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Defence & DSEi Special


Procurement – taking the long view


What have been the changes in defence procurement over the past 25 years and how have small businesses adapted in order to survive? Jake Moir explains


A


good few years ago now I remember being contacted by a leading warship builder. At that


time the new Type 45 Destroyer was at an early stage and called Project Horizon. The enquiry was about an Mk15 Static Frequency Converter that we had widely installed in the British Fleet at that time. The equipment had been designed in the late 70’s and in pointing this out I suggested that the new vessel might look to be provided with something smaller and lighter – altogether racier. The response was: “It works doesn’t it?” My answer: “Oh yes it’s extremely


reliable”.


The next response was: “It’s got a NATO stock number hasn’t it?” My answer: “Yes”


Close of conversation: “OK – that’ll do.” This conversation – which really did take place – neatly encapsulates the contradictions in product development. Our products support weapons systems, navigation systems and command and control systems by converting power from the vessel’s generators– either frequency or current – on demand to whatever is required by the load equipment, we also provide battery support for emergencies. While the end systems we support may constantly be pushing the frontiers of technology they have one constant need and that is reliable power. Without that the most sophisticated system is just ballast. The idea that we are constantly striving for “smaller and lighter” is not the reality. The real pressure is on price - and innovation is essentially price rather than performance driven. In the mid 1980s a 5kVA Static


Frequency Converter (SFC) sold for about


£55k – 25 years on we are looking at under half that. Take inflation into account and the reduction is colossal. Small niche suppliers like Gresham can only survive by adapting technology to price. In order to grow revenues we have to sell many more equipments – or diversify and we have done this by moving along the electrical supply route. From Rectifiers that start helicopters we have now moved to suppling complete Heli-Deck systems. From on board systems we have extended to ship to shore supply boxes. At the same time we have sought to reduce procurement and manufacturing costs by extending the commonality of sub- assemblies and power modules. Multi-ship builds have enabled us to move to batch manufacture removing the peaks and troughs of the old “one off prototype” wiring process. Our financial strength and strong cash flow emanating from our commercial business together with cash positive structuring of major contracts has increased our ability to maximise profit and cash.


Naval procurement The entire structure of Naval procurement has changed over the last 25 years. In the days of the Type 23 Frigate the equipment was designed under close MoD supervision driven by the various Marine Engineering (ME) Sections at Foxhill, near Bath. Design control was down to component level and once equipment was defined to the shipbuilder there was little room for the latter to negotiate on price. Profitable Integrated Logistics Support (ILS) work was, at our level at least, delegated to a myriad of sub-contractors and “book-writers”. Manufacture and limited spares support


26 July/August 2011 Components in Electronics www.cieonline.co.uk


was the essential source of profit. With substantial vessel builds (Type 23 stretching to 15 vessels) these were indeed golden years. Along with these came the Sandown Mine Hunters to say nothing of the Vanguard Submarines as well as Landing Platform Helicopter and the Landing Platform Docks. By the early 1990’s things were changing. The MoD was no longer defining what equipment was put on their ships. Shipbuilders had become Prime Contractors and the whole basis of the SME’s existence changed. While the MoD still defined some of the more vital systems, the Prime Contractor was charged with providing a vessel at a price against a specific performance requirement. Our equipment was now specified and chosen by the Prime Contractor with all the pricing pressures that involved.


In the early stages of this seismic shift small businesses suffered since the Prime


Contractor used to ILS documentation from the MoD expected that flow of information to continue. While the MoD had paid subcontractors to provide this, the supplier was now expected to take on this burden – initially without payment. This new burden upon engineering resource was costly and disruptive, generating pressure on profit margins at the very same time as the customer placed pricing pressure upon acquisition costs. In time, however, the additional burden became a blessing as much engineering activity – handbooks, spares lists, reliability and maintainability data and training courses became chargeable. The effect of an engineering overhead generating revenue and profit changes the balance of the business and went some way to addressing the pressure on equipment prices. The speed with which small businesses recognised these changes and adapted to them determined their ability to survive


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