Australian Supply Chains Drive Resilience for Defence
DroneShield RfOne long range CUAS sensors
Australian suppliers took a crippling hit when the automotive industry collapsed. Manufacturers who relied on auto companies for regular work ran out of business as the big guns – Ford, Holden, Toyota and Mitsubishi – opened assembly lines abroad to capitalise on cheaper costs of production, larger markets and economies of scale, and larger grants.
Although the outlook for manufacturing at large remains uncertain, defence manufacturing is on the rise, and has been for three to four years.
It is therefore crucial for Australian defence primes, the manufacturers supplying to them, and government agencies to jointly increase local investment to establish and then maintain a sovereign, sustainable industry.
There has been notable movement in this regard since the onset of the pandemic. With those operating in or provisioning to the defence industry categorised as essential services providers, local manufacturers gained exemptions to continue operating during lockdowns. Australia needed to support onshore manufacturing as the capability would prove crucial in the event of a conflict or national security threat.
Manufacturers subsequently saw a spike in demand as defence primes needed to get their supply locally or risk delays in development and higher costs as shipping lanes closed or slowed.
With the Federal Government allocating approximately $57 billion to its defence budget and the latest Defence Strategic Review stressing preparedness, it’s a crucial moment for defence primes to lean on local suppliers wherever possible, and in turn, for Australian manufacturers to double down on the investments made in the last three years to meet sovereign demand.
We saw national lockdowns as an opportunity to stress test our supply chains, and aggressively moved from overseas suppliers to local ones for components not already sourced locally. There were a number of immediate outcomes from the change.
Because Australian manufacturers were ready to produce, we avoided high shipping charges, and mitigated risks associated with the development of kit for defence. The quality of work is also incredibly competitive, and the overall process is simplified – it’s easier to vet and onboard suppliers, and the ability to brief local manufacturers is faster due to cultural alignments and the ability to offer direct training.
The last few years have also seen a significant change in the pace of engagement, sophistication and the responsiveness of a number of Australian supply chain manufacturers, bringing the cadence on par with world-leading standards.
We have seen significantly reduced lead times, and the number of Australian companies which can do post-processing work such as anodising, powder coating, ceramic coating, sand blasting and laser etching has risen. In turn, suppliers such as CNC manufacturers rely heavily on these, and often the lead time for post processing can outweigh the machining time for the metal itself, making for much faster processes overall.
Additionally, defence is inherently agile; every build is progressive, and build manuals develop over time. If you need to rework a piece that has come in from abroad and isn’t to specification, sending it back overseas is a long, expensive process. As a defence company, we need to be ready to produce and deliver to the ADF; relying on secondary and tertiary partners presents risk.
A weaker Australian dollar also helps, and counteracts a comparatively higher cost of labour.
For example, Stella Engineering, based on the NSW Central Cost, currently manufactures the DroneSentry-X vehicle based detect-and-defeat counterdrone system heatsink. It also manufactures the CNC components of the RfOne long range drone tracking sensor. With a reputation for taking on new challenges and experimenting with new manufacturing methods, the company recently invested in ceramic coating capabilities (Cerakote), which we now use across multiple products. As a result, the equipment is more durable and resistant to the elements.
Meanwhile, Clarke and Severn (C&S) is a cable manufacturer in Sydney which originally provided very low quantities of cables to start our relationship, and today supplies hundreds of thousands of dollars in orders each year. The willingness of Australian manufacturers like C&S to work with local companies during their prototyping results in high-volume contracts once equipment enters production.
While it’s impossible to source every component – such as chips and batteries – locally due to the nature of our market, there are ample areas where we can manufacture even if we were cut off from the rest of the world (such as in the event of a major war – exactly the scenario the Defence industry needs to be ready for). Diverting investments that previously went abroad locally removes dependency; and ultimately as a defence technology business, our success is the success of our manufacturing partners.
With defence becoming a bigger priority, local manufacturers should see more work coming their way. Although mega-programs – such as submarine builds – contain complexities that make it difficult to get a foot in the door, the mid-tier ecosystem is good business at a time when demand outside of defence remains inconsistent. COVID-19 taught us that when there’s international disruption, businesses fall on their knees. Defence manufacturing operates contrary to his trend, and creates certainty for Australian manufacturers, the defence primes they supply, and ultimately the ADF.
Oleg is Chief Executive Officer at DroneShield (ASX:DRO)