Treasury management

▪ Receivables management.

▪ Invoice management & accounts

payable

▪ Accounting and closing operations

▪ Accounting

▪ Cost management

▪ Profitability analysis

▪ Core human resources and payroll

▪ Talent management suite

▪ Time and attendance management

▪ Human capital analytics

▪ Time recording

Digital Core

SAP S/4HANA

BlockchainMachine Learning Big DataInternet of Things Analytics

▪ Extended warehouse management

▪ Advanced ATP

▪ Constraint-based production planning

▪ Multiresource scheduling

▪ Billing and revenue innovation

management

▪ Product lifecycle costing ▪ Product lifecycle costing

▪ Distributed manufacturing

▪ Manufacturing execution

▪ Manufacturing integration and

intelligence, plant connectivity

▪ Predictive maintenance and service

▪ Asset intelligence network

▪ Distributed manufacturing

▪ Global track and trace ▪ Predictive maintenance and service

▪ Asset intelligence network

SAP Cloud Platform Analytics Services Mobile Services Security Services Collaboration Services UX Services

▪ Invoice matching ▪ Resume matching

▪ Job matching

* Benefits are based on early adopters of SAP S/4HANA or conservative outside-in benefits due to moving from a traditional ERP to enhanced SAP S/4HANA and LOB/cloud capabilities.

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Value Creation in the Digital Aerospace and Defense Network

Watch a video illustrating the scenario here

HOW DOES IT ALL COME TOGETHER? – EXAMPLE

Sensors on aircraft feed telemetry data (temperature, vibration, pressure) and fault codes to a central system – the digital core. The digital core enables visualization of this data and automatically predicts impending failures based on algorithms running in the background.

When impending failure is predicted, the digital core automatically triggers maintenance notifications with appropriate spares in the central system. Reliability engineers can monitor key performance indicators (KPIs) on the fleet level, investigate fault patterns, and drill down to perform detailed root-cause analysis.

Labor and facility resources are optimized to ensure high-priority requirements are given the appropriate attention and maintenance costs are minimized.

Material demand for needed spares is automatically sourced and fulfilled to ensure parts arrive at the point of demand when they are required. A business network supports online collaboration with suppliers to expedite shipments and allow them to exchange logistics details in real time.

Many processes in today’s operations are optimized within their silos and deliver individual business value. But next-generation business processes will span multiple pillars to drive efficiency internally or across the business network, connect to devices, and enhance the omnichannel customer experience.

Imagine as an A&D OEM you had access to an architecture like the one described above. You could digitally collaborate across the A&D value stream (see Figure 2). You could connect different data sources, such as equipment telemetry or supply chain data, to achieve highly efficient maintenance processes to optimize service contract execution and product reliability.

Figure 2: Digital Collaboration Across the Aerospace and Defense Value Stream

3D visual images can be used to provide visual work instructions on mobile devices, which speeds repair and ensures that correct procedures are followed.

Work-order metrics (labor and material costs, time) are automatically collected, as well as the actual time required to perform repairs. The data is sent to contract managers, who report aftermarket service profitability and ensure equipment availability contract metrics are met.

Real-time equipment monitoring yields tangible benefits:• Increased safety and availability of equipment• Increased reliability and maintainability• Reduced risk and increased profitability as executed against

outcome-based contracts

The digital A&D platform provides additional opportunities for A&D OEMs to rethink maintenance processes and product design. The platform supports more innovative, value-added information services, helping airlines improve customer satisfaction and lower operational cost.

Supplier collaborationbusiness networks

Workforce engagement

Assets and the Internet of Things

Digital core

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Value Creation in the Digital Aerospace and Defense Network

FROM YOUR CURRENT STATE TO DIGITAL

THE JOURNEY TO DIGITAL BUSINESS BEGINS WITH PLANNING A DIGITAL TRANSFORMATION ROAD MAP.

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SAP Digital Aerospace and Defense Whitepaper

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Value Creation in the Digital Aerospace and Defense Network

The Keys to Success

In the digital economy, simplification and business innovation matter more than ever. To address this, it’s important to cover the end-to-

end digital transformation journey. This includes planning a digital innovation road map and implementation plan using proven best

practices, running all deployment options, and optimizing for continuous innovation with a focus on outcomes.

The end-to-end digital transformation journey

Planwell to manage

expectations

Simplify and innovate

• Reimagined business models, business processes, and work

• Digital transformationframework as a guide for digital transformation

• Value-based innovation road maps

Build and launchwith proven best

practices

Standardize and innovate

• Model company approach to accelerate adoption with model industry solutions

• Design thinking and rapid tangible prototypes

• Co-engineered industry innovations delivered with agility

Runall deployment

models

Run with one global supportservice

• One consistent global experience

• End-to-end support– on premise, cloud,

hybrid

Optimizefor continuous

innovation

Optimize to realize value

• Continuous capture and realization of benefits of digital transformation

To move forward with speed and agility, it helps to focus on live digital data instead of Big Data, and combine solution know-how and

industry-specific process expertise with data analytics to define and deliver the right digital reference architecture. In that context, we

believe that a model company approach is very relevant to helping you transition from your current state to digital. Model companies

represent the ideal form of standardization for a specific line of business or industry. They are built on existing SAP solutions using

best-practice content, rapid prototyping solution packages, and additional content from customer projects (see Figure 3). They provide

a comprehensive baseline for rapid, customer-specific prototypes, cloud demos, and quick-start implementations.

Figure 3: Model Company Approach

People

Devices

Big Data

Internet ofThings

Business networks

Social networks

End-to-end solution

End-to-end business process

Innovation

Differentiation

Best practice SAP® productsModel company

TRANSFORMING FROM YOUR CURRENT STATE TO DIGITAL

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Value Creation in the Digital Aerospace and Defense Network

SAP Digital Business ServicesEnabling your success in digital transformation

Digital business foundation

Reimagine Design Transform

Business insights Continuous improvement

• Digital business model

• Flexible, scalable enterprise architecture

• Platform for the digital future

• People and cultural transformation

• Digital boardroom

• Predictive customer insights

• Value realization dashboard

• Agile decision making and execution support

• Joint value governance

• Sustainable engagement model

• Innovation without disruption

• Simplification

SAP has a broad range of services to cover

the end-to-end digital transformation journey.

They range from advising on a digital innovation

road map and implementation plan with proven

best practices to running all deployment options.

SAP can also optimize for continuous innovation. We

provide both choice and value within our service

offerings, allowing you to choose the best approach

based on your specific company expectations and

industry requirements.

• 25,000 professionals in 70 countries

• Customers served in 130 countries

• Outcomes delivered as one team in one contract

• Projects connected in real time to a global network of support functions through SAP Mission Control Center

• The SAP MaxAttention™ offering and SAP ActiveEmbedded services to safeguard investment

• Consistent experience – on premise, cloud, or hybrid

• Standardized adoption of processes and tools

• Streamlined onboarding and ramp-up of stakeholders

From delivering a comprehensive digitalization proposal to realizing and running it, SAP delivers on the digital transformation promise to

its customers, on time, on budget, and on value.

Value delivery from SAP relies on its unique differentiating assets.

Exhaustive service portfolio

SAP Model Company service

SAP Activate methodology

SAP SolutionManager

SAP Mission Control Center

Expert organization Global reach

Partner ecosystem

Industry expertise

Focus on business outcome

Co-innovation

The SAP Digital Business Services organization delivers digital innovation with simplification and accelerated implementation,

which is key to adoption and value realization. Continuous improvement is supported through ongoing assessment of real-life

data insights and joint governance with customers.

Value delivery from SAP focuses on the following deliverables:

Corporate Strategy

Run better:Operate

Use better:Harvest

Extend use:Invest

Build new:Innovate

Business innovation

Digitalarchitecture

Valuegeneration

Digital

dream zone

Business

model design

Business modelimplementation

Digitalstrategy

Enterprisearchitectureand roadmap

Business

transformation

Valueproposition

Value designValue

governance

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Value Creation in the Digital Aerospace and Defense Network

Figure 4 shows how comprehensive our ecosystem for the A&D industry is. It offers:• A wide range of business services (OEM suppliers,

banks, key vendors)• Special technology services for A&D with a focus on

IT/OT convergence, geospatial integration, and aircraft health management

• Open architecture with a choice of hardware and software

• Complementary and innovative third-party solutions• Reach that includes partners to serve your business of

any size anywhere in the world• A forum for influence and knowledge• A large pool of industry experts with broad and deep

skill sets

Figure 4: Driving Customer Value

Our partner ecosystem includes, among others:

A Comprehensive Ecosystem

Orchestrating the world to deliver faster value

• 1,900+ OEM solution partners to extend SAP solutions

• 2,700 startups developing apps based on the SAP HANA® platform

Implementation services

Channel partners and small and midsize enterprises

Influence forums and education

• 32 user groups across all regions, including A&D-specific charters within:

– Americas’ SAP Users’ Group (ASUG) for Grouping, Pegging, and Distribution (GPD) and for the SAP@ Complex Assembly Manufacturing solution

– SAP Users’ Group for industry experts, executives, and managers of MRO in the A&D industry (SUGAIR)

• SAP Advisory Council for A&D, which includes 9 out of the world’s top 10 most admired A&D companies as members

• SAP Community, with over 24 million unique members

• 2,400 SAP University Alliances communities

• 4,800 channel partners

Platform and infrastructure

• 1,400 cloud partners

• >1,500 platform partnersInnovation

• 2 million suppliers

• 200 major travel partners (air, hotel, car)

• 1.9 million contingent workers supported by SAP Fieldglass® solutions

Business network

Driving Customer Value

• 3,200 service partners

• A&D-specific solutions and services

• A&D-tailored best practice offerings

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Value Creation in the Digital Aerospace and Defense Network

WHY SAP?SAP OFFERS THE DIGITAL A&D NETWORK A DIGITAL CORE, SUPPORTING BUSINESS NETWORKS, SUPPLY CHAINS, AND THE INTERNET OF THINGS.

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SAP Digital Aerospace and Defense Whitepaper

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Value Creation in the Digital Aerospace and Defense Network

SAP IS COMMITTED TO INNOVATION

Vision

Mission

Strategy

Help the world run better and improve people’s lives

Help our customers run at their best

Become the cloud company powered by the SAPHANA® platform

More accurate lead times

Lockheed Martin Space Systems Company is using SAP HANA, SAP Predictive Analytics software, and the Data Science group to improve lead-time accuracy with a new custom application. It expects to improve material lead-time accuracy by at least 25% and reduce lead-time overhead for buyers by 80%.20

Reduced inventory

Spirit AeroSystems Inc. achieved significant inventory reductions by optimizing its manufacturing scheduling and work-in-process inventory and increasing its manufacturing responsiveness and visibility with the SAP HANA platform.7

Faster reporting for better decisions

Safran S.A. migrated its SAP Business Warehouse application to the SAP HANA platform and achieved substantially faster reporting and data access. It now has more data available for more users and can provide more accurate, more granular production reporting.19

Global presence and

relevance

Digital economy–

ready

Innovation leader

• SAP solutions supporting the entire A&D value chain

• 95% of A&D companies in the Forbes Global 2000 running SAP software

• Over 1,000 A&D companies in 51 countries innovating with SAP solutions

Aerospace and defense enabled by

SAP

• 95 million cloud business users

• 2 million connected businesses

• >US$740 billion in business-to-business commerce

• >99% of mobile devices connected with messaging from SAP® software

• 85,000 employees representing 120 nationalities

• 350,000 customers

• Operations in 191 countries

• Solutions for 25 industries and 11 lines of business

• 98% of top-valued brands running SAP software

• 74% of the world’s transactions managed on SAP software

• 2011 – SAP HANAplatform launched

• 2012 – SAP® Cloudportfolio launched

• 2014 – Business networks supported by SAP become world’s largest marketplace

• 2015 – SAP Cloud Platform launched

• 2015 – SAP S/4HANA®

launched as most modern ERP software

• 2017 – SAP Leonardo portfolio launched

Industry andLOB focus

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Value Creation in the Digital Aerospace and Defense Network

1. IATA Fact Sheets – Industry Economic Performance: http://www.iata.org/publications/economics/Pages/industry-performance.aspx

2. Spaceflight101.com – 2016 Space Launch Statistics: http://spaceflight101.com/2016-space-launch-statistics/

3. Air Transportation World – More in Aircraft Orders & Delivery: http://atwonline.com/taxonomy/term/144121/more

4. “Airbus Defence & Space Optronics Goes Live with SAP S/4HANA As Its Digital Core,” SAP News Center, January 21, 2016: http://global.sap.com/corporate-en/news.epx?category=ALL&articleID=25305&searchmode=C&page=1&pageSize=10

5. Boeing Support and Services: http://www.boeing.com/commercial/boeing-edge/#/services/integrated-services/the-digital-airline/

6. “The Vision Thing: Developing a Transformative Digital Vision,” page 6, CapGemini Consulting, 2013: https://www.capgemini-consulting.com/resource-file-access/resource/pdf/digital_vision_05_junea_v3.pdf

7. “Spirit AeroSystems Uses SAP HANA to Accelerate Production,” SAP, 2014: https://ideas.sap.com/d16183

8. “Digital Tapestry,” Lockheed Martin: http://www.lockheedmartin.com/us/what-we-do/emerging/advanced-manufacturing/digital-tapestry.html

9. “Lockheed Martin’s Digital Vision,” ML Journal, 2014: http://www.mljournal-digital.com/meleadershipjournal/201404?pg=16#pg16

10. “The Digital Universe of Opportunities: Rich Data and the Increasing Value of the Internet of Things,” EMC Digital Universe with Research & Analysis by IDC, April 2014: http://www.emc.com/leadership/digital-universe/2014iview/internet-of-things.htm

11. “15 Mind-Blowing Stats About the Internet of Things,” Giselle Abramovich, CMO.com, April 17, 2015: http://www.cmo.com/articles/2015/4/13/mind-blowing-stats-internet-of-things-iot.html

12. “The Internet of Things – How the Next Evolution of the Internet Is Changing Everything,” by Dave Evans, Cisco, April 2011: http://www.cisco.com/web/about/ac79/docs/innov/IoT_IBSG_0411FINAL.pdf

13. Dr. Reinhard Geissbauer, “The future of spare parts is 3D,” PwC, January 2017:www.strategyand.pwc.com/reports/future-spare-parts-3d

14. “Flying Blind,” by Wolfgang Ullwer, Phil Te Hau, and Stephanie Overby; SAP 2013, pages 3 and 8:

https://d.dam.sap.com/a/XJXUnp

15. “Embracing Digital Technology,” MIT Sloan and CapGemini Consulting, 2013: http://sloanreview.mit.edu/projects/embracing-digital-technology/

16. “Airbus: engineering the future of intelligent factories,” Airbus, February 10, 2017:

https://internetofbusiness.com/airbus-engineering-intelligent-factories/

17. “Boosting Productivity with Mobile 3-D Product Visualization Technology,” Aviation Week/SAP 2012:https://dam.sap.com/mac/preview/a/67/mJnAncmngJJAmyAAJ1wglnEDynnEmylSXAl2APmAlVXyHlAv/Northrop%20Grumman%20whitepaper%20on%20Mobility%20&%203D%20VE.htm

18. “Complex Products – Design and Build,” SAP Solution Overview for A&D, page 23, 2013: http://www.sdn.sap.com/irj/scn/go/portal/prtroot/docs/library/uuid/402d2c6b-5769-3010-8b9f897348d43a5c?overridelayout=true

19. “A Safer World with Sagem,” Christine Donato for Übertech, September 16, 2014: http://www.zdnet.com/article/a-safer-world-with-sagem/

20. “SAP HANA Helps Lockheed Martin Space Systems Predict More Accurate Lead Times,” SAP HANA Innovation Award, April 6, 2015: https://ideas.sap.com/D26110

Note: All sources sited as “SAP” or “SAP benchmarking” are based on our research with customers through our benchmarking program or other direct interactions with customers.

Note: Some images used are under license from Shutterstock.com.

Note: Logos contained in this document are used with the permission of SAP partners.

ADDITIONAL RESOURCES

Outlined below is additional external research that was used as supporting material for this paper.

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Value Creation in the Digital Aerospace and Defense Network

COMMENTS AND NOTES

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Value Creation in the Digital Aerospace and Defense Network

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