Surviving (and Thriving!) in a Shrinking Defense Spending Climate

Tags: Defense

Karl Hawes

Surviving (and thriving!) in a shrinking defense spending climate

How are some firms not just surviving but thriving after the downtick in defense spending?

The defense industry was sufficiently buoyant during the last decade given the Wars on Terrorism, in Iraq, and in Afghanistan, yet recent downturns in defense related spending have receded the ten-year "high tide" and it’s no surprise that the tide has further waned since the automatic spending cuts, or sequester, took effect. As we all learned in our sixth grade science class, some organisms will survive by adapting to the new ecosystem, some won’t make it, while a select few will thrive; I’m afraid the same will happen as the defense budget ebbs. Don’t worry about the big players, the so-called Tier Ones, they will be just fine; still the remaining majority, the "suppliers to the big suppliers", are at risk if they don’t adapt. What steps can such businesses take to survive the current climate? Moreover, what are those exclusive few, the thrivers, doing differently and what can we learn from them?

The SAFE Method: A new approach to DoD marketing

The SAFE method – Standardize, Affordability, Focus, and Execution is business mindset or cultural shift that a business can adopt to gain better-than-average results in the short term, while strategically positioning itself for the future.

Standardize– Survivors need to implement standardized business intelligence such as resource planning, customer relationship management, manufacturing execution systems and other high return on investment manufacturing software. Knowledgeable and timely responsiveness to the inquires of DoD buyers is a best practice of thrivers, and business intelligence software is the agency for such effectiveness. It’s increasingly more common to see IT professionals ranking amongst today’s’ C-suite key executives. For large firms the software provided by SAP or Workday allows them to operate smarter; for smaller firms, Visual and Epicor will work just as well. Thrivers use these tools to call upon critical operations data such as purchase orders, contract clauses, and delivery commitments in real-time, thereby fielding staff and customer inquiries with efficiency and confidence. Software generated business dashboards, or real time status updates, allow an executive to make strategic decisions with empirical understanding while putting customers at ease. When a supplier can use software to mine data in a timely manner, thereby knowing more about the customer’s business needs than the customer does, defense buyers feel assured and confident in your business.

Affordability – Affordability is the defense industry’s buzz word of 2013 as there is increasing pressure on the supply base to reduce cost.Thrivers believe that transparency is best. Supply chain professionals are more likely to be accommodating to your schedule and price stipulations when they have a clear understanding of your labor, material, and operating costs. The same goes for your processing lead times. If you’ve shown your customer the details of your price – how it’s calculated, your cost drivers – you can resist the forces of affordability if the buyer feels like you are giving them a fair deal. Honesty is still the best policy; why are so many defense suppliers reluctant to see the logic in this?

Focus - With defense customers tightening their wallets, there is a tendency for suppliers to expand beyond their existing markets to capture business in adjacent market areas. Do this with caution; focus on your company’s core competencies. Many thrivers have instituted a gated product development process to vet bids, minimize risk, and maximize investment while expanding into new markets. Stay with what you know, for every new product success (think Microsoft’s big play with the Xbox gaming console) there are equal if not more failures (e.g. Microsoft’s unsuccessful Zune Mp3 player). Stage Gate International is one of many firms staffed by experts who can help your business implement a systematic new product development process.

Execution- Let’s face it, if you cannot execute on the contracts that you already hold, you aren’t going to a get a look at the next big bid package that’s going to hit the street. What many firms fail to realize is that you cannot succeed if you are going to make promises that you can’t keep. When times are tough, defense suppliers are tempted to take on a contract with a tight development budget or aggressive delivery schedule (sometimes both). While you may win your first contract with a new customer, or in a new market, by taking such high risk bets, it may be your last.

As Yogi Berra opined " the future ain’t what it used to be". The top tier defense providers will use this "low tide" moment as an opportunity to shrink their supply base, thus gain efficiencies by placing more work in fewer suppliers, those with exceptional quality and on-time delivery ratings, while asking for price concessions in return. Thrivers are using the SAFE method to proactively react to the "new normal" of aerospace and defense.

K.D. Hawes is a Marketing Executive with over a decade of experience in marketing to the Aerospace and Defense Industry. His articles on manufacturing have been featured in the JEC Composites Industry Journal.