Productivity challenges and UK defence supply chains

Helicopter aviation plant, photo by agnormark/Adobe Stock

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Researchers identified six cross-cutting challenges and barriers faced by small and medium-sized companies attempting to enter and operate in the UK’s defence market.

What is the issue?

The productivity of the UK economy has been lagging behind many other G7 and OECD member states since at least the 1990s. Like companies in other sectors, some parts of UK defence supply chains suffer from productivity shortfalls that may constrain their performance and price competitiveness. This is an issue of widespread concern throughout the defence industry.

The UK Ministry of Defence (MOD) is seeking to increase the benefits that defence and the wider UK economy can obtain from enhancing defence supply chains and to remove the barriers that are judged to be restrictive to supply chain productivity and competitiveness.

How did we help?

RAND Europe was commissioned by the MOD to explore a set of policy options for supporting defence supply chains in the UK, and to build the evidence base for a supply chain development pilot programme.

As part of this year-long study, the research team identified the main challenges and barriers faced by companies across the tiers of UK defence supply chains, mainly through discussions with a wide range of stakeholders. These included the government, industry associations, prime defence contractors and lower-tier suppliers – ‘lower tier’ refers to mid-tier, mid-size and small and medium-sized enterprises (SMEs), i.e. non-prime defence contractors.

The findings presented here are based on these discussions and focus on the cross-cutting challenges and barriers faced by SMEs and mid-tier companies attempting to enter and operate in the UK’s defence market. These findings are extracted from the larger, overarching study that has been delivered to the MOD.

What did we find?

The project team identified six supply chain challenges and features of the defence market that can weaken the productivity and competitiveness of existing defence suppliers, while also disincentivising potential new suppliers from entering or growing in the defence market.

  • SMEs and mid-tier suppliers report difficulties accessing and engaging with both top tier suppliers and the MOD. These include marketing their busi¬nesses and product offerings to prime defence contractors, as well as limited opportunities to interface directly with the MOD, since primes often manage lower-tier suppliers’ interactions with government customers.
  • UK defence supply chains find it difficult to attract non-traditional defence suppliers which can limit opportunities for innovation. This is despite increasing opportunities for cross-sectoral engagement through supply chain development initiatives such as the High Value Manufacturing Catapult.
  • Defence contracting terms and processes present barriers to supply chain development. Stakeholders report that the bureaucratic processes associated with defence procurement contracts and the sub-contracts issued by top tier companies are not yet calibrated to recognise and absorb innovation from lower-tier suppliers.
  • UK defence supply chains are constrained by shortages in critical defence industrial skills. There is room for improvement in terms of developing not only the STEM skills required for defence programmes, but also the defence acumen and leadership skills required to enhance the competitiveness of UK defence supply chains.
  • Defence appears to be slower than other sectors at taking up innovative processes and advanced manufacturing technologies. One reason for this lag is security concerns and regulations related to the digitalisation of manufacturing, but the underlying reluctance to embrace innovation and depart from embedded practices also plays a key role.
  • UK defence supply chains encounter difficulties in enforcing and monitoring cyber accreditations across all tiers which increases supply chains’ overall cyber threat vulnerability. Factors contributing to this challenge include financial pressures and underestimation of the cyber threat environment.

What can be done?

Understanding and mitigating the underlying challenges is important to not only improve the productivity of UK defence supply chains, but also help ensure that the UK’s defence industrial base is able to deliver the high-quality defence capabilities needed to address tomorrow’s threats and benefit the taxpayer and the wider economy.

Supply chain development initiatives would not require reinventing the wheel, given the progress that has already been made in this area by existing tools and programmes. Good practice exists in other sectors, such as automotive and civil aerospace, and in countries like France and the US. The UK government has also already sought to promote SME engagement with the defence supply chain through several initiatives that specifically seek to support lower tier suppliers.

As part of the project carried out by RAND Europe for the MOD, the RAND team developed two pilot concepts that seek to contribute towards addressing the challenges identified by the research. Critically, the pilots will support other government initiatives and, it is hoped, derive synergy through mutual reinforcement.