With defence spending on the rise and increased demand for US military equipment domestically and overseas, the current market climate offers opportunity to drive new revenue. But defence manufacturing has long been a sector that has been hampered by complex and ever-evolving regulations and paperwork—mandated by the US Department of Defense. Although this process has moved online, failing to meet audit and oversight requirements over a contract period from initial bid through to project reporting can result in lost contracts. Matt Medley, Industry Director, A&D Manufacturing, IFS, argues that supporting defence manufacturers with a Defence Contract Management solution can bring a new level of transparency, efficiency, and oversight to the process—allowing government contractors to capitalise on market opportunity without compromising on compliance requirements.
The need for solutions to ease contracts and comply with regulations is evident when you consider the current size of the A&D market. This is evident in figures released by the Aerospace Industries Association, the aerospace and defence market in the US alone equals 18.8% of the entire non-food manufacturing revenue at $874 billion a year—which is nearly 2% of all US GDP. There is also the issue of shifting regulatory mandates that can change and complicate the existing system, one recent example being the invoking of the Defense Production Act.
With defence sector growth expected this year due to recent geopolitical shifts, there is market opportunity on the horizon, but only if government contractors can manage the burden of bureaucracy and paperwork needed to provide defence products to the US Department of Defense (DoD)—an obstacle that has the potential to turn a market leader into a laggard, and vice versa.
A once-in-a-generation geopolitical shift
As global military spending is set to increase at levels not seen in decades, the aerospace and defence sector is bracing itself for the largest change in a generation.
A shift in defence budgets can already be seen domestically and internationally. US President Joe Biden is reportedly considering increasing domestic spending to over $800 billion for 2023, which will prioritise the procurement of new tanks and F-35s, shipbuilding, investment in space capabilities, and the continued upgrade of the nuclear triad and early warning capabilities.
Abroad, Germany’s new chancellor is looking to buy F-35 A’s in response to events in Europe, while South Korea, also under new leadership, is investing in new defence capabilities. This trend is emulated in other militaries and a large percentage of these increased budgets will be spent on US hardware—meaning the demand on the intricate supply chain required to manufacture these military assets and equipment will increase, as too will be the opportunity to profit. These new assets however must pass the same stringent US compliance requirements in order to be exported.
The regulatory quandary
The growth within defence will certainly have challenges. Defence assets, equipment, and services that are built in the US both for domestic use and export, such as components for an F-35, are all subject to strict supplier classification tracking, reporting standards, and compliance. This is also set against a backdrop of an Executive Order on America’s Supply Chains introduced to support an effort to improve supply chain resilience and protect against material shortages which led to a DoD assessment of defence critical supply chains to improve its capacity to defend the nation.
There are two specific functionalities that are both vital to successful contractual compliance when delivering manufacturing services to the DoD in the current climate—Defence Contract Reporting and Defence Supplier Management. These are two integral components of Defence Contact Management software, both of which will ease the burden of heavy regulations and ensure manufacturing companies can achieve the level of compliance that the US DoD demands. Here’s how it works.
Defence Contract Reporting: Track procurement requirements end-to-end
Working with the DoD can be a complex process—today the process is paperless and uses a web-based application for the receipt and acceptance process through the lifecycle of a contract. This online process known as the Wide Area Workflow (WAWF) has more recently been enhanced by the Invoicing, Receipt, Acceptance, and Property Transfer (iRAPT) process. The process deals with $383B+ of invoicing annually and has cut invoicing time by over 50%.
It has several advantages from the previous paper-based model, as it allows for better cash flow management, eliminates lost documents, and offers global accessibility and auditing. This secure system leverages technology to manage invoicing, receipts, and advanced shipping data which allow in turn for submission and tracking of documentation.
Managed manually, this can be labour-intensive, complex, leave room for human error, and can cause delayed payments and other issues if done incorrectly. But the new generation of cloud-based defence manufacturing software with functionality to support Defence Contract Reporting addresses this challenge by allowing integration to the WAWF/iRAPT Business Suite, which enables automatic WAWF data upload to government websites—reducing manual labour and accelerating payments.
As a result, defence manufacturers can easily record quality requirements at the supplier and parts levels, manage and audit quality programmes, and track against those same requirements throughout the entire procurement process.
Defence Supplier Classification: Demonstrating compliance
Supporting software is also required to help automate and simplify the defence supplier classification process, where organisations must classify suppliers and report back over a contracted procurement period. This is traditionally submitted through the DoD’s electronic subcontracting reporting system (eSRS).
Defence manufacturing software designed around these DoD classification requirements enables organisations to classify suppliers over a given period and surface this information during the procurement process. This allows a government contractor to calculate and set professional goals for these classifications. Then, once a project is underway, progress can be analysed against goals so organisations can report back within eSRS.
With this process, suppliers can confidently meet government reporting standards, ensure project goals are on track and meet compliance requirements. Ultimately, Defence Supplier Classification allows defence manufacturers to quickly and consistently demonstrate how they and their suppliers comply with defence services requirements.
Contracting for success
The implementation of a specially designed solution for Defence Contract Management into an existing cloud-based defence manufacturing software ecosystem has several key advantages for manufacturers. It allows for seamless integration into the iRAPT system, meaning that contracts and invoices are easy to oversee, audit, and track. It also allows organisations to classify suppliers throughout the procurement process, to clearly calculate and set expenditure goals, and automate reporting within eSRS. Defence manufacturers can be confident that they have the functionalities required to unlock revenue potential in a sector witnessing a generational uptick in global military spending.
Defence manufacturing software with industry-specific Defence Contract management functionality is the best way to provide safeguards to ensure government compliance across a supply chain in the rapidly evolving and heavily regulated US government contracting domain.