BRICS nations have an opportunity to assert themselves on the global stage and are looking to invest in their armed forces.
Defense spending in the BRICS (Brazil, Russia, India, China, South Africa) and other emerging economies shows no signs of abating. Indian military imports are coming up to $100 billion, South Africa is tipped to spend over $5 billion and Latin America spent a whopping $73 billion in 2011. Linked with this level of investment, aerospace and defense vendors in these emerging economies are now looking at how they can best compete with western industry in terms of delivering through life increased operational efficiency. They must deliver effectiveness to the military along with new, competitive advantages while generating increased revenue for themselves.
But they can only do that if they pay attention not only to the manufacture of the military equipment itself, but also to the logistical and informational systems to support and deploy it where 80 percent of the through life cost, and therefore potential revenue, sit.
Rising costs of maintenance, the increased complexity of equipment and systems and the increasing awareness that asset sustainment is as if not more critical than asset acquisition mean that Performance-Based Logistics (PBL) contracts have become an increasingly important requirement for the military and defense suppliers.
These contracts, involve industry (be it a weapons system or equipment vendor or a specialist services provider) selling logistical support, maintenance and sustainment as services, rather than assets, in a contract based upon performance or outputs. For instance, they may sell a certain number of flight hours, or a certain level of availability. The military find the approach attractive as it avoids ‘surprises’ in terms of costs for maintenance or sustainment after making their initial investment and industry accept the additional risks as it gives access to increased financial certainty and increased downstream revenue.
The UK and US, as mature arms markets, have already realized the benefits of PBL over the last decade. So much in fact, that PBL is now a mandated consideration for major procurements in these nations. Defense industries in the BRICS, with increasing industrial maturity and capability, also see PBL as an increasing industrial focus. This “power by the hour” approach means that these emerging nations can also lock into a total lifecycle revenue stream for their new capabilities.
Traditional ERP solutions not flexible or transparent enough
When a department or ministry of defense purchases the weapon system as a service rather a piece of hardware, they mitigate the risks of maintaining and supporting ever more complex military equipment and gain control and predictability over total cost of weapons system sustainment. In parallel, it is often the best way for aerospace and defense (A&D) manufacturers and contractors to offer an integrated package and gain access to increased and predictable revenue streams. As 80 percent of total system cost sits outside initial purchase and lies within maintenance and logistics, additional revenues are also realized that might otherwise go to a third party maintenance or logistics provider. This aftermarket involvement also means contractors and vendors get key operational data feedback to deliver support chain efficiency – or even make design improvements to the product for lower total lifecycle cost going forward.
PBL solutions are a proven method to manage these complex customer and supplier contractual relationships, but they have had challenges. History has shown that they need to be delivered through an integrated enterprise-wide information solution. Whether or not a contract works is often dependent on whether there is an effective corporate performance strategy to ensure that both parties (customer and supplier) meet their objectives, with risks managed for all. By providing a robust maintenance and support chain solution coupled with this openness with regard to performance, it gives the military customer more confidence and more control to deliver operational tasking. For the industrial supplier, the data feedback also allows them to meet KPIs and brings greater efficiency, reliability and availability and thus greater profit – a win-win.
A templated solution is more flexible and easier to implement
Recent developments in PBL solutions, such as the IFS Templated offering, have come just at the right time for the BRICS aerospace and defense industries, and for ministries/departments of defense that are expanding, maturing and looking for competitive advantage without incurring the expense and inflexibility of traditional ERP systems.
A templated solution has been pre-configured to best industry practice and can therefore be easily and quickly implemented. In addition, the IFS PBL Templated solution is modular and can therefore be implemented at much lower total cost of ownership (TCO) than a more rigid solution, with reduced disruption to existing systems. This modular, flexible software design also makes it easier to accommodate business change – whether existing practices or are currently paper-based or automated.
The solution also eliminates some of the challenges presented by information sharing through establishing common KPIs and eliminating strategy leakage across the enterprise.
While the US and Europe’s major military powers are reducing defense spending over the next few years, the BRICS nations have an opportunity to assert themselves on the global stage, and are looking to invest in their armed forces. These emerging powers are now searching for the right balance of investment between hardware and system availability and performance in order to meet agreed contract metrics, and the templated PBL solution is the way forward.