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Supply Chain Management in Defence Industry

Abstract

The Australian Government has conveyed its major expectations of realising a self-reliant, flexible, and resilient defence industry. It also seeks to ensure the defence marketplace is open and fairly competitive. Effective strategies for supply chain management are particularly critical at this moment in time when the Australian government dedicated AUS$58.9 million to improving the supply chain programs, through a programme called Global Supply Chain Program.

This report argues that for Australia to put up a secure, resilient, reliant and flexible supply chain, it requires a supply chain that can provide appropriate equipment and capabilities that ensures the Australian armed forces meets its aspirations. As presented in this report, an agile supply chain would ensure an effective strategy of alertness and flexibility to the defence industry.

It is recommended that an agile supply chain should be adopted to achieve the aspirations of the defence industry, without which the industry is at risk of finding itself limited by the readiness of its off-shore suppliers.

It would offer the Australian defence industry the capacity it needs to obtain and retain freedom of action. Agile supply chain would also provide the defence industry projects, greater flexibility and greater defence performance. It would also ensure a responsive supply chain that can sufficiently responds to unpredictable and unstable demand to reduce the likelihood of stock-outs. Agile supply chain would ensure a flexible and cost-efficient defence force.

Table of Contents

2Abstract

4Introduction

4Background of the concept of Agility

5Theoretical implication of agile supply chain on defence industry

6Rationale for an agile supply chain in the defence industry

6Self-reliant defence industry

7Flexible and better performing defence industry

8Flexible and Cost-efficient defence

9Conclusion

9Recommendations

10Reference list

Introduction

Globally, the defence industry has witnessed substantial transformation following the effects of the Cold War and the ongoing consequences of globalisation, hence influencing significant consolidation in the industry and rationalisation of the industry’s domestic and international suppliers. In Australia, the Government has conveyed its major expectations of the industry. As earlier expressed by the Department of Defence (2010), the industry is expected to be self-reliant, flexible, and resilient. The Department further relayed its commitment in ensuring the defence marketplace is open and competitive.

Australia’s defence industry is an innovative high-tech industry that provides significant strategic advantages to the security of the nation by making sure that an effective supply chain is developed and maintained. Effective strategies for supply chain management are particularly critical at this moment in time when the Australian government has some AUS$445.7 million in defence management programs from 2009-2010 to 2018-2019 to improve the defence industry’s competitiveness. Of the amount, AS$58.9 million has been dedicated to the supply chain programs, through a programme called Global Supply Chain Program (GSC) (Department of Defence, 2010).

Therefore, this report argues that for Australia to put up a secure, resilient, reliant and flexible supply chain, it requires a supply chain that can provide appropriate equipment and capabilities that ensures the Australian armed forces meets its aspirations. It is expected that an agile supply chain would ensure an effective strategy of alertness and flexibility to the defence industry.

Background of the concept of Agility

The core capabilities of the defence industry lie in its capacity to manage effectively its supply chain in a manner that allows it to attain maximal advantages. The concept of agile supply chains transfers and applies an effective strategy of alertness and flexibility to the supply chain. It centres on responsiveness (Goldshy 2006). The core dimensions of an agile approach are comparable to the dimensions of an agile supply chain. It is concerned with responsiveness, cooperation among firms, information and people and organisational change. Purvis et al. (2011) explain that for the supply chain to be agile, it has to show several unique features, such as networking, processes integration, a level of virtuality and market sensitivities.

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Figure 1: supply network flexibility (Purvis et al. 2011)

Within the context of supply chain, agility refers to the capacity for the supply chain and stakeholders in the supply chain to swiftly align the network and operations to the increasingly turbulent and dynamic market needs (Oakden & Leonaite 2011). At the centre of agility is the focus of operating the organisations in network structures with sufficient degree of agility to allow them respond rapidly to changes and to effectively anticipate shifts or even harness the emergent opportunities (Christopher & Towill 2001).

According to Collin and Lorenzin (2006), “agility” refers to a constant promptness to change. Asbjornslett (2002) also defines it as the capability for ready acceptance of organizational structures, logistics processes, and information systems. Therefore, it is concerned with flexibly achieving balance in volatile markets with erratic demands and applying it to the supply chain. According to Marcus (2010), Agile Supply Chain is contingent on the sensitivity to demands and the capacity to forecast what the eventual end-customer wants. Hence, agility describes the effective and flexible response to the unique customer demands.

Rather than rely on the speculative concepts of what may be demanded, the amount demanded, and the demand’s location, agility uses a rather tolerant approach to demand, as it does not commit to products until the certainty of demand is established. In respect to the defence industry, the key to offering an agile response is ensuring flexibility across the supply chain (Purvis et al. 2011).

Theoretical implication of agile supply chain on defence industry

An agile supply chain would ensure a flexible workforce with cross-trained employees, and an added capacity to accomplish a range of tasks as the demand situation dictates. The project designs also need to reflect easy means of assembly that allows the targeted users to rapidly convert raw materials into usable state (Collin & Lorenzin 2006).

The rest of the supply chain would as well be response-based and «short,» with minimal or lack of intermediaries. The supply chain would also need to be situated at close proximity. Information sharing among the stakeholders in the supply chain would also be open and recurrent (Purvis et al. 2011).

It would also promote flow of information with suppliers and end-users of the defence projects. Additionally, it would develop a collaborative relationship with suppliers, create an inventory buffer through maintenance of a stockpile of low-priced yet core components, develop a reliable logistics system, and lastly, design contingency plans and constitute a crisis management team (Collin & Lorenzin 2006).

As expressed by the Department of Defence (2010), the core objective of the defence industry is strengthening the Australian Defence Force (ADF) with the hope of further underpinning the country’s security. For these reasons, therefore, the government’s policy seeks to make sure that the ADF is provided with systems, materials and necessary support in the right amount and time, and in ways that enable the taxpayers in Australia to realise value for their money.

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Figure 2: Armoured car supplied to the ADF (Department of Defence 2010)

An agile supply chain is needed to achieve the aspirations, without which it is established that Australia is at risk of finding itself limited by the readiness of its off-shore suppliers. Additionally, without an agile supply chain, Australia is at risk of being restricted to a host of challenges in the defence industry and held by the agility with which it may use to respond to rapidly changing circumstances (Purvis et al. 2011).

Rationale for an agile supply chain in the defence industry

Self-reliant defence industry

An agile supply chain that is delivered through an onshore defence industry would offer the Australian defence industry the capacity it needs to be self-reliant, and obtain and retain freedom of action. As of 2010, the Australian defence industry employed some 29000 individuals and supplies some $5billion worth of products and services to the defence annually. However, as had earlier been conveyed in Defence White Paper of 2009, the Australian Defence Force is continually being strengthened, hence implying a growth in demand for the defence supplies, which are supplied within a restricted timeframe (Department of Defence 2010).

However, as observed by Dorman et al. (2015), when a defence industry of a country lacks the industrial capacity to make deliveries of defence products, the country’s capacity to position and use its armed forces would be limited. To the manufacturers, it is possible that their capacity to produce in surplus would be regarded as wasted asset.

This was the case for the United Kingdom defence industry. Indeed, the concept of capacity was initially demonstrated in the UK’s requirements for munitions over a ten-year period when the British armed forces significantly used munitions in training while at the same time maintaining a large quantity of war stock. In 2006, the deployment of the armed forces into southern Afghanistan contributed to a swift increase in the use of munitions as the armed forces found themselves in a situation where they were repeatedly attacked by the Taliban (Dorman et al. 2015).

The reality on ground is that the suppliers had frequently run out of stock despite the need to consistently maintain adequate munitions of the right quality that could maintain the momentum of the war until industrial production was realised. Hence, by failing to respond to the unstable demand, it shows that the UK defence industry was less agile. By unstable and unpredictable world, it implies that defence requirements tend to vary considerably and call for the industry to have a sustained capacity to boost production within a restricted timeframe. To maintain such capacity, the industry needs to be less economical yet operationally effectively (Dorman et al. 2015). The lack of agility led to a progressive loss of UK’s domestic defence industrial capacity hence jeopardising the country’s freedom of action and limiting its choices over how it should act during a war.

Flexible and better performing defence industry

Agile supply chain would also provide the defence industry projects with greater flexibility. According to Purvis et al. (2011), flexibility refers to an adaptive response to the uncertainties in the environment. It reflects the capacity of a system to adjust itself or even respond in time and with minimal costs and effort yet greater performance. Purvis et al. (2011) further explained that supply chain flexibility describes the rapidity of the supply chain to responds to demands for products, as well as the extent to which it has a capacity to regulate speed and volume in reflection of the changes in the market.

The potential drivers for ensuring an agile supply chain include supplier management, technology management, strategic management, responsibility management, and internal resource management (See Figure 3). These drivers would ensure greater performance in the defence industry (Henke 2010).

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Figure 3: agility framework for greater industry performance (Henke 2010).

The supplies of Australia’s defence sectors surround five specific areas: clothing, electronics and computing technology, vehicles, aircraft assembly and shipbuilding. On the other hand, some 80% of the expenditure of the defence department is centred on maritime, electronics, land, weapons and munitions, and electronic sectors (see figure 4). Flexible supply of these sectors in respond to change in demand would ensure a better performance defence force.

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Figure 4: Major sectoral defence expenditure (Department of Defence, 2010).

According to Collin and Lorenzin (2006), an agile supply chain is concerned with flexibility. In their view, supply chain agility has the fundamental objectives of responding to short-term shifts in demand or supplying rapidly and handling external disruptions efficiently.

They further observed that agile supply chain is inherently market responsive, as it provides an organisation to respond rapidly to the sudden changes in demand (Collin and Lorenzin 2006). For innovative products, such as those used by the defence ministry, it is critical to argue that they call for responsive supply chain that can sufficiently responds to unpredictable and unstable demand to reduce the likelihood of stock-outs.

Since agility provides the much-needed flexibility, it is important to consider that supply chain agility become the standards in Australian defence industry.

Flexible and Cost-efficient defence

Agile supply chain would ensure a flexible and cost-efficient defence force. Although it is recognised that Australia may not be able to sustain an absolute ‘cradle-to-grave’ defence industry, there are certain military capabilities that are critical for Australia to retain its capacity to utilise its military forces when necessary (Moore & Loredo 2013). Without a vivacious and effective supply chain management for the defence industrial, Australia is at risk of jeopardising its freedom to act effectively within the increasingly unstable yet rapidly changing world.

Indeed, the defence market tends to have unpredictable demand, which is complicated by the need to cut costs. The continual rise in the costs of modern weaponry and other defence equipment is crucial factor that continues to face the Australian defence market, and superior defence performance must come at a greater price. However, the Australian government has called for a need to adjust to the inexorable increase in the real cost by focusing more on smaller platform fleets and equipment. For instance, in the 1950s, Australia had 560 combat aircrafts. As of 2010, it only had 100 (Defence Department, 2019).

By unstable and unpredictable world, it implies that defence requirements tend to vary considerably and call for the industry to have a sustained capacity to boost production within a restricted timeframe, and be agile enough to assemble diverse technologies and deliver them as a package flexibly (Gates 2004). To maintain such capacity, the industry needs to be less economical yet operationally effective. This can be ensured using agile supply chain.

Conclusion

It is concluded that an agile supply chain would enable the Australian government to realise its vision of developing a self-reliant, flexible, and resilient defence industry, as well as ensuring the defence marketplace is open and fairly competitive. An agile supply chain that is delivered through an onshore defence industry would offer the Australian defence industry the capacity it needs to obtain and retain freedom of action. Agile supply chain would also provide the defence industry projects with greater flexibility and greater defence performance. It will also ensure a responsive supply chain that can sufficiently responds to unpredictable and unstable demand to reduce the likelihood of stock-outs. Agile supply chain would ensure a flexible and cost-efficient defence force. In conclusion, as agility provides the much-needed flexibility, it is important to consider that supply chain agility becomes the standard in the Australian defence industry.

Recommendations

Overall, agile supply chain should be adopted to achieve the aspirations of the defence industry, without which the industry is at risk of finding itself limited by the readiness of its offshore suppliers.

To support this, there should also be an increased collaboration and information sharing between the Department of Defence and suppliers to increase the agility of the industry.

Information sharing with the suppliers should also be open and recurrent. This would also promote flow of information with suppliers and end-users of the defence projects.

The defence marketplace should be open and fairly competitive, where the government does not protect local suppliers from foreign suppliers, as this would increase the alertness in the market.

An inventory buffer should be created with suppliers through maintenance of a stockpile of low-priced yet core components, develop a reliable logistics system, and lastly design contingency plans and constitute a crisis management team.

Reference list

Asbjornslett, B 2002, «Project Supply Chain Management From Agile to Lean,” A thesis to apply for the dr.ing. degree, at the Norwegian University of Science and Technology, viewed 6 May 2016, <http://www.diva-portal.org/smash/get/diva2:125021/FULLTEXT01.pdf>

Christopher, M & Towill, D 2001 ‘An integrated model for the design of agile supply chains’, International Journal of Physical Distribution & Logistics Management, Vol.31,No.4.

Collin, J & Lorenzin, D 2006, «Plan for supply chain agility at Nokia Lessons from the mobile infrastructure industry,» International Journal of Physical Distribution & Logistics Management, Vol. 36 No. 6, pp. 418-430

Department of Defence. (2010). Building defence capability: A policy for a smater and more agile defence industry base. Retrieved from <http://www.defence.gov.au/dmo/Multimedia/dips_2010.pdf>

Dorman, A, Uttley, M, Wilkinson, B 2015, A benefit, not a burden The security, economic and strategic value of Britain’s defence industry, King’s College London, London

Gates, E 2004, ‘The defence firm of the future’, Defence and Peace Economics, vol. 15, no. 6, pp. 509-517.

Goldshy, T 2006, «Modeling lean, agile, and leagile supply chain strategies,» Journal Of Business Logistics, Vol. 27. No 1, pp.57-77

Henke, M 2010, Competitive advantage through agile supply chains: Analysing supply chain agility — when science meets practice, viewed 7 May 2016, <https://www.bvl.de/misc/filePush.php?mimeType=application/pdf&fullPath=/files/441/442/526/417/644/DLK10_B1_4_Presentation_Henke,_Michael.pdf>

Marcus, I 2010, «Agile Supply Chain: Strategy for Competitive Advantage,» Journal of Global Strategic Management, vol 7, pp.5-17

Moore, N & Loredo, E 2013, Identifying and managing air force sustainment supply chain risks, RAND Corporation, Santa Monic

Oakden, R & Leonaite, K 2011, Supply Chains: Logistics Operations in the Asia- Pacific Region, McGraw-Hill Aust. Pty Ltd., Northe Ryde, NSW, Australia.

Purvis, L, Gosling, J, & Naim, M 2011, “The Development of a Lean, Agile and Leagile Supply Network Taxonomy Based on Differing Types of Flexibility,” Int. J. Production Economics, pp.1-10