Is technology the answer to sky high inflation within the defence industry?
Inflation rose to 8.6% last month. That is the highest rise since 1981. In response, the global cost of living has risen exponentially. The impact of these challenging times is being felt in all industries. However, some industries are in demand now more than ever before. The defense sector is seeing huge growth as is the technology sector. When companies within these two growing industries partner up, we see real business strength. However, both sectors are not immune to the supply chain problems and rising costs. There is still a wide chasm between the winners and losers within both industries.
Inflation is also the enemy for the defense sector. The war in Ukraine means that the sector is seeing demand and growth but rising costs due to inflation could hinder that growth. Defense inflation usually runs at a higher rate than the general inflation rate as defense spending typically outpaces economic growth. The defense sector is heavily reliant on imported goods and services, which are subject to volatile currency markets. They are still using raw materials and labor as well as electricity in the manufacturing process. Another consideration is that many defense contracts are often signed years in advance, meaning that Defense Ministers may be committed to paying inflated prices for goods and services that have not yet been delivered. This can pose a challenge for governments and Defense Ministers when trying to control expenditure. The technology industry whilst not dealing with such high inflation, is still heavily reliant on the same things. Technology components have to be manufactured. The question is how does the defense sector mitigate such high inflation and the fall in productivity as well as the supply chain issues that inflation inevitably causes and still ensure that its expenditure delivers value for money?
The modern defense sector is a very different place to a few years ago. With the advent of new technologies, drones and AI are playing an increasingly important role in both military and civilian applications. Technology will have a large part to play in ensuring the defense sector is not hit hard from sky high inflation. Cyberspace is a large and growing part of modern warfare. Cyber attacks disable countries critical systems, including power grids, financial networks, and military command and control. Investing in strong cyber defenses is globally important and also relies less heavily on a manufactured product which will certainly help the defense industry ride the current storm.
Real business growth in the defense sector is in research and development, including AI, robotics and 3D printing. These are revolutionary technologies in the way we fight wars. For example 3D printing is a very fast way to manufacture. Stratview Research conducted a report which found that 3D printing in the military is expected to generate a total value of $1.7 billion by 2027. The control it affords, allows for experimentation and cheaper mass production as less people are needed to do the work. The organic 3D printing being developed now will play a huge part in better field medical support for example. It is also being used in the manufacture of rockets, substantially reducing the number of parts required. 3D printing has the capability to create detailed jet engine models, military-grade equipment protection, drone housing and more. Soon the US army will boast the world’s largest metal 3D printer for ground vehicle production with Astro America managing the build of it. The versatility, the speed and the localisation of 3D printing means that it’s going to play a big part in the future of defense. Another area is Artificial Intelligence which continues working and serving 24 hours a day, 365 days a year. This will ultimately lead companies to better productivity and profitability. Social media now has a huge impact on the way information is shared and disseminated. Platforms like Twitter and Facebook provide a new way for people to share information and communicate. This has been evident with the war in Ukraine. In this rapidly changing landscape, it is more important than ever for countries to keep up with the latest developments in order to stay ahead.
Companies offering simulated training experiences are on the up, like Improbable, which combines technology for games and digital entertainment with computational modeling, AI and data analytics. These simulations enable the construction of simulated environments, where clients play out military scenarios, investigating how factors like troop morale and ammunition supplies affect the probability of a successful operation. It allows defense clients to experiment, test plans, conduct training and improve overall organizational preparedness before taking real-world decisions. These examples show how the technology and defense sectors go hand in hand and the more they work together the better it will be for our global economy.
Alongside these innovations there are a number of things that Defense Ministers can also do to try and keep defense inflation under control. They can negotiate longer-term contracts with suppliers to help smooth out fluctuations in prices. They can also encourage competition within the defense sector by opening up procurement processes to new entrants. Ultimately, keeping defense inflation under control is essential for ensuring that Defense budgets are spent effectively and efficiently.
This was posted in Bdaily's Members' News section by Lucy Hood .