Special Report - Northern Defence Industries (NDI)

Will the DIS herald a brave new world for the defence industry?

Will the DIS herald a brave new world for the defence industry?

An artist impression of what the new aircraft carrier will look like.

In December 2005, the Government published its Defence Industrial Strategy (DIS), a document that is set to radically alter the ground rules for defence procurement in the UK.

Trevor Harrison, managing director of Northern Defence Industries Ltd (NDI) and previously managing director at Alvis Vickers in Newcastle, looks at its implications.

As managing director of NDI I lead an organisation that works to create access to markets for some 200 subscribing member companies across the North.

Almost all of them are SMEs - that is, less than 250 employees. Indeed, many are classified as micro-businesses, defined as having fewer than 25 employees.

NDI member companies form a substantial part of the wider defence industry `community' - a community that sustains more than 8,000 jobs and makes an estimated £800m per year contribution to the GDP of the North-East alone.

Any changes in the way defence procurement is managed in the UK has, therefore, the potential to impact significantly upon our regional economy - and the publication of the Defence Industrial Strategy promises to do just that.

The aim of DIS is to provide transparency for the UK's future defence requirements and, for the first time, to set out those industrial capabilities the UK needs in order to maintain appropriate sovereignty and to operate equipment independently.

The strategy recognises the key role of industry in sustaining that operational capability and it signals a change in the Ministry of Defence's approach to defence acquisition.

Perhaps most significantly, DIS signals a shift away from competition towards more partnering arrangements in the UK. It also recognises the importance of SMEs within supply chains.

So how do our regional SMEs fit into this `brave new world' of defence procurement - and what needs to be done to ensure these companies continue to thrive in this new environment?

The defence business cycle:

The defence industry is a peculiar environment. There can be few other industries - if any - where the procurement process is so elongated or convoluted.

Major defence projects can take anything up to 10 years to reach full scale manufacturing level. You simply don't order a battle tank, a new aircraft or a large ship `off the shelf'. The bidding process alone can sometimes take years to complete.

An inevitable consequence of this environment is the creation of a `boom and bust' business cycle. Prime contractors - the very largest national and international businesses - have sufficient `padding' and sufficient diverse interests to compensate for the worst effects of `boom and bust'.

But SMEs simply don't have that luxury.

If SMEs can somehow stay the course during the long, expensive and frustrating bidding processes, then their reward lies in an extended period of supply into major defence contracts.

There are some excellent examples of regional companies which have benefited in this way: they have invested and created new jobs. But for others, what then?

When the Minister for Defence Procurement, Lord Drayson, introduced DIS, he acknowledged that in future both the MoD and the prime contractors would have to significantly improve the ways in which they work with SMEs.

Indeed, DIS states that these larger companies will be, in part, assessed by the MoD on the knowledge they have about their own supply chains as a requirement of the bidding process.

All of this is to be encouraged - but how well this new regime will work in practice remains to be seen.

It is a commonly-held view that, in general, the SME community has not been well treated by prime contractors and that is a matter of huge regret, particularly so when you consider that some 70% of the value of major projects can be spent below the prime contract level.

The experience of many NDI companies is that, as suppliers to companies who themselves might be in the third or even fourth tier of a supply chain, our members experience an almost total remoteness from the companies at the `top end'.

You can't escape the irony of this situation: quite simply, if you don't, or can't, keep the lower end of the supply chain healthy, you jeopardise the health of the large companies at the head of the chain.

So what of the future?

DIS certainly recognises that SMEs should be treated as being integral to the whole defence procurement process, and indeed that they can be the source of useful innovation. So far, so good.

There is recognition, too, that the principle of `clustering' - the bringing together of companies with comparable and complementary capabilities - has much to recommend it.

From an NDI perspective, I am pleased to say that this recognition is a ringing endorsement of a process in which we have already been highly successful; indeed, we submitted evidence to Government when DIS was being formulated of several such `clusters' involving our member companies.

The MoD has already shown some progress in becoming more user-friendly in its dealings with the SME community.

For example, its website now allows small companies to make contact direct if they consider they have a service or a product which might be of interest to the Ministry.

It is under pressure to ensure that, even though it is entering into partnerships with primes, the smaller suppliers must still have the opportunity to compete for business with them.

This, of course, is welcome news - but it should be considered as but a small step at the start of a long journey.

It is to be hoped that, in this climate of change, the Government will recognise that future defence orders need to be planned more in accordance with the needs of the commercial world.

The SME community - and certainly the SMEs that make up NDI's membership - succeed because they are agile.

They identify market opportunities and grasp them enthusiastically. They recognise the immense potential of defence work that often appears tantalisingly out of reach, but they cannot afford to wait while the `big boys' get themselves sorted out.

DIS holds out real hope for positive change. The defence SME community cannot dictate that change, but we must be ready to maximise the potential benefits it offers for the regional defence industry.

How will we do that? By reinforcing the relationships NDI has already forged with the Government and with prime contractors at home and abroad - and exploiting opportunities wherever they may arise.

We are looking at a brave new world in defence procurement - and it is one that we look to with a degree of cautious optimism.

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SLT zones in on aerospace sector

To put it simply, SLT Engineering is one of Northumberland's best-kept secrets. Thanks to the skilful stewardship of managing director Ernie Craig, this quality engineering firm has quietly expanded its order book and is now targeting the aerospace sector to move the business to the next level.

However, SLT Engineering is by no means a new success story; the company has been forging a strong reputation within the industry for the past decade.

Established in 1996, SLT Engineering provides sub-contract precision machining and CNC Programming services to a diverse range of industries including aerospace and defence, automotive, hydraulics, sub-sea, medical and the food sectors.

SLT Engineering has already forged a strong partnership with one of the key companies within the aerospace industry, CAV Aerospace, and in the coming months is planning to build a network of contacts with other companies.

Owen McFarlane from Cav Aerospace says: "We have had great service and support from SLT Engineering and we hope this will continue long into the future."

Ernie Craig said: "A few months ago we attended a conference in Birmingham with a number of aerospace companies and it gave us a real insight into the industry's expectations of engineering firms. There is far less margin for error nowadays and machining companies such as us have had to raise our game accordingly.

"This has meant recruiting skilled staff, training them to an even higher standard and being at the forefront of recent advances in technology."

Certainly, quality is at the very heart of SLT Engineering's operations. The company has already achieved ISO 9001/2000 registration, Investors in People and is currently in the process of attaining AS9100 rev B Aerospace certification that will allow it to work as a first tier supplier to the major companies within the aerospace industry.

In addition, the company is taking advantage of developments such as Catia V5 Cad-Cam programming, which will enhance the current engineering manufacturing system and allow electronic data about the aeroplane to be extracted quickly and efficiently.

"Companies that don't embrace new process methods will get left behind very quickly", Ernie explained.

"All industries, particularly in aerospace and defence, are expecting more from the supply chain as they face competition from all corners of the globe. SLT's business has changed quickly during the last decade.

"Previously it might have been the case that smaller companies could survive quite easily by sourcing business within their own region. In today's climate, however, they have to look much further afield if they are to stay competitive."

SLT Engineering is quite prepared to do this and is also very certain about the type of market in which it will operate in the future. The company will concentrate on small-batch, high-value production and on achieving a rapid response-time for customers.

The aerospace industry will undoubtedly pose a new set of challenges to SLT Engineering. But with Ernie leading a highly-skilled workforce committed to achieving standards of excellence, this is a test that the company is likely to pass with flying colours. - www.sltengineering.co.uk

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CAV Aerospace - creating added value globally with high quality

With its head office in Consett, County Durham, CAV Aerospace is rapidly becoming a global force in the aerospace industry. Since the merger of AS&T with Prematec Corporation and Castillion Aerospace Limited, CAV has been able to demonstrate the benefits of size and economies of scale.

As the major airframe manufacturers look to systems integration and major assembly as their core areas of expertise, they look for suppliers of such a size to become partners for long-term business, with the capability to provide anything from the smallest, simplest bracket, to major structural sub-assemblies.

CAV has positioned itself to support this customer strategy, via the formation of three discreet business units, each with its own distinct capabilities. Each business unit has its own dedicated management team, which supports the achievement of business growth via operational excellence, whilst central support is maintained in the areas of finance, IT, HR, health and safety and quality assurance via a team of dedicated professionals.

In forming these business units, CAV played on its own strengths, capabilities, and competencies whilst understanding the needs of the customer. As such each business unit has its own focus of expertise:

Aerostructures:

Offering a full design and manufacturing capability, CAV Aerospace Aerostructures Division offers a complete component and sub-assembly solution to the large prime airframe manufacturers.

The business unit operates for four sites in the UK - three of which are dedicated to manufacture of components and sub-assemblies (Consett, Leicester and Llantrisant) whilst one (Manchester) is a complete design facility.

Via this business unit, CAV offers a complete solution to the customer, from concept through to delivery, with design capability utilising the most up-to-date systems and techniques, through to a vast manufacturing capability, with exceptional machining and treatments capabilities.

CAV now operates some of the largest CNC machine technology available in the UK (with up to 54-metre 5-axis capability), with a capacity level that has to draw the attention of the major primes.

From the three manufacturing sites, CAV Aerostructures supply components and assemblies to a wide range of aircraft and customers, including Airbus and Boeing.

Our design teams have been involved in some of the major new aircraft programmes during the last two decades, including the new Airbus Super-Jumbo, the A380.

Ice protection:

From its Ice Protection Division, CAV Aerospace offer complete ice protection solutions for aircraft at the smaller end of the market, with its unique fluid based systems (often known as Weeping Wings).

These systems are utilised on a wide range of general aviation, regional and business jet and UAV (Unmanned Aerial Vehicle) applications, and are offered either as original equipment or retrofit solutions.

All manufacturing of these systems is done at the CAV Consett site, while design, certification, sales and installation services are offered from our site in Salina, Kansas.

This business in particular has seen massive growth, whilst it continues to attract great attention from prospective new customers.

This is in the main due to CAV's capability to offer highly effective, safety critical, yet competitively priced solutions to the problem of being able to fly through adverse weather conditions.

An approach of continued modernisation of the manufacturing methods, capabilities and facilities will maintain CAV's position at the leading edge of this market.

Projects:

Incorporating facilities in the UK and Poland, CAV Projects Division offers design through to manufacture capabilities for sheet metal components and assemblies.

The recent addition of the site in Poland gives CAV the ability to take advantage of low-cost markets, in both manufacturing and design capabilities.

Project and supply chain management capabilities and technical competencies are at the heart of the division, with a dedicated, integrated approach to project management from concept through to implementation.

Technically focused, CAV Projects has the capability and capacity to deliver new and innovative methods of controlling processes in line with the latest cost effective manufacturing principles.

With project and supply chain management as well as manufacturing capabilities at the Consett site, CAV also operates two sites in South Eastern Poland - Nova Deba which has recently been set up, with full sub-assembly manufacturing capability, as well as highly skilled design personnel, and Rzeszow, which is purely office-based project management services.

Within the areas of project and supply chain management, and low-cost supply, CAV has also become a major shareholder in RCL Industries (previously known as Royston Components Limited).

As a whole CAV now employs over 500 people worldwide and has in excess of 300,000 square feet of manufacturing facilities.

Established global partnerships include the leading aerospace companies in the world - Airbus, Boeing, Raytheon, Bombardier and Lockheed to name but a few.

The operational abilities dovetail perfectly with the requirement of these key industry players providing a synergy of all round capability, quality and expertise.

The teams at CAV claim 100% ownership in the integrity and quality of the product, consequently ensuring supply of a quality product checked and approved at every single stage of the development and manufacturing process for a demanding industry.

This pedigree is unrivalled.

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Group moves from age of coal to wind farms

This month see the celebration of the 30th year of business for North-East MKW engineering Ltd.

MKW Engineering started business when coal mining and shipbuilding were the economic drivers in the North-East. The demise of these industries has meant the company has had to be quick on its feet to look at new opportunities and markets in an ever-competitive world.

MKW engineering now specialises in various industries from sub-sea products, oil and gas-related products to defence communications equipment and even satellite parts.

The company now possesses an unusual portfolio of high-technology manufacturing capabilities far outreaching many in the region, if not the country, and has products that are now used in most global markets, including 14 navies throughout the world.

Chairman Michael K Wright founded the business along with his father Vin Wright, and Rahmon Nassor is sales and commercial director.

Mr Nassor said: "Witness major changes within the engineering sector over the years which has brought about a need for change. This includes new technology, better training and a constant search for business opportunities which are unique to our industry.

"Having upgraded our facilities for manufacturing to cover extremely complex parts and assemblies, we have won major contracts in the defence and oil-related industries. We see this as our future, along with the technological challenges which our skilled workforce thrive on."

MKW has in the past 10 years branched into new areas of business.

These include on-site maintenance and engineering covering technical site labour for local and national clients, a precision machine shop producing small parts to complement large assembly facilities and a new venture into renewable energies by formation of the Gazelle wind turbines Ltd.

It now has 14 systems installed in the UK, with contracts in house for another 10 systems including turbines for Tesco supermarkets .

From its base in Ryton, Gateshead, MKW has increased its abilities where the competition has failed to deliver. In the past five years, whole suites of large multi-axis CNC machinery along with model design and programming facilities have been installed.

The company also thrives on training employees and potential staff through a schools education programme run by Mr Wright.

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Marine Design Centre

The North of England has a substantial legacy of experience and skills from its long history as a shipbuilding centre, and has some of the best maritime academic and training institutions in the world.

Northern Defence Industries Ltd (NDI) is playing a key role in the establishment of a Marine Design Centre (MDC) in the region.

Trevor Harrison, managing director of NDI, describes the background to this innovative and exciting project:

"The MDC is a concept that first took shape when the Aircraft Carrier Alliance approached NDI to see if we could identify naval engineering capability in the region.

"The Alliance approach acted as a catalyst for a feasibility study for a design `centre of excellence', and this research has taken a `first cut' at the marine design resource in the area from the Humber right up to the Scottish border.

"The feasibility study, funded by One NorthEast, has developed the concept of a Marine Design Centre and sounded out major players in the defence and commercial markets. It has engaged the academic world and leading design software providers to discover how they could play a role and, most importantly, it has sought the views of the design community.

"That research phase is coming to an end with the resounding conclusion that such a centre is not only feasible, but also has the potential to substantially improve the competitive advantage of companies in the region engaged in the marine market.

"The MDC will act as a focal point for the global maritime community to access regional capability.

"For the design companies in the region, it will provide a route to market and offer the infrastructure to work collaboratively on projects, using the idea of a common user facility.

"This is an innovative concept adapted from pioneering work in Western Australia with marine fabricators. It will enable design companies to hire secure working space in an IT-rich environment, with substantial communication facilities on a `hire by the hour' basis. It has the potential to improve competitive advantage by minimising overheads and facilitating an alliance approach to projects.

"The MDC will continue to identify marine resource in the region and build links to marine institutions, particularly the universities. It will continue to develop relationships with potential clients, starting with the UK and Europe, then expanding the horizon to the rest of the world.

"The services of the MDC will be available to all marine design companies and individuals in the region that become affiliated members.

"This will give firms access to marketing information, events and seminars and allow their details to be registered in the MDC database. It's this database of skills that will be at the heart of a sophisticated, knowledge-based, online facility that will enable the full capability of the region to be focused into the global marketplace.

"The benefits to regional marine design companies will be timely and influential access to targeted projects and programmes.

"The MDC will open up routes to market for individual companies that would otherwise have been too expensive, in terms of time and money, to develop.

"It will present opportunities to increase market share through `alliancing' and, where desired, provide appropriate infrastructure in a totally flexible environment, using the secure office space of the common user facility.

"The objective of the MDC is not to compete with existing design organisations but to provide the infrastructure that can enhance their competitive advantage.

"In a regional context, One NorthEast has confirmed the compatibility of the MDC with the Regional Economic Strategy and is exploring the opportunities to provide further support to the project.

"It is planned that the groundwork for the MDC will continue to be laid over the next few months with a full-scale launch early in 2007."

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Packing in the quality service

As a division of BEL. (British Engines Ltd) Group, Stadium Packing Services (SPS) is a manufacturer of superior close boarded timber or plywood packing cases and crates. SPS supply and pack to commercial and Ministry of Defence standards. SPS is the only North-East packaging company to win the Defence Packaging Authority's DR14 qualification.

This is the only MoD-recognised packaging design qualification, allowing design work to be undertaken on behalf of the Ministry.

Brian Smith, Stadium Packing general manger, said: "Customer service is of paramount importance to SPS, ensuring goods are packed and despatched on time is now essential within today's manufacturing climate.

"Manufacturers and suppliers are faced with reduced lead times and penalties for missing agreed deadlines, therefore speed of turn a round and supplier confidence is essential."

To manage these customer demands SPS offers on and off-site packing solutions to complete each job in the most cost efficient and least disruptive manner possible.

A turn-key service is often demanded, therefore SPS also provides lifting and moving expertise and world wide door to door delivery of goods, regardless of size, gross weight and mode of transport.

Stadium Packing Services has continued to build on a quality service and strong reputation within its market sector, gaining the trust and loyalty from their increasing customer base, firmly placing them as the North-East's premier packaging company.

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Technology opportunities with the MoD

The defence sector is one of the most important - and successful - in the UK.

But historically it has been perceived as difficult and expensive to enter. With the Ministry of Defence's recent publication of its Defence Industrial Strategy, the way is now clearer for the more small and medium-sized enterprises (SMEs) to get involved in the sector, recognising that they are vital to the country's defence effort.

Here John Gates, who heads the DDA's NE team in Sunderland, explains the importance of the new approach for North-East business.

The UK Government has always known that SMEs are the engine of growth in the economy, and the source of a substantial amount of technological innovation. When the Ministry of Defence set up the DDA in 1999, it was, in part an acknowledgement that more could be done to help innovative SMEs prosper by giving them access to the world-beating technology developed within the publicly-funded defence research establishments.

Government scientists are brilliant at solving the highly-focused requirements of defence. But it's entrepreneurs that generate wealth out of technology by taking it into commercial markets.

For that reason, the DDA helps local companies define their technical requirements and market opportunities, and then searches out the best solution for them, principally from within the MoD's science community or sometimes from regional sources, to help them grasp the commercial opportunity. North-East businesses can find us in Sunderland, Gateshead and Wilton, near Redcar.

The DDA is now the UK's leading independent consultancy group working in this way, brokering in solutions to businesses' requirements.

To date, we have helped some 15,000 companies across the UK, and we offer a high degree of hands-on attention to make sure the technology transfer has the best chance of succeeding.

During the course of this work, we have built extensive defence, regional, business and academic networks that bring us into contact with a range of highly skilled and successful enterprises. The abilities of those firms could make a significant contribution on a wider national stage. That's where the Defence Industrial Strategy comes in.

The DIS has placed new emphasis on maintaining `home-grown' capability to deliver key defence requirements. So SMEs with new technologies to offer, as well as the traditional players in the sector, have become integral to ensuring the national security and sovereignty of the UK.

DDA links the defence procurement and R&D organisations on the one hand with regional industries and academia on the other.

That position enables us to fulfil our responsibilities for identifying innovative technologies, particularly from "non-traditional" SME arenas, and "injecting" them into the right part of the MoD.

This work includes a pilot we are running to connect R&D-intensive businesses with the MoD's Research Acquisition Organisation (RAO). We bring innovative research projects from to the attention of the RAO for technical assessment and, where appropriate, insertion into future defence research and equipment programmes.

For assistance with a technology project, or for an assessment of whether your technology could contribute to the UK's defence and security needs, contact Niki Hall, DDA, at (0191) 516-4407, email nhall@dda.gov.uk or visit www.dda.gov.uk

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Responsive set to create 30 new jobs

A £2m investment programme at NDI member Responsive Engineering in Gateshead is set to create 30 new jobs as the company aims to boost its turnover from £7m to £10m.

The business sells to customers in the defence, aerospace and oil and gas sectors, and numbers Airbus, BAE, Siemens and Exxon amongst its clients.

The investment will be spread across all four group businesses - Streamline, Kingsway, Weldex and Pressex - which together provide specialist water jet and laser cutting, precision engineering, welding, pressing and assembly services.

Responsive was the subject of a management buy-in (MBI) in the summer of 2005, when current managing director Peter Bernard took control of the business from Express Group.

The new investment will be funded by Responsive itself, with a £225,000 contribution through selective finance for investment (SFI) support from One NorthEast.

Peter Bernard put the company's investment plans in context: "Where we are going, I can see a clear route forward to £10m. The capital investment programme has been planned since the change in ownership last June, and it represents the biggest investment drive in the history of the company.

"The intention is to ensure that the group and its constituent companies can offer the very latest technology as part of its service to customers to develop further business opportunities in some key markets.

"We are delighted by the confidence shown by One NorthEast in the group's management and staff and in our business plans. The business is financially strong, but the SFI support helps us to de-risk the investment project."

Ian Williams, head of One NorthEast's business investment and finance team said: "The £225,000 grant we have offered Responsive will create 30 valuable new jobs as part of its extensive investment programme in its business. We are pleased to be able to help this forward-thinking company with its expansion plans to capitalise on new market opportunities."

The final word goes to Peter Bernard: "Responsive has to operate within the same tough trading environment as all manufacturers; we are choosing to respond by investing.

"We are constantly under pressure like everybody else. There is pressure on energy costs and on raw material prices - it's not an easy place to be.

"If we want to maintain the business at the leading edge of technology, we have to invest and be the most cost effective and efficient we can be."

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Altec reaches for the sky and aims to create jobs

Durham-based ndi member company Altec Engineering is looking to more than double turnover to £5m and create jobs after securing a £250,000 investment package.

Altec is using funding from Evolve Finance (part of fund manager NEL) to create a new division - Altec Precision - in a bid to break into the aerospace market.

The company has already created eight jobs in the new arm, and expects to take on another four to eight staff by the end of 2006.

Altec employs 32 people and currently turns over more than £2m per year supplying tools, fixtures and bespoke machine tools to the automotive, white goods and brown goods markets.

Its sights are now set on expanding annual sales to £5m within the next five years with the push into aerospace and the sub-sea and defence sectors.

Altec's managing director David Steel explained: "The company has always been successful, but we had reached a plateau in our growth.

We knew we had the expertise and resources to move onto a new level, but we also knew that to achieve our aim we would need some outside investment. Despite excellent support from Yorkshire Bank we were still short of what we needed, so we were recommended to approach Evolve Finance."

Evolve Finance representative Joanne Pratt said: "Whilst Altec has a long history of success in a very specialised area, its management team also have a clear vision of where they want the company to go in the future - and how they would use investment to realise these goals."

David Steel again: "Our aim now is to establish the Altec name nationally within other industry sectors. We're focussing strongly on the aerospace market right across the UK, where we know our skills will be in high demand, but we're looking at other markets where there are commercial returns to be made.

"We have just been recommended for the AS9100 aerospace quality standard - and that is a significant landmark because it will see us placed on the Oasis global database of suppliers which is used by the likes of Boeing, Airbus and Rolls Royce.

"During this exciting phase in our development we are, naturally, also exploiting the value of our NDI membership by using their resources to help us secure work on Ministry of Defence contracts."

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