// . //  Insights //  Fixing The Space Supply Chain Requires Elevating Its Role

In recent speeches, Frank Calvelli, the United States assistant secretary of defense for space acquisition and integration, has advised space manufacturers that blaming lateness or budget overruns on supply chain issues won’t cut it anymore. His frustration reflects mounting tension between aerospace and defense contractors and their government customers as the Defense Department takes on threats to American supremacy in space. To Calvelli, it’s time to stop complaining about the supply chain and fix it.

He’s not wrong, given the cost overruns and delays on most major space programs. But the challenge facing the US space industry as its responds to its biggest customer is much more fundamental than just tweaking supplier lists or ordering components ahead of schedule. The space sector is transitioning scale from an industry that produces large, highly bespoke satellites with decade-long build cycles to one that also needs to be able to pump out dozens of satellites for constellation networks. Those two very different types of manufacturing models call for a supply chain that can fulfill the demands of both, and that’s not easy.

This ongoing industry transformation — which saw a six-fold increase in the number of satellites launched last year over 2019 — requires space enterprises to start thinking and operating more like automotive companies with assembly lines. Decisions should be made with an eye on delivery schedules and availability of parts rather than worrying only about pushing the design envelope. While the industry is moving in this direction, it’s still on a learning curve and stumbles at times because it lacks a robust back bench of experts in areas like supply chain. It also has not yet perfected a sustainable operating model for this new hybrid.

New expectations for the space industry

There are also other pressures and new expectations for the industry to address. For years, space companies could get by with late delivery or going over budget, because the government relied on cost-based contracts to accommodate changing customer requirements and schedules. But Calvelli and others in government are pushing for more fixed-price agreements to limit the government’s risk of cost overruns. These new demands change the equation for most companies and further elevate the need to fix the supply chain.

Government can help in this evolution by curtailing the number of change orders and last-minute tweaks in designs pushed through without concomitant alterations of budgets and delivery schedules. These changes create a domino effect as they work their way up the supply chain to second-, third-, and fourth-tier suppliers, resulting in all suppliers missing their targets. At the end of the day, customers can’t expect to avoid delays if they hand the final plans to suppliers six months late.

But government isn’t the only offender. Primary satellite manufacturers also can overload suppliers with engineering changes that doom them to late delivery. From our experience, the causes of industry delays and cost overruns are evenly divided among suppliers, satellite manufacturers, and the government customer. Improving performance will require the collaboration of all three to develop more sustainable operating models.

Strengthening the space manufacturing supply chain and creating strategic partnerships

We’ve identified three strategies that should help satellite manufacturers and their suppliers adapt faster to the new reality and be more successful, particularly on fixed-price projects:

1. A rebalancing of power between engineering and other functions

2. Increasing visibility into lower-tier suppliers to better understand risks

3. Developing a viable formula for making decisions about whether to insource or outsource components

The first step involves giving supply chain and manufacturing executives a seat at the table, so the experts with the best visibility into parts and production have a greater say on design, scheduling, and pricing. This requires supply chain and manufacturing be involved during both the design of the project and the bidding process. This will require educating engineering on why this input should be seen as crucial to success in this new more commercial world.

Next, there is a significant need for mapping the supply chain to provide much more visibility into the operations of second-, third- and even fourth-tier suppliers — and then requiring more accountability from the immediate customer of that tier. While many satellite producers don’t see this as their responsibility, understanding the risks for various tiers may help companies construct more successful bids and give them a leg up with government customers.

Finally, and probably the hardest fix to implement, companies must develop a strategy for when to make a component and when to buy it. Companies like SpaceX err on the side of ultimate control, insourcing the production of the majority of parts. That is not financially viable for most space manufacturers, so the option is finding suppliers that provide the best visibility into their operations or buying visibility by investing in the most important component makers or creating strategic partnerships.

The uniqueness of the space supply chain

When dealing with the space supply chain, both the industry and government should recognize its unique challenges because of the extraordinary demands of space travel. While increasing use of common elements — like satellite buses — has alleviated some pressure, too many elements of the supply chain remain dominated by long-standing, sole-source relationships, high scrap rates, or low-run, custom-built components. Two examples of components with ongoing supply challenges: Focal plane arrays and traveling wavelength amplifiers.

Security compliance, specialized labor pools, and order volume also add complexity to the sourcing of space systems. Import controls, such as the International Traffic in Arms Regulations (ITAR), further limit the available supplier base to localized firms, which in turn all vie to hire from the same limited, highly specialized talent pool. Space companies must also compete with larger order volumes from commercial aerospace manufacturers. For scaled manufacturers that service a wide spectrum of industries, smaller and less frequent orders from the space sector become the lowest priority for fulfilment.

This industry reorganization won’t happen overnight, given the challenges of evolving decades-old manufacturing processes and traditional hierarchies. And because these are live programs, companies should not try to fix everything at once. The key is to tackle addressable problems that can be solved with tweaking of current operations, while gaining as much visibility into the system as possible to identify other targets for change.