Booming defence investment is creating exciting new opportunities for manufacturers, but entering the supply chain remains complex, costly and highly regulated. SMEs need to identify where they fit and avoid wasting time chasing the wrong opportunities.
Defence is attracting unprecedented attention from manufacturers. Increased investment, growing demand and a renewed focus on domestic supply chains are creating prospects across the sector. But that doesn’t mean defence is the right market for every business, cautions Andrew Butt, Chair of the Yorkshire Regional Defence and Security Cluster (RDSC).
For SMEs considering the move into defence, the first step shouldn’t be finding a contract; it’s establishing whether there’s a genuine fit between what the business does and what the sector needs. A task that often proves harder than it sounds.
Know where you fit
Defence is a large, complex and understandably opaque ecosystem. The Ministry of Defence (MoD) sits at the top, followed by major primes and multiple tiers of suppliers, making it difficult for new entrants to know which door to knock on.
The answer, Andrew explained during Made in Group’s latest Industry Meet-Up, is to work backwards from the demand rather than simply approaching the MoD or a prime.
The Defence Investment Plan provides a useful starting point, setting out the platforms, systems and programmes the MoD intends to acquire over the coming decade. The document can be used to identify where your business’s products, services, technology or expertise might have a genuine application.
The next step is to establish who owns the requirement, whether it sits with the MoD, a prime contractor, a supplier or research organisation. This is where the regional clusters can provide a useful front door. There are currently 13 Regional Defence and Security Clusters (RDSCs) across the UK, designed to connect industrial, academic and innovation capability with defence demand.
Their role includes identifying relevant capability in adjacent sectors, finding additional supply chain capability where gaps exist, and helping SMEs better connect with businesses, government and researchers.
For those unfamiliar with the defence ecosystem, that signposting can save valuable time, Andrew noted, particularly when the right route into the market isn’t immediately obvious.
Find your edge
One of the biggest misconceptions Andrew sees is the assumption that competence automatically creates demand. “I’m good, and therefore I’m needed,” is how he described it. Instead, SMEs need to understand what truly makes them different and why that difference matters to defence.
For a relatively commodity-based capability like precision machining, entering defence simply to compete on price and lead time against established suppliers doesn’t make commercial sense. The costs of certification, compliance and market entry are likely to outweigh any potential return.
A specialist capability that solves a specific problem is a very different proposition. Andrew referenced helping a business enter the space sector. A conversation with Airbus revealed a set of requirements that the company believed it could meet, and that relatively few other UK businesses could.
That is the question SMEs should be asking, Andrew said. Not simply “Where can we sell what we already make?”, but “What problem can we solve that others can’t?” The same principle applies regardless of what you’re offering. Whether it is coatings, components, equipment or specialist services, the differentiator needs to be clear.
Test the water
Once a potential fit has been identified, the temptation can be to start pursuing contracts immediately. Andrew recommended a more measured approach, suggesting that SMEs treat entering defence as a business-change project.
Allocate someone to investigate the market over a defined period. Establish where the company could fit, what the demand signal is, who the potential customers and competitors are, what compliance is required and what investment would be needed. That process could take several months, but it essentially creates your business case. And the answer might be that defence isn’t right for you.
For companies that do identify a credible opportunity, there are also ways to explore the sector without immediately committing substantial resources. Defence innovation and funding programmes can also provide routes into the market at earlier technology readiness levels (TRLs), allowing SMEs to develop technology, gain experience and make contacts while limiting the initial exposure of the wider business.
The important point, Andrew said, is to treat these routes as a way to test and develop a proposition, rather than assuming that funding itself constitutes a viable market.
Start small
For most SMEs, becoming a major defence supplier overnight isn’t realistic or necessary. A more effective route is to start with a smaller opportunity, demonstrate capability and build from there.
“It’s really rare for somebody to go wholesale into defence,” Andrew said. “You start small and then build momentum, pace and scale.”
He shared the story of Avenue3, a Leeds-based manufacturer that was recently selected through an MoD procurement framework. The initial opportunity gave the company a chance to prove its capability – “a slice of the cake, rather than the whole cake” – which led to further introductions and progressively larger opportunities.
Such an incremental approach helps reduce risk while building the experience, relationships and credibility needed to progress further into the supply chain. It also changes the way SMEs should view early engagements. Beyond providing immediate revenue, a smaller project can also demonstrate capability, establish a track record and help you understand how defence customers actually operate.
Look beyond hardware
Another common misconception is that defence solely means military hardware, a stance that overlooks the substantial requirement for facilities, buildings, training and other services that UK defence relies on. Existing infrastructure also needs ongoing maintenance and support.
For manufacturers that don’t produce components for aircraft, ships or armoured vehicles, these wider requirements could provide a more relevant – and less obvious – route into the sector.
Defence investment undoubtedly creates new opportunities for UK manufacturers. But growth alone shouldn’t be the reason to pursue them. The objective isn’t to get every company into defence. It is to help the right businesses understand if they belong in the supply chain, where they can contribute and how to get there without taking unnecessary risks.
For those that can demonstrate a genuine fit, Andrew advised: do your homework, understand your differentiator and approach defence with a clear commercial case.
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