The Importance of UK-Based SME’s in the Defence Industry

This is a reaction to a fast-changing and increasingly volatile geopolitical landscape, with there being an urgent need to boost and reinforce the UK’s sovereign capability in light of the threat posed by Russia and the messaging from the United States that Europe needs to become more self-sufficient in regard to Defence spending.

As outlined in the Defence Industrial Strategy, the MOD will now commence wargames within the industry, to assess supply chain resilience and readiness for potential ramp-ups in rates of production.

Central to this new strategy is a renewed focus on SME’s, with the launch of a new Defence Office for Small Business Growth and a new SME Commercial Pathway. This should improve access and simplify entry points to major defence contracts for smaller businesses and is subsequently positioning these businesses to be at the forefront of this industry-wide transformation.

Chris Hague, Senior Policy and Comms Manager for Make UK Defence, the UK’s largest Defence industry association said the following: “As the leading champions of the defence supply chain, we know that the UK defence industry is a foundational pillar of our UK deterrence. Defence companies across the country – from large primes, to mid-tiers, and SMEs – contribute to hugely to our security. Yet for too long the MOD has operated a peacetime procurement model that’s unfit for the challenges our country faces today.

“The MOD must ensure its well-received Defence Industrial Strategy is not just another policy document, but rather delivers the reforms needed for the defence industry. This doesn’t just mean getting equipment into the hands of our Armed Forces faster, it means building, investing and expanding the supply chains beneath it, so we can scale production in a time of crisis. It means procuring to export so those supply chains are cheaper to maintain for the long-term. And it means making our industry more competitive by providing innovative SMEs and start-ups with a chance to win more direct MOD work.”

The Challenges

There are a number of potential obstacles standing in the way of this required transformation, including the complexity and rigidity of existing Defence supply chains. With a complicated system that spans multiple tiers and a myriad of sub-components, it has become increasingly difficult to accurately map supply chain networks and manage them efficiently.

Furthermore, these systems are ill-suited to accommodating new and emerging technologies, as well as utilising ‘dual-tech’ technologies that have been developed from other applications. This is why the major Defence organisations are actively looking to diversify their supply chains and identify suppliers who can solve challenges and fill gaps in their existing networks.

Equally important is the increased requirement for localised manufacturing capability. Due to conflicts such as the Russia-Ukraine war, global trade networks have been disrupted, whilst the new geopolitical landscape has increased the risk of price increases and even shortages of critical components.

The government’s Defence Industrial Strategy pledges that it wants to use this increased investment into the Defence industry as a “vehicle for growth” for the wider economy, and using UK-based suppliers is fundamental to achieving that goal, as it increases the number of available skilled jobs and directly contributes to GDP. A strategy of localisation is not just a risk deterrent; it’s an opportunity to actively boost economic growth.

The final challenge facing this transformation is the prevalence of non-competitive or single-source contracts. This was highlighted in the Defence Industrial Strategy, who pinpoint ‘lack of competition’ as one of the key obstacles to overcome. Competition drives innovation and efficiencies and provides greater value for the market as a whole.

Single-source supply also increases the risk of singular points of failure, with whole assemblies sometimes entirely reliant on specific sub-components. Risks include data breaches or cyber-attacks, with there being high-profile examples in recent years of attackers targeting the supply chain of the larger Defence organisations to disrupt production. Implementing a dual-source strategy on as many programmes as possible is essential for ensuring the long-term stability and success of the UK Defence industry.

The Solution:

Accelerated and supported by the launch of the Defence Office for Small Business Growth and the SME Commercial Pathway, UK-based SME businesses like Polar Technology offer many of the solutions to the challenges outlined above.

The main reason for this is that SME businesses possess inherent speed and agility. Without the complexities commonly associated with the larger Defence Primes, SME’s can respond quickly to changing demands and adapt and innovate continuously. This ‘superpower’ is a useful weapon that can solve existing supply chain issues and enhance the overall quality of the technology we provide the armed forces.

Similarly, the broad and diverse capabilities of SME’s means that often multiple components can be produced and combined by one supplier, in the form of complete sub-assemblies. For example, Polar Technology manufacture multiple elements of the Striker II™ Helmet project. This reduces the aforementioned supply chain complexity and minimises the risk of potential disruptions.

Finally, using UK-based SME’s not only mitigates the risk of geopolitical issues affecting global trade networks, but also makes data security easier and even helps achieve social value initiatives. For ‘Official’ and ‘Official Sensitive’ projects, there are specific security requirements that favour using UK businesses, whilst many MOD contracts now also have required social value goals, and SME’s are perfectly positioned to help achieve them, due to the fact they are often already key members of their local communities, with established social value goals of their own.

Conclusion:

It is clear that is an exciting, precipitous moment for the UK Defence Industry. Significant backing has been promised by government, and there is a well-defined plan of how goals are going to be achieved. However, the Defence Investment Plan (DIP) has been further delayed, after it was supposed to be published last summer, which is holding back the necessary investment into the UK Defence industry, and the subsequent trickle down of funding to the supply-chain.

As outlined above, it is businesses like Polar Technology who are perfectly-placed to tackle the challenges currently facing this proposed transformation, and ensure safer, simpler and superior supply chain networks for the industry going forwards, and this must be embraced and utilised by the government and the Defence industry as a whole.