Managing Supply Chain in Defence Sector

Hello LinkedIn family! Ever wondered how exactly Supply Chain in Defence Industry works?

Well, Supply Chain is essentially tricky in defence sector worldwide which follows ideally 'Just in Time (JIT)' which much higher constrains than most of the other industries.

1. Pre-Tendering: The process starts with structural bidding. Usually, the government requires cooperation with the national organisations (E.g., DRDO) or private firms (E.g., BDL) to build various components of a defence equipment such as missile or a fighter aircraft to have contracts using proprietary technology with adequate authority and licensing. The best company or organization is thus selected for tendering. The sales process of defence is pretty complex, capital intensive for a firm to have a successful bid as the market is extremely unique and administrative (generally the Government). It involves dealing with changing international laws around manufacturing, distribution, collaboration between territories as well (E.g., military technology must be transferred under a certain regulatory framework and documentations like MTCR by G-7 countries).
2. Procurement and Sourcing: Strategic sourcing is crucial since it aims at acquiring quality materials and services that meet organizational needs. They need to maintain multiple suppliers to mitigate risk and adequate inventory stock when supply of raw material is devastated, hence mitigating stock-out risks due to calamities, war-like situations or other critical factors.
3. Inventory Management: Proper management of storage space (Owned or rented) and inventories is important for the constant preparedness and supply of the military assets and stocks. Maintaining optimum stock, minimize dead and excess inventory & overcome risk of shortage are the targets for these firms. They follow strategic inventory management methods like JIT (Just in Time), VMI (Vendor Managed Inventory). Now for that manufacturer, the raw materials, R&D, technology used for production requires lot of financial investment and once procured it is conventionally considered as permanent stock. To balance between capital intensive overstocking and under stocking of components which has high lead time, planning is essential for these firms. Recent technologies like RFID / IoT gadgets are being used in enhancing inventory visibility and stock control.
4. Logistics and Transportation: It includes planning and management of the transportation and storage of all materials. These stages can include transport of equipment, personnel and supplies to different areas. The supply chain management procedure must be very flexible so that the resources can be timely delivered. To increase the complexity, it also entails the integration of air, sea, and land transportation routes to address the transport challenges. Network & route optimisation, real time tracking are currently most agile organizations follow to ensure safe and reliable delivery.
5. Compliance and Regulatory Requirements: A compliant supply chain is the backbone of successful defence operation of a country. The certification procedures for the defence industry are very stringent rigorously enforced and laid down. It goes through a series of testing and audit starting from the design phase, production till delivery. They are intended to address the quality, safety, and reliability of defence goods by preventing counterfeit items, improving bottom lines and country’s reputation. Addition to compliance, adequate contingency planning minimizes the risk of costly penalties and operational disruptions, contributing to a more stable environment and providing competitive advantage.
6. Cyber security and regulatory compliance: It help to prevent unauthorized access to an organization’s networks and systems especially because it involves national interest, performs frequent security audits, and trains its people on checking measures using Standard Operating Procedures (SOP) and practices to observe while dealing with any form of advanced technology.
7. Recycling: It involves sustainable product policy framework and various other specific protocols to dispose, dismantle & recycle. It is also an important part of defence supply chain as there are wastages in the process of development, testing and technology obsolescence, these need to be in accordance with the regulations and operating in a confidential manner.

Challenges and mitigation:

·?????? Political and bureaucratic resistance could be a potential roadblock to any stage of defence supply fulfilment. This can significantly impact the seamless collaboration between a private sector producer and government buyer.

·?????? The mindset of delays in crucial projects due to various reasons especially cost related approvals disturb the finalization of each step of a process. As per the Ministry of Defence, around 42% of DRDO’s ‘mission mode’ projects have been delayed due to similar reasons.

·?????? Lack of funding for Research and investment leads to failed projects and designing. To take an example, the Gross Expenditure on Research and Development (GERD) is only 0.65% for India as of 2024.

·?????? Technology service providers like Accenture has recently incorporated digital twin technology-built network optimizing software integrated with an ERP (Enterprise Resource Planning) to visualize real time situation for effectively manage supply chain and build resilience. They have also incorporated simulations to understand combined effect on supply chain where scenarios are analysed (E.g., pandemic, war crisis, weather disruption etc.), identify supply chain failures and provide better solutions.

Companies like Leidos Supply Ltd follows the must requisites for a Defence equipment manufacturer as below:

·?????? Personnel security clearance

·?????? Information Technology that operates at official sensitive

·?????? Facilities security clearance

·?????? Collaboration environment

·?????? Supply Chain accreditation

·?????? Visibility of opportunities

·?????? Access to relevant framework

·?????? Domain knowledge & experience

·?????? Understanding ways of responding to the RFP

The leaders of defence industries who are efficiently managing their supply chain are as follows:

·?????? International Companies: Lockheed Martin Company, BAE Systems

·?????? Hindustan Aeronautics Limited (HAL)-aircrafts

·?????? Mazagon Dock Shipbuilders-submarines

·?????? Premier Explosives-explosives and detonators

·?????? IdeaForge Technology-unmanned aerial vehicles (drones)

·?????? Bharat Electronics-radar, communication, and electronic warfare equipment

·?????? Mahindra-armoured vehicles

·?????? BDL-guided and underwater missile

This article is entirely research based. For more information, please visit following articles.

Reference:

The Importance of Aerospace and Defence Compliance

India: An Overview of Defence Manufacturing in India

Military Supply Chain Resilience - Accenture