Scaling defence capacity is a complex and multifaceted challenge

The need to address this scaling challenge today is evidenced by the fast-growing order backlogs across many parts of the defence industry in the UK and Europe. Many large defence ‘primes’ across the UK and Europe have been growing multi-billion pound order backlogs, which today, extend well into the 2030s.

Companies like these and newer players specialising in smaller, uncrewed capabilities will have to scale production outputs so the UK and its European allies have sufficient capacity to deter, and if necessary, engage in combat. To enable these and other top-tier defence suppliers to scale their outputs in line with customers’ warfighting demands, all parts of the supply chain must be capable of scaling their outputs and function together seamlessly to minimise frictions.

Companies across defence supply chains continue to face persistent challenges, including skills shortages, fragmented supplier networks, and inefficient procurement processes. These issues have historically limited the sector’s ability to respond dynamically to shifting demands and to engage a broader, more diverse supplier base.

To address this, defence supply chains must undergo a fundamental transformation to become more resilient and responsive to evolving customer needs. The complexity and scale of this challenge, spanning the UK and Europe, demands coordinated action from governments and industry. This is not a task for individual organisations alone; it requires enterprise-level collaboration and alignment to deliver collective benefit and long-term capability. Key aspects of such supply chain transformations include:

• Pan-NATO coordination of equipment requirements and the associated through-life support across all military capabilities to provide industry with a clear, unified demand signal. This alignment will enable defence suppliers to plan, invest, and deliver at scale, while reducing duplication and enhancing interoperability across allied forces.

• Taking measured steps to reduce reliance on international suppliers, who can be subject to volatilities in import and export regulations, tariffs, and other disruptions to international trade.

• Coordinated approaches to tackle skills shortages, which are exacerbated by ageing workforces. This is particularly true for science, technology, engineering, and mathematics (STEM) skill sets, where government and industry can explore joint financial incentivisation measures so younger workers obtain educational qualifications in such subjects and/or undertake relevant training when in employment.

• Collating real-time data from all companies, utilising Internet of Things (IoT) technologies and analytics to get a whole system view of performance, identify emerging issues, and take remedial actions before bottlenecks form.

• Investing in modular production techniques and robotics to streamline production processes, exploiting digital twins of physical assets to simulate alternative methods where possible.

• Incentivising greater openness in supply chains so they can tap into smaller and more innovative suppliers.

• Ensuring digital architecture enables supply chain integration and openness to new actors without compromising on cybersecurity.

As defence companies seek to scale outputs to meet increasing demand, they need to strike the right balance between optimising existing facilities and building new ones. As well as factors like anticipated demand and budgetary headroom, defence companies need to consider issues regarding where to locate any new facilities, the time to commission them, and ensuring they have resilient supply chains to support increased production. The challenges of optimising existing facilities are multifaceted. This approach reduces the capacity for growth as performance improvements are constrained by the limitations of current systems, access limitations that inhibit smooth logistics, and restricted labour markets. The supply chain can also become more complicated due to the increased reliance on advanced digital tools, which can introduce new vulnerabilities and require additional workforce development. However, if defence companies cannot invest in new facilities or have a significant lead-in time before they come online, then they should take the steps listed above, in concert with their supply chains, to make more incremental productivity gains.

Building new facilities can bring about more significant capacity increases on a long-term basis. However, as in other sectors, building new production facilities can entail significant upfront costs in construction, equipment, training, and, in some jurisdictions, navigation of complex planning rules. And, as the next section outlines, companies need to weigh up a range of factors about the location and design of new facilities before embarking on significant programmes of work to bring them online.

_{Read the other articles within the report below:}