Australia’s defence global supply chain initiatives are a world-leading policy that other countries should look to emulate, says the national head of Northrop Grumman.
Still, our government could do more yet to back local manufacturers and industry needs to work on moving higher up the value chain from component making.
Ian Irving, Chief Executive for Australia, says Northrop Grumman is establishing good local content in countries such as Japan, South Korea, the United Arab Emirates and Saudi Arabia, replicating what it has experienced Down Under.
“We’re looking at the Australian model and seeing if we can implement the same approach in those countries. I think it’s a great testament to what the defence industry has done that we as a company have picked up that model and have happily plagiarised their thoughts and are doing that elsewhere,” Mr Irving says.
“I am trying to ensure that Australia is the exemplar of our overseas markets. And I would like Australia to be the location in which we are demonstrating our absolute engagement with our local customer base.”
Northrop Grumman, a leading global security company, has a strong customer base in Australia and has been supporting a variety of both defence and civil programmes here for more than 20 years.
As well as security, it is a key supplier in the defence, information systems, and public safety communications markets, providing a range of capabilities and technologies including as a key subcontractor for the Wedgetail AEW&C, F-35 Lightning II, and the F/A-18F Super Hornet programmes.
The firm’s annual turnover is just shy of $200 million, and management expect that to grow by at least the 5 per cent forecast by the Defence White Paper for the entire industry, and likely by more.
The local division has grown quickly from just five staff three years ago to 450 now, partly due to acquisitions such as Qantas Defence Services in 2014, and Canberra-based M5 Network Security in 2012, and Mr Irving says the firm is looking to add to its scale in coming years.
“The trajectory we are on will be maintained with some of the large programs that we will be bidding for. The Defence White Paper shows us that there should be plenty of opportunity for companies of our calibre. Coupling our portfolio with local capability will be the key for our future success. That’s what we are really looking to do,” he says.
Mr Irving, who began in the Australian defence industry 28 years ago and has been in his current role since July 2013, commended Australia’s motivation of multinationals to incorporate local Australian manufacturers in their supply chain process, helping local firms become globally competitive, giving them the knowledge to work with global heavyweights, and access to world markets.
“The defence department really was a leader there — the government’s wisdom in establishing the global supply chain program to motivate the larger primes to reach out to local industry.”
Australia is really well placed because of that history to further engage in the global realm, he says.
“That’s a real bonus for Australia. What we need to do now is leverage the new initiatives that the Turnbull government is placing through the Defence White Paper, focusing on innovation and also the establishment of significant local content in our local defence program.”
He says Australia does have the kind of unique expertise that can compete, even outperforming European and American colleagues in setting up some greenfield sites for manufacture.
But the government needs to back local industry and go local when it can. This would deliver the credentials to market their offerings to overseas buyers.
“It is very hard to export to foreign overseas programs if you haven’t sold to your local customer. And so we’re really looking to the government to back local industry a little bit more in a less risk averse approach and to give local companies a fighting chance.”
Mr Irving also notes that global supply chain offerings to date have mostly been at the component level and says Australian manufacturers need to move “up the value chain” and supply technology elements and unique innovation offerings into the global supply chain.
“We are not going to be pumping out thousands and thousands and thousands of base model components. But we can make complex subsystems where the labour is not such a drain on cost. So there is a bit of a lack of scale, but it does have benefits in the way these firms can be flexible and agile,” he says, adding that Australia has proved to excel at tailoring to meet specific customer needs.
Northrop Grumman has a database of around 140 local suppliers and has worked directly with 25, awarding around $32 million to local small and medium enterprises over the past few years. The firm plans to “really focus and double down” on increasing the flow of work good to key suppliers in Australia in the coming year.
Still, the local firms must prove themselves to be globally competitive and equal to their counterparts in North America and Europe and elsewhere
“There is no charity here,” Mr Irving says. “In global markets today there is very little boundary impediment to working in any location. And so Australia’s industry really needs to be globally competitive to be considered as a partner in global supply chains.”