22 Feb 2017 - By
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Defence procurement in 2016: Four trends that shaped the year

defence-procurement-2016 The UK has the fifth largest defence budget in the world, and the Ministry of Defence plans to use the defence procurement process to spend around £178bn over the next decade across the entire defence industry on new equipment, data systems and equipment support.

Although we are now firmly embedded in 2017, it’s worth looking back and asking: what are the trends which have shaped the past year in defence? This information will be extremely helpful if you’re looking to win Ministry of Defence tenders in the future.

We took the pulse of the past 12 months, and identified these four trends which shaped the defence sector in 2016:

Disruptive technologies

‘Disruption’ is defined as the process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses by developing innovative solutions to solve problems using new technologies – frequently at a lower price.

As defence budgets are squeezed tighter, even the biggest suppliers in the industry are looking for innovative ways to make their products faster, smarter and better to get the most ‘bang for their military buck’ both now and in the future.

For example, last year Airbus, Europe’s largest aerospace outfit, opened a side operation in Silicon Valley to provide “promising, disruptive, and innovative business opportunities” and has tapped a former Google executive to launch it. Commentators have called the company’s effort an “increasingly aggressive approach to reinventing itself” while Airbus itself says the initiative will expand the company’s international presence and drive innovation through investments in emerging technologies.

Writing in the Essential MOD Guide to Defence Procurement 2017, Stuart Young, Head of the Centre for Defence Acquisition and Senior Lecturer at Cranfield University, talks about how disruptive technologies are being utilised in the defence industry.

“(In 2016) there were a number of innovations that displaced existing technologies or completely changed established business models, in some cases creating completely new industries.

“Interestingly, whereas in the past it was defence research and technology that led innovation and was transferred into wider commercial uses (the internet, LCDs and microwaves for example) today it is becoming more likely that commercial developments are subsequently identified to have military applications.”

Commitment to more spending with SMEs

According to figures from the National Audit Office, central government spends around £45bn each year on goods and services which are supplied by non-public sector organisations.

Increasing the proportion of this spend which reaches small and medium-sized enterprises (SMEs) was identified as a key priority in 2016. To this end, the Government’s Single Departmental Plan for the Ministry of Defence outlined its commitment to make sure 25% of its procurement spend goes to SMEs by 2020.

The Department for Business, Innovation & Skills (BIS) estimates that there are currently 5.4m SMEs operating in the UK, and working with SMEs in defence procurement can result in greater flexibility, innovative approaches and better value for money. Additionally, reports show that helping more SMEs enter new markets and win more contracts can reap the economy £141.3bn per annum in overseas sales.

Whether you are a business keen to connect with the defence supply chain for the first time or an established player within the defence industry, these commitments from the Government mean that there are more opportunities than ever for SMEs to win defence tenders. Moreover, there are a number of events – such as DPRTE, the UK’s leading defence procurement and supply chain event – which can help you capture defence sector opportunities.

Cyber Security

Cyber security is one of the principal challenges in virtually all sectors, including defence, and commentators have called 2016 “the worst year for cyber security on record due to the amazing number of data breaches that have been publicly disclosed”.

High-profile security breaches last year included TalkTalk, whose poor website security led to the theft of the personal data of nearly 157,000 customers; and Tesco Bank, where £2.5m was stolen from the accounts of over 9000 customers. Moreover, according to research from the Government, two thirds of large UK businesses were hit by a cyber breach or attack in the past year, yet only half of these firms took any recommended actions to identify and address vulnerabilities in their systems.

In 2016, the Government announced a number of initiatives designed to improve cyber security and protect the UK from cyber attack. Defence Secretary Sir Michael Fallon announced that over £40m will be spent on a new Cyber Security Operations Centre (CSOC), on top of the Government’s commitment to invest £1.9bn in cyber security over five years in its Strategic Defence and Security Review (SDSR) published in November 2015.

Consolidation in defence procurement

In today’s defence market, companies are under increasing pressure to cut costs to compete more aggressively, whilst at the same time undertaking their own independent research and development.

Figures released last year show that MOD direct contracting with SMEs has decreased over the last five financial years, going from 5.2% of total MOD procurement spend in 2011/12 to 3.9% in 2015/16, and that 42% of total MOD procurement expenditure in 2015/16 was with just ten suppliers.

These figures show that concentration within the supply chain is being driven by the MOD’s prime contractors. It also highlights the increased competition in the defence industry in 2016, as well as the growing pressure that defence companies are under to consolidate and become larger to gain economies of scale.

The Essential MOD Guide to Defence Procurement 2017 contains indispensable commentary, insight and analysis from both buyers and suppliers looking to the year ahead in the defence market. The defence sector is ever changing, and equipping yourself with this information will give you a distinct advantage over the competition when seeking to win Ministry of Defence tenders.
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