Defence contractors have responded to the pressures of a more competitive, international market by placing increasing pressure on the supply chain. In common with the civil aerospace sector, risk is being passed down the chain, with suppliers being asked to invest in more of the non-recurring costs associated with the start of a new programme and to manage broader areas of the supply chain itself. Indeed, the cost of developing a bid to participate in a defence programme in the first place is significant, further encouraging consolidation and the pursuit of scale. Size matters.
In this environment, defence contractors are alert to the opportunities for improving profitability by sourcing in lower cost areas of the world. Just as they would wish to sell equipment in open markets worldwide, they naturally also aspire to develop suppliers who can offer cheaper components and sub-systems without sacrificing reliability and performance.
Governments will seek to support this initiative, through a desire to reduce costs and to exploit COTS (Commercial, Off-The-Shelf) technologies. COTS, by their very nature, are not subject to the trading constraints imposed on defence-specific technologies. However, these aspirations have to be met in a way that is consistent, once again, with the unique requirements of the international trade in defence equipment. As well as complying with its host nation’s international trading policies, the contractor must comply with the export trade arrangements agreed between defence importing nations and their suppliers.
How PricewaterhouseCoopers can help you
At PricewaterhouseCoopers, we can help you identify and secure opportunities for improving the performance of your supply chain, including assessing the risks and value potential in sourcing supply in low cost regions, establishing procurement processes that generate consistent value and ensuring that you are able still to satisfy the requirements of any relevant industrial participation obligations.
