At the end of 2019, Siemens Digital Industries signed a giant order from the U.S. Air Force. The deal was a frame agreement for licensing and maintenance regarding the PLM system Teamcenter. As of January 2021, a major announcement related to this contract was made.
As it stands, this is already a big deal, initially worth around $25 million and concerning approximately 8,000 users. However, that number is far from the limit of what this order can bring to the table. There are over 300,000 persons on active duty in the Air Force today, and more than 150,000 civilians that operate in roles related to the Air Force. These facts tell us something about a potential that stretches well over the 8,000 users initially affected.
Even more interesting is the implication that U.S. Air Force will standardize on Siemens’ Teamcenter as its enterprise PLM solution and collaborative Product Definition management (cPDm) backbone.
The robust Teamcenter solution is commonly used as a PLM system in the aerospace and defense industry, and is the latest in a series of moves taken by Air Force leaders to digitize how the organization works for designing, building and repairing weapons. For more information on how this affects the U.S. Air Force, click here.
The Air Force deal is based on an announced directive to use Teamcenter on all programs going forward, a unique directive within the Department of Defense (DoD). It emphasizes the importance of digital strategies within the DoD to develop capabilities more quickly and with less federal funding.
The short version is that the past 18 months have allowed more focus by the Air Force on capabilities that are needed to support model-based acquisition, digital design and manufacturing.
“This contract provided the opportunity for any Air Force program to use Teamcenter, if desired,” Siemens Digital Industries’ Bob Jones, EVP for global sales and customer success, said to engineering.com. “Over the past 18 months, the Air Force has realized many successes and seen the value of using Teamcenter in both new and existing programs. Those successes drove the Secretary’s office to issue the mandate and specify that moving forward all programs should use Teamcenter.”
A Feather in Siemens’ Cap
This is undoubtedly a feather in the cap for Siemens and the company's system both in terms of revenues and technology acceptance; however, it is even more important in view of potential consequences for the development journey it started. If an organization such as the U.S. Air Force chooses to invest in a specific cPDm backbone solution, business dynamics can produce many unexpected advancements. Chances are great that they will continue to place orders related to that initial deal as things evolves in the organization.
There is also much to suggest that this choice affects other major A&D military suppliers such as Boeing, Northrop Grumman, Raytheon, General Dynamics, Lockheed Martin and other major military business segment players. Generally, more than 80 percent of the major aerospace and defense companies use Teamcenter, according to Siemens. To meet the demands of the Air Force to develop advanced capabilities faster, the digital thread must extend through the defense industry including the OEMs and the supply base.
A possible scenario is that the Air Force continues to consume based on the initial IDIQ contract from 2019. Normally a contract of this magnitude contains options to extend and refund once it has been consumed. My qualified guess is that Siemens will continue to take orders every quarter on this agreement. We’re not only talking about software purchases, but also the related services that are probably not included in the basic contract amount. Generally, it is not uncommon that services in these kinds of contexts can mean that the levels of investment are doubled compared to the initial order around licenses, maintenance and support.
Another assumption is that other parts of the Xcelerator portfolio will attract interest from the U.S. Air Force staff as they move on in its new digital environment.
Bob Jones did not want to comment on the matter, but noted that the contract generally has its greatest merits as a high-level confirmation of Teamcenter’s capabilities.
“The Air Force directive is a validation of Teamcenter’s proven digital capabilities, as part of our Xcelerator portfolio, to enable next generation digital design, manufacturing and sustainment innovation across the entire aerospace and defense industry,” Jones said.
The Basic Ideas Around This Bet Have High-Level Support
What role can a modern PLM system play in building military strength from a digitalization angle? It is clear that this type of system support is extremely important for all military forces, not least of which the aerospace side. Subsequently, the ideas about the Air Force's investment in consistent and cohesive digitization have support from the highest level.
This is supported by statements from Dr. Will Roper, the outgoing U.S. Air Force acquisition chief. "New digital design technologies and processes are how we achieve acquisition speed and agility, but they require consistent application across the Department of the Air Force," he says.
That being said, Teamcenter is not new to the Air Force. They are already using the Siemens software in its logistics and engineering directorate at the Pentagon. The solution has been around for a while and has been implemented in enough places and divisions—for example, at Wright-Patterson Air Force Base and other bases—to form an attractive option as the organization moves on into a more complex and demanding future.
From a functional point of view, the interfaces are robust enough and they can integrate multiple applications into Teamcenter. Given the level of presence, my take is that Teamcenter’s functionality is already recognized, meaning that it was consequently a practical and expedient solution to bet on.
According to an article in Defense One by Marcus Weisgerber, Teamcenter is also, “in the early stages of being used by Air Force officials overseeing high-profile weapons projects, including the F-15EX fighter, Minuteman III intercontinental ballistic missile and Combat Rescue Helicopter.”
Furthermore, he notes that an order from January 8th signed by Will Roper requires program managers in the organization to use Siemens Teamcenter.
According to the same article, an Air Force spokesman, Capt. Jake Bailey, asserted that the choice of Teamcenter was made, "To provide consistency in the way our models and all associated data, software and functional support integrate and interoperate to produce a digital thread throughout the system lifecycle. Siemens’ adoption of open standards enables data portability and integration with other PLM solutions already in use by programs and our industry teams.”
It’s a big order. As stated above, the U.S. Air Force has over 8,000 active Teamcenter users, but that number is growing every quarter as the Teamcenter usage expands into more programs supported by the Air Force Capability Support Office (AF PLM Capability Support Office - CSO).
In this context, Jones noted that, “The Air Force has not called out the total user population of Teamcenter, but it will be significant as all programs are directed to use the Teamcenter across the Air Force. Teamcenter can touch many people across the AF.”
How far does the agreement extend? “Teamcenter is named in the directive as the foundation of the digital thread for all programs moving forward. We also provide additional capability to the Air Force across the entire Xcelerator portfolio, which are additional and above the IDIQ contract to provide value to any program and support to the Air Force,” Jones added.
An example is the A-10, where Siemens provides both Teamcenter as the digital thread, plus NX and Simcenter to support the entire program.
Siemens is the Clear Market Leader in cPDm for Aerospace & Defense
How important is an order of this magnitude for Siemens in the cPDm area? The answer is hardly surprising.
Siemens cPDm/PDM solution Teamcenter is a global leader and, according to the latest available figures from CIMdata, during 2019 this solution generated just under 20 percent of Siemens Digital Industry Software's total revenue of just over $4.6 billion. The latter figure meant that the company is number one in the industry in terms of total PLM-related revenues, ahead of Dassault Systemes, which correspondingly pulled in just under $4.5 billion.
With 20 percent of Siemens’ revenues in 2019 coming from cPDm/PDM, Teamcenter generated revenues of just under $900 million in 2019.
If we then look at the Aerospace & Defense sector as a whole, CIMdata notes that the company has a 20 percent market share in terms of cPDm. In second place, Dassault has around 17 percent, while SAP takes third place with a 15 percent market share, which is evident from CIMdata's graphic illustration above showing A&D leaders in the cPDm category.
How much of Siemens’ 2020 revenue falls under the A&D umbrella? “We don’t break out by industry, but it continues to be a significant industry for Siemens Digital Industries Software,” commented Jones.
She Played A Key Role in The U.S. Air Force Deal
A key role from Siemens’ side in the U.S. Air Force deal is played by Tina Dolph, CEO of Siemens Government Technologies (SGT). SGT is the company's certified and approved supplier of Siemens products, technology and software for government customers.
"By providing the Air Force and other defense agencies with a robust PLM solution, they can access time-sensitive and relevant data already in the earliest phases of the systems’ and products' life cycles, resulting in lower operating costs, fewer downtimes and overall improved preparedness," she commented. She also pointed out that there is much more in Siemens Xcelerator portfolio that can come into play in this case.
She explains how Teamcenter is only one element (cPDm) of the Siemens Xcelerator portfolio, which is the company's rich PLM platform. In this portfolio we also have the high-end CAD solution NX, the Simcenter simulation platform, Mentor (EDA), Polarion (ALM), Tecnomatix (DM), Mendix (IoT), Opcenter (MES/MOM), MindSphere (IoT operation system) and more. But the Teamcenter backbone is a main point because it connects people and processes over functional silos, builds up the capability to create the digital threads that follow the product and processes throughout the entire value chain and product life cycles—everything that is extremely important when we’re talking about, for example, military jets with lifespans of over 20 years.
"Leveraging Xcelerator, our integrated portfolio of software, services and application development platforms, the Department of Defense and the aerospace and defense industries have the ability to integrate different repositories of application data and effectively share product performance anytime, anywhere," concluded Tina Dolph.
To see how this story affects the U.S. Air Force, read: How the U.S. Air Force is Benefits from its Product Lifecycle Management Standardization