The war on terrorism and a large, as-yet-unspecified chunk of the U.S. government’s $40 billion disaster relief allocation will mean business opportunities for the substantial supply chain that serves the military, experts say.
Sales and marketing executives need to take the initiative to get in front of the government, they say, noting that Defense Department buyers will have little time to seek out new suppliers. In fact, the supply base has been significantly downsized in recent years.
Robert Luby, lead partner for supply chain and operational systems in the government practice of PricewaterhouseCoopers, Arlington, Va., said four challenges face the Defense Department and its suppliers: a shift from military might to intelligence; poor procurement practices; onerous terms and conditions for suppliers; and aging facilities.
But Luby said there’s hope that for this war, Defense Department spending will be far more efficient.
The Defense Logistics Agency, which handles about $14 billion in annual spending, is in the midst of a business system modernization that is already making it better at spotting product needs, Luby said. And major enterprise resource planning systems, which have become operational in such areas as the space warfare program and the Navy Marine Corp., also promise to make the department more efficient.
"Businesses have to have their own houses in order before they can be a collaborative player with the Defense Department," Luby said. That means being ready to handle electronic requests for proposals, ordering and transaction processing, he said.
Calls to government purchasing officials were not returned by press time.
Kevin Hainley, CFO of Ontro, Inc., said electronic communication allowed his Poway, Calif.-based company to win a contact to develop a "kitchen-in-a-box" product for the U.S. Army. Ontro’s system delivers hot meals for 18 people at a time without use of fire. The contract was disclosed Sept. 19.
"The days of companies presenting to the Defense Department have diminished greatly," said Michael Toomey, director-business development for marketing and communications firm SCT Group, Northborough, Mass.
"Companies have to decide for themselves what pains they solve for the Defense Department," Toomey said. "You are seeing less access to decision-makers and nominal time available for presentations."
A key way marketers can promote themselves to Department of Defense procurement personnel is through the National Technology Alliance, a collaboration of government, industry and academia. The NTA includes a rapid-insertion technology that enables companies to pitch their wares to FBI, CIA and military personnel within two weeks.
The largest defense contractors, however, are staying low-key, from a marketing standpoint.
James Fetig, spokesman for Lockheed Martin Corp., said the big suppliers are unlikely to be immediately impacted by Defense Department spending. Bethesda, Md.-based Lockheed said there were no plans to capitalize with corporate positioning advertising that might parlay enthusiasm for defense industry stocks.
"[It] is unseemly for anyone to directly profit from a war," Fetig said.
In fact, most major defense contractors pulled advertising during the last two American military campaigns, the Gulf War and Bosnia, said John Robinson, managing editor of Defense Daily.
In coming months, the spotlight will be on second- and third-tier suppliers, who will be looked upon to provide both the obvious and obscure to a Defense Department with new goals, experts said. According to the Defense Department’s fiscal 2000 budget, $89.7 billion will be spent on maintenance, repair and operations this year and about $80 billion will be spent on logistics. That figure is expected to increase dramatically in coming years, according to PricewaterhouseCoopers’ Luby.
And that’s not money spent on billion-dollar supersonic jet fighter systems, but on food, clothing, munitions, parts, oil, fuel, computer infrastructure, salaries, medical treatment and other aspects of staging a war. And it is primarily small and midsize niche players who provide that type of support.
Needs will arise
Look for suppliers of repair parts to experience order increases as a result of prolonged military readiness. And in many cases, the Defense Department will experience needs for new maintenance and repair parts that it has not already earmarked a supplier for, experts said.
A spokesman for the National Defense Industrial Association, which represents 900 companies and is designed to increase visibility and distribute information to government, said one of the challenges of moving forward is identifying companies that can provide unique repair parts and newfangled systems.
The Defense Department has gone from using 178,000 vendors to 20,000 over the last decade and now faces the prospect of expanding that base, an NDIA spokesman said. It will take almost no time for spot-driven commodity industries like electronics to catch up to increased Defense Department expenditures, but up to six years for some other industries, the NDIA spokesman said.