The defence sector is an important contributor to the Australian economy and a huge employer, accounting for almost 30,000 jobs, half of them among 3,000 or so small-to-medium-sized businesses (SMBs). How can these SMBs transform themselves into firms that can bid for major defence contracts in partnership with or even against the Primes? By Rob Stummer

Considering the concentration of SMBs in the Australian defence sector, to achieve the ambitious growth required, more emphasis needs to be placed on helping them enhance their capabilities in order to become long-term strategic suppliers to the Department of Defence (Defence). The Federal Government has already invested a record $200bn in Australia’s defence industry capabilities in order to encourage more innovation and growth.

How can SMBs win major defence contracts?

One of the challenges is that defence machinery and equipment can be in operation for up to 30 years, which is why Defence wants to see an iron-clad supply chain that will be around when the equipment is nearing the end of its life. The strategic suppliers to Defence need to prove that they have the necessary growth strategy, systems and resources to position their businesses to become major strategic suppliers that will still be operating in 30 years’ time.

It’s extremely tough for SMBs to win major defence contracts either direct with Defence or working with the Primes as a key part of their supply chain due to not having the right management structure in place. They also lack the knowledge, skills and experience needed to develop their businesses to the next level required to even be on the shortlist.

Government grants have gone some way to helping develop technical capabilities; however the problem is that if the most advanced defence equipment available was developed by a relatively small Australian company, they would need to demonstrate that they are structured for long-term growth and have the right strategy, systems and resources that will enable them to build the company in a sustainable way, which needs a lot of funding and investment.

Digital transformation

In order to be suitable to win defence contracts, Australian defence suppliers not only need to get their strategy, management structure and capabilities right; they also need to demonstrate where they are in relation to digital transformation. This will help them to identify if there are ways that they can optimise their manufacturing operations by creating flow, increasing efficiency, connecting their machines and reducing downtime.

The first step on this digital transformation journey for defence suppliers is to understand how the convergence of digitised machine parts, improved connectivity and emerging ‘Industry 4.0’ technologies, such as IIoT and AI, will help them to improve the productive time of their employees and equipment, as well as aiming to eliminate paper from the production environment.

Having real-time production data to hand 24/7 will allow defence suppliers to give defence customers realistic delivery dates, improve on-time deliveries, provide live job statuses and accuracy of job costing, minimise changeover time, measure performance and increase productivity by visualising loss.

How defence has adopted IIoT and AI

The defence industry was among the first to realise the value of Industrial Internet of Things (IIoT) sensors in areas such as aircraft maintenance and health monitoring, real-time identification of quality issues, rapid delivery of software updates, and optimised tracking and traceability. It has also spearheaded the use of IIoT technologies to improve process and product efficiencies.

Military aircraft generate terabytes of digital data every day, but to date only a minute amount of that potentially invaluable information is being utilised. This presents an opportunity; the huge volumes of data will eventually yield profitable secrets, such as the identification of new manufacturing and service opportunities.

By embracing AI, defence manufacturers provide their enterprise resource planning (ERP) systems with the ability to mine and analyse immense amounts of data, along with the power to respond to surfaced insights with specific, automated tasks. For users across the business, AI can deliver real-time information with direct relevance to decision-making processes, encouraging the creation of agile, increasingly competitive cultures within defence sector SMBs.

A single source of truth

In order to become a major defence supplier and remain competitive, a digitally advanced factory environment needs to be implemented with what we call a ‘Single Source of Truth (SSoT)’. This is a fully integrated approach to ERP that ensures error and redundancy-free data. Combined with manufacturing operations management (MOM) software, an SSoT provides AI with accurate, real-time data from across the entire business and optimally, along its associated value chain.

Given the immense challenges facing defence suppliers – including global competitors, changing approaches to acquisition and sustainability, shifting economies and geopolitical instability – Australia’s SMB defence companies need to become more agile and forward-thinking than they’ve ever been before. Strategically utilised AI will be one of the keys to future success, helping these developing companies allocate capital and build differentiated skillsets. This will result in more opportunities for strategic defence contracts in Australia and internationally, resulting in bigger profits and more Australian jobs.

Rob Stummer is the CEO – Asia Pacific at Syspro.