A defence productivity dilemma: Optimise or build anew?

The major increase in defence spending by European nations following Russia’s actions has created the greatest need to boost industrial output in modern times. The challenge is how to manage optimising existing facilities with building new industrial sites in response to demand. Striking the right balance is key.

Optimising existing capacity

Historically, the challenges of optimising existing capacity have been multifaceted. Firstly, the approach offers limited capacity for growth making it difficult to deliver significant demand increases. Secondly, there’s a dependency on existing infrastructure, which means performance is constrained by the limitations of current systems. Lastly, the supply chain becomes more complicated due to the increased reliance on advanced digital tools, which can introduce new vulnerabilities and require additional skills.

However, optimising existing capacity presents almost as many opportunities as there are challenges. These include cost effectiveness from using existing assets more efficiently to reduce the need for large capital investment, and a much faster turnaround compared to building new facilities. Benefits also include the flexibility of being able to adjust and scale as needed, and enhanced co-ordination and adaptability in response to disruptions, which reducing downtime and improves delivery times.

So what does optimisation look like? A number of measures and strategies can be employed to optimise existing defence capacity. These include:

• Creating digital twins or virtual replicas of physical assets to enable simulating alternative manufacturing methods and process optimisation, using a sandbox environment to mitigate risk on current operations
• Implementing automisation to streamline processes by employing robotics and AI – increasing efficiency, alleviating the pressure of skills shortages, and reducing errors and lowering labour costs
• Introducing product lifecycle management to enhance product development and collaboration – improving data management by ensuring alignment between design, production, and maintenance, leading to greater resource utilisation
• Adopting smart supply chains, incorporating the Internet of Things, AI, and data analytics to improve visibility, resilience, and efficiency, ensuring the timely delivery of materials and components.

A real-world example of optimising existing capacity can be seen in the investment Thales has made into its Belfast facility. This investment has not only preserved the facility’s operational status but also doubled its output by implementing new shift patterns and processes, reinforcing its position as a crucial hub for defence manufacturing.

Creating a step change with new facilities

Building from scratch is not without its own challenges. These relate to the high capital expenditure required to affect such a strategy, with significant upfront costs in construction, equipment, and training. The construction of new facilities can also bring about longer lead times through the delays in bringing new capacity online, operational disruption due to teething problems, and the risks associated with a new location. In the future, risks could be affected by geopolitical shifts, environmental concerns, or changes in local policies.

However, creating new facilities rather than optimising existing ones, brings about a significant capacity increase and the ability to meet large-scale demand. Modernisation allows for the integration of the latest technologies and processes and removes the constraints of legacy systems. This approach enables long-term growth that can support an organisation’s strategic objectives for decades. Choosing a strategic location can optimise logistics, reduce transportation costs, and enhance overall supply chain performance.

A good example of bringing about a step change through new facilities is the ammunition plant that Rheinmetall is building in Unterlüß, Germany. This facility will significantly enhance Germany’s production capabilities. The plant will primarily serve the needs of the Bundeswehr, but it is also designed to meet increased demand from other markets.

Choosing the right path

So, if there are pros and cons of each approach – how should organisations decide? Choosing whether to optimise existing capacity or create a step change with new facilities requires several decision-making considerations.

1. Location risks: Risks must be weighed up between relying on optimised but ageing infrastructure versus high capital investment and potential project delays with new facilities. Where new facilities are being explored, the location is a vital consideration, so potential sites for new facilities must be risk assessed and evaluated in relation to geopolitical stability, proximity to suppliers, workforce availability, and long-term sustainability.
2. Supply chain resilience: An assessment must be made into the reliability and responsiveness of existing supply chains and whether new facilities might require or benefit from the relocation of suppliers.
3. Stability versus innovation: Organisations must determine whether stability or the capacity for innovation is most important given expected future market conditions.
4. Strategic timelines: An evaluation must be made on an organisation’s overall strategic requirements over the immediate and longer term. This is to assess whether the focus should be on improving existing outputs or creating a significant capacity for expanded production. Part of the evaluation should consider required operational timelines of the organisation given optimising existing systems can yield faster results compared with building new facilities.
5. Anticipated demand: Scalability should inform part of these decisions to determine whether anticipated demand growth can be met through optimisation or if it truly necessitates the scale offered by new facilities.
6. Budget constraints: Finally, budget constraints will always influence the strategy given that the capital expenditure required for new facilities could always bring significant financial implications compared to a more modest expenditure on optimising existing facilities.

While choosing the right path forward may seem daunting, there is a real opportunity for the defence industry to capitalise on technology developments and achieve genuine impact through a combination of both approaches to drive transformation.