Long-term Management for Immediate Operational Results in the Defence Logistics


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Frost & Sullivan explains why Through Life Capability Management (TLCM) is gradually
becoming an integral par t of the Defence market and is being responsible for shaping the
relationship dynamics between end-users and industry.

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Long-term Management for Immediate Operational Results in the Defence Logistics

  1. 1. March 2011Long-term Management for Immediate Operational Results By Bruno Mucciolo, Senior Consultant Aerospace, Defence & Security
  2. 2. Frost & Sullivan explains why Through Life Capability Management (TLCM) is gradually becoming an integral part of the Defence market and is being responsible for shaping the relationship dynamics between end-users and industry. The defence market benefits from some degree of insulation from the effects of the economic recession but remains a sector with unique challenges. Ministries of Defence (MoD) are under significant pressure to equip, sustain and modernise their forces to cope with immediate operational needs and over-the-horizon threats. To remain at the cutting edge of military capabilities, customers tend to adopt developmental technologies and have to deliver capability on challenging timescales, and maintain availability and technological currency through-life. These challenges raise significant questions as to how end-users and industry players can co-Long-term Management for Immediate Operational Results operate to improve military capability in uncertain economic times, particularly with pressures from inevitable cost growth, inflation and resultant lower spending power in many, if not all military procurement offices. Figure 1: Potential issues affecting the global defence market 2008 - 2020 Major regional war in Middle East The Unexpected High Impact Reduction in defence spending Rapid growth in China’s in major European markets military capabilities Adoption of Total Cost of Ownership and TLCM Principles Projected Afghanisation of security duties Stabilisation and re-prioritisation Impact on the in Afghanistan of US Defence Budget Aerospace & Defence Strong growth in Asia-Pacific Industry Defence Markets Introduction of new competitive forces from weak public finances Rapid technology cycles driving system obsolescence Increasing Importance of After- market Services Financial difficulties for Tier-3 sub- component manufacturers on critical Introduction of new competitors / Low Impact supply line affecting delivery Partners from Asia-Pacific Markets Certainty Low High One increasingly popular approach to through life capability management of military capability, or TLCM, is Performance Based Logistics (known as Contracting for Availability in UK parlance). The concept is not new and has already brought significant savings and noteworthy improvements inMarket Insight weapon system availability to those forces that have implemented it. © 2011Frost & Sullivan Page 2
  3. 3. The complexity of TLCM solutions such PBL requires that defence forces and their suppliers integrate their efforts and operational models to achieve distinct goals. Frost & Sullivan expects TLCM services to be a strategy increasingly adopted across the globe, ensuring military customers and industry will take a more holistic approach towards defence procurement, logistics footprint and cost-conscious deployment. Shaping relationships, improving efficiency It became vital for Governments to redefine their military doctrines, decide which acquisitions to make, how to organise themselves and, more importantly, how to respond to unpredictable events and challenges. Considering obstacles in defence budgets offering lower spending power (against units / platforms, rather than capability), MoDs now had to focus on a rather new approach:Long-term Management for Immediate Operational Results availability. It is important to remember that increasing Military capability is being measured against a smaller number of platforms (be they ships, aircraft, troops or vehicles). Therefore, reduced availability of enabling platforms has an increased effect on military capability of a particular nation. Meanwhile, Industry needed to redefine its centre of attention too: new technologies, new applications, interoperable solutions, new platforms and approaches. Figure 2: Absolute Cost, Sustainability and Life time support are the Future procurement priorities within MoDs Changing Trends in Procurement, 2010 - 2017 Present “SMART Procurement” Concept Assessment Demonstration Manufacture In-Service Disposal followed privatisations and sought to empower MoD by involving MoD Support & Logistics Industry in all phases. Also allows MoD to competitively re-bid at Logistics Support Periodic each phase. Contracts Upgrades Future Through-life Cost Concept Assessment Demonstration Manufacture In-Service Disposal Assessment & Sustainability Plan considered through Integrated Mission / Operational / Through-life Support procurement cycle. Contracting for Contract for Availability CapabilityMarket Insight Source: Frost & Sullivan In this universe, where budget restraints, technology limitations, Industry goals and Military requirements are planets surrounding a sun called “readiness” the idea of TCLM was created to synchronise the orbit of all its elements and allow them to better position themselves in the entire spectrum. © 2011 Frost & Sullivan Page 3
  4. 4. Today, Through Life cost of a military system can be upwards of ten times the acquisition cost. And this reality is pushing more and more military and industry to work together in order to achieve the ultimate goal of increased readiness, highly efficient operational capability and lower logistics costs. This is increasingly demanding a paradigm shift in the traditional relationship between both parts. While the military end-user faces the internal challenge of gradually integrating private operators within its day-to-day operational tasks, OEMs Primes are adopting new business models to provide aftermarket services, looking to drive efficiencies to extract as much profitability from each project. Working on a ‘win-win’ approach the rise of TLCM is bringing unprecedented benefits to both stakeholders and is being responsible for a booming growth in the A&D services market.Long-term Management for Immediate Operational Results Figure 3: Global Defence Electronics Market Revenues, 2007 - 2016 US$ 35 Bn US$ 35 Bn 5% 8% 5% 8% 16% $25,000 10% $20,000 8% 17% $15,000 10% 12% $10,000 29% $ 5,000 23% $0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 25% 25% Support Revenues Product Revenues 2007 2016 C2 Land Communications Land ISR Air ISR UAS Air T&S Land T&S Source: Frost & Sullivan According to Frost & Sullivan, the defence service market is expected grow exponential figures in the next decades. For example, defence electronics market, one of the key indicators in the sector, is expected to reach US$ 20 billion in the next five years. This is only the tip of the iceberg if you consider market opportunities in servicing and managing the life-cycle of platforms and ‘system- of-systems’ assets. According to Frost & Sullivan’s Aerospace, Defence & Security experts, Support in-Services will be the core focus of procurement models until 2020 and beyond. More specifically, emerging business models for defence procurement such as PBL / Contracting for Availability (CfA) and OutsourcingMarket Insight for Maintenance (OfM) are likely to lead this trend in the industry. © 2011 Frost & Sullivan Page 4
  5. 5. Today and Tomorrow of TLCM Mature markets within NATO are currently shifting to adopt complex TLCM arrangements, partnering with industry to provide many of the activities traditionally done in-house. Expensive platforms such as fighter jets are the first to receive the ‘treat’, with big industry players already running the entire life-cycle of fleets, including sub-systems such as avionics and missiles. Emerging markets are not falling behind. With the influence from western countries and companies instrumental in shaping the market, emerging defence markets such as APAC and Latin America are focusing on adapting their internal capabilities to accommodate the growing forces of the aftermarket business and already rethinking their procurement strategies with TLCM in mind.Long-term Management for Immediate Operational Results In the future, we can expect the Through Life Capability models to proliferate across the globe, though the exact details will reflect the individual motivations of stakeholders within the country, the existing industrial landscape and the desired military capability or aspiration of the country. However, this is a reality that both Armed Forces and Industry participants should accept from now on. Opportunities in the defence service market are essential ‘hedges’ against declining market segments reliant on high volume product sales. And while end-user stakeholders are actively pursuing new business models and technologies to deliver through life support more efficiently, both operationally and financially, a lot of doors open to Industry players designing intelligent partnership approaches in the market. “The need to deliver increasing efficiencies, lowering logistic footprints and optimisation of the supply chain are driving the adoption of Through Life Capability Management.”Market Insight © 2011 Frost & Sullivan Page 5
  6. 6. Oxford 4100 Chancellor Court Oxford Business Park Oxford, OX4 2GX, UK Tel: +44 (0) 1865 398600 Fax: +44 (0) 1865 398601 London 4, Grosvenor Gardens, London SWIW ODH,UK Tel 44(0)20 7730 3438 Fax 44(0)20 7730 3343 Silicon Valley 331 E. Evelyn Ave. Suite 100 Mountain View, CA 94041Long-term Management for Immediate Operational Results Tel 650.475.4500 Fax 650.475.1570 San Antonio 7550 West Interstate 10, Suite 400, San Antonio, Texas 78229-5616 Tel 210.348.1000 Fax 210.348.1003 enquiries@frost.com http://www.frost.com http://www.aerospace.frost.com About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The companys Growth Partnership Service provides the CEO and the CEOs Growth Team with disciplined research and best-practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages 50 years ofMarket Insight experience in partnering with Global 1000 companies, emerging businesses and the investment community from over 40 offices on six continents. To join our Growth Partnership, please visit http://www.frost.com. © 2011 Frost & Sullivan Page 6