Page 150 - Australian Defence Magazine Sep-Oct 2022

150 SUPPLY CHAIN MANAGEMENT
RESILIENCE
SEPTEMBER-OCTOBER 2022 | WWW.AUSTRALIANDEFENCE.COM.AU
on whether any [revenue] would come at the other end. Then we had to get security clearances through AGSVA (Austra- lian Government Security Vetting Agency), which took over nine months.
“More broadly, Defence cannot look at SMEs the same way they look at primes. It’s just not feasible. It’s easier to just go work with the mining or rail companies.”
Another local SME agreed: “The amount of risk you’re exposed to in the effort around particular programs and particular requirements is immense. For one bid, we had to fund up to a half-million dollar bit of equipment, just to be able to have a chance to bid on a contract.”
Many of these challenges are unavoidable, of course. Defence has to guarantee the security of its suppliers and the nature of military capability is that it is large, expensive and
LEFT: Hanwha Defense Australia is contracted to build 30 AS9 Huntsman self-propelled howitzers and 15 AS10 armoured ammunition resupply vehicles under Land 8116
might lie dormant for years, only for government to change a program’s scope at little notice.
For the market, an increased understanding of the con- straints Defence must work within as it plans new capabili- ties and acquisitions can build resilience; and for Defence, an increased understanding of what it takes to survive mar- ket conditions as a small business might lead to better pro- cesses and a more resilient industry sector. On a practical level, this could mean planning more industry experience into the careers of APS employees involved in acquisition, sustainment and estate works.
South Korea’s strategy for building a second supply chain in Australia also has lessons for the Australian government as it looks to build its own sovereign defence supply chain. The first, and most obvious, is ensure that programs are not buy- ing from overseas something that is already made in Australia.
The second is to ensure that local suppliers can survive dips between major orders. The ‘valley of death’ in Austra- lian shipbuilding in the mid-2010s is an often-cited exam- ple of how not to build a resilient defence supply chain. A similar ‘dip’ may again emerge as many suppliers planning to contribute to the Attack class program must now wait an indefinite time to find out what Australia’s next submarine will be, and where it will be built.
The third is for primes to share information on the ca- pabilities of their Australian suppliers and to facilitate in- troductions, where possible, even where there may be no immediate commercial benefit to the company doing the introducing. There is always a balance between competi- tion and cooperation, but if foreign-owned primes are serious about their commitment to sovereign Australian industrial capability, then perhaps the balance should tilt towards cooperation in building their supply chains.
In sum, though, it’s clear that a resilient supply chain is not something that happens on its own. It takes concerted action from government and primes, an effort to reduce barriers to doing business with Defence for smaller busi- nesses, and balancing government requirements against market requirements. ■
“MORE BROADLY, DEFENCE CANNOT LOOK AT SMES THE SAME WAY THEY LOOK AT PRIMES”
therefore risky.
Consequently, as a Defence of-
ficial recently acknowledged, de- fence supply chains are ‘not for the fainthearted’ and companies that are not established in other industry sectors will be taxed be-
yond their capacity if they try to do business with Defence. Those that do must be prepared to ‘weather a storm’ to en- ter the supply chain.
Those are not encouraging words for small companies thinking of defence as a growth area. Perhaps there is more that could be done: for example, lowering the cost of acquiring necessary certifications; expanding AGSVA’s ca- pacity to process security clearances to reduce companies’ time to market; and avoid burdening SMEs with the same risk expectations as primes.
Time to contract is also an issue. Defence is a slow sector. A prime bidding for a contract might build a supply chain, only to sit on that supply chain for years before government reaches a decision. In that time, inflation, CPI and interest rates increase and prevent many of those suppliers from honouring a years-old quote. Alternatively, a supply chain
HANWHA