Supply chain reform ‘critical’ for future defence capability in Australia

The new geostrategic reality requires a rethink on resilient supply chains in Australia and on how to support investment in our domestic defence industry.

For cutting-edge defence domestic capabilities to be realised in Australia, the foundations must be laid now.

The Defence Minister, Peter Dutton, recently observed that Australia is “grappling with a regional environment far more complex and far less predictable than at any time since the Second World War”.

As a 25-year veteran of the Australian Defence Force, and as the CEO of a domestic Defence enterprise nearing its 10-year anniversary, I wholeheartedly agree with this observation.

Rapid advancements in war-fighting technologies – in areas including space, cyberspace, artificial intelligence, and unmanned systems – accompanied by an increasingly unstable and contested Indo-Pacific region is forcing a reconsideration of many of the assumptions Australians, myself included, have long based our national security interests on.

So too has the Covid-19 pandemic, which over the last 18 months exposed the vulnerability of global supply chains, demonstrating how easily and swiftly supply chains for critical products and material – be they for health, manufacturing, or defence – could be turned off like a tap at a moment’s notice.

The new geostrategic reality Australia finds itself confronted with today requires a fundamental rethink in how to establish resilient end-to-end supply chains in Australia, and how investment in our domestic Defence industry is supported and prioritised.

I am not alone in thinking this. There is a growing chorus of voices across industry, Defence, academia and government calling for meaningful reform of our national security investment strategy. A recent Flinders University report examining Australian sovereign capability and supply chain resilience concluded that Australia has the highest dependency on manufactured imports – and the lowest level of manufacturing self-sufficiency – of any OECD country in key areas, including national security.

And late last year a bipartisan inquiry by the Joint Standing Committee on Foreign Affairs, Defence and Trade into the implications of the Covid-19 pandemic for Australia’s national and economic security found that the pandemic exposed “structural vulnerabilities in some of the critical national systems that enable Australia to function as a secure, prosperous first-world nation.”

The first step in achieving a sovereign defence industry and resilient supply chains in Australia is a meaningful pivot to what I call “OOC” – ownership, operations, and capabilities – across the defence ecosystem.

OOC outlines three core standards that if implemented, support the development of sovereign defence capabilities.

These standards require: Australian ownership as a prerequisite; organisations being headquartered entirely in Australia; and organisations supported by the means, workforce, technology and materials to deliver outcomes that support our national defence. Put simply, we can no longer afford to rely on defence firms, whose only domestic link is an ABN, for our national security.

It is long-past time substantive and self-sustaining measures are established that enable Australia to provide for itself – rather than relying on others – in times of crisis. Without an immediate step-change in how investment in sovereign industrial capability in Australia is undertaken, not only will our ability to secure the nation remain subject to external factors, but the artificial ceilings inhibiting local small and medium enterprises (SMEs) will constrain the capacity of local industry to offer genuine sovereign capability solutions.

With the defence budget on track to grow well beyond 2 per cent of GDP, the federal government is making major inroads to boost the capabilities of Australia’s defence industry.

Initiatives like the Defence Innovation Hub, and expansion of Australia’s Sovereign Industrial Capability Priorities to include growing arenas like cyber, space, AI, and guided weapons are very welcome.

So too is the government’s willingness to make tough decisions to ensure defence procurement aligns with geostrategic realities, as shown with the recent decision to acquire and manufacture nuclear-powered submarines in Australia.

However, more support and investment in domestic SMEs is needed. And government needs to work closer, and more directly, with local industry.

Jon Hawkins, the founder and chief executive of Omni Executive.

Government must also incentivise and reward onshore providers. More effort should be made to integrate Australian SMEs into domestic defence procurement programs as the primary providers, and priority should be given to contractors who demonstrate a vertically integrated onshore capability.

It has never been a more critical time to take meaningful action to build a sustainable and self-sufficient defence industry in Australia.

The time horizon for defence procurement is long and for cutting-edge defence capabilities – capabilities that do not rely on the fragile offshore supply chains and foreign defence firms – to be realised in Australia, the foundations must be laid now.

Jon “Irish” Hawkins is the founder and chief executive of Omni Executive and a 25-year veteran of the Australian Defence Force.