NEW YORK -- Pressures to reduce costs will be the primary drivers of decisions by aerospace and defense companies to use external engineering services during the next two to three years, according to Accenture research released today.

Ninety percent of the executives interviewed cited cost reduction pressures as their top challenge, followed by supplier consolidation (52%) and increased competition from new players (36%). Consistent with these findings, the research revealed that 61% of these executives are buying engineering services to better manage production costs; 65% of them cited the need for improved efficiency and productivity.

The research comes from interviews with 31 executives in leading aerospace and defense companies based in Asia, Europe and the Americas. More than a third of the companies interviewed have annual revenues exceeding $10 billion, with the remainder between $500 million and $10 billion. Executives interviewed held positions such as head of engineering, head of procurement engineering and chief finance officer. Each was closely involved in their company’s engineering sourcing decisions. The interviews occurred in the first half of this year.

“What is changing as a result of mounting cost pressures and efficiency demands is the way aerospace and defense companies are driving engineering services activities, including where these services are sourced and the spectrum of activities sourced,” said Damien Lasou, managing director of Accenture’s Aerospace & Defense business practice. “Until now, companies have tended to buy services locally – close to their locations. Going forward, they will buy more often from global locations in other parts of the world. As long as doing the work costs less and improves efficiency, companies will be less concerned about localization.”

The research focuses on the key priorities for engineering services, major challenges facing A&D companies, as well as how they operate engineering services. The research provides a summary of the findings of interviews with executives in aerospace and defense companies in Europe, North and South America and Asia. Whereas the research reveals trends in system design and manufacturing, for example, it does not specifically break out electronics.

In addition to cost reduction, pricing also turned out to be a critical factor for respondents. When asked to rank the top three most important decision-making criteria for selecting engineering services from external providers, 81% cited “price” as “very important.” The other two most important criteria turned out to be “credentials with similar projects,” which was cited as “very important” by 58% of respondents; and “the ability to handle a comprehensive range of engineering activities,” which was identified as “very important” by 48%.

The research also uncovered the main barriers A&D companies face in sourcing engineering services. These include:

• Confidentiality, ranked as “very important” or “important” by 97% of respondents.
• Impact on quality, ranked “very important” or “important” by 94%.
• Flexibility for fluctuating demand -- 81%.

“Aerospace and defense companies will expand the share of engineering service set of work activities sourced from external providers in the coming years,” Lasou said. “But our respondents remain particularly sensitive to concerns over confidentiality and quality. Engineering services providers have to overcome these two barriers with appropriate responses such as security certifications and high-value skills.”

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