What real estate is required to match the increased need?

There are many successful recent examples of European defence companies investing in new facilities to enhance long-term productivity, including the ammunition plant that Rheinmetall is building in Unterlüß, Germany. The plant will primarily serve the needs of the Bundeswehr, but it is also designed to meet increased demand from other European markets. The size of the scaling needs across the UK and Europe means that other defence companies will make similar investments to Rheinmetall, coordinating planning with governments and, increasingly, leveraging private finance to accelerate implementation. Such intent is evident in the UK, where the government has allocated £1.5 billion towards the development of six new munitions factories to establish an ‘always-on’ production capacity if there is a need to rapidly scale up munitions output. Place-based thinking is integral to considerations about investment in new facilities of the kind described above. Identifying the best options for locations of new facilities is a complex challenge. An approach that gives due consideration and weighting to all the factors listed below is necessary.

Location – balancing multiple factors

Connectivity to customers and supply chain: Defence companies need their production facilities to be well-connected to suppliers and customers to minimise logistical frictions and satisfy the latter’s demands efficiently without excessive distribution costs. In many cases, such connectivity needs can be supplied through building facilities near suppliers and customers, but this might not always be possible because of space constraints or other planning factors being a greater priority. Therefore, good accessibility to road and rail networks and, where capabilities need to be moved overseas or exported, international shipping terminals are vital.

Labour market: Defence companies need to be able to access sufficiently skilled and large labour pools, so they can build the requisite workforces to operate their production facilities. The nature of contemporary engineering and manufacturing will mean that many defence companies will need a workforce with a diverse skills base and a critical mass of digital literacy. As they become established in a location, defence companies should make strategic investments in training programmes, apprenticeships, and partnerships with educational institutions to build enduring talent pipelines.

Agglomeration economies: Experiences from places like Southern Indiana in the US and Île-de-France and Bavaria in Europe indicate that locating new facilities in areas with existing defence clusters can provide significant benefits, particularly in relation to supply chain connectivity and access to suitably skilled labour markets. Also, agglomeration can help defence companies to share resources, knowledge, and drive innovation as they increasingly work with organisations that they view as competitors, along with academia and research institutions, to respond to militaries’ demand at sufficient scale.

Utilities: Access to reliable utilities is crucial when selecting a manufacturing site, particularly if and when they need to shift to more intensive production. Consistent power, water, and communication services ensure uninterrupted operations, reduce downtime, and support advanced manufacturing processes, ensuring defence suppliers are sufficiently productive to meet their customers’ needs.

Geopolitical stability: Defence suppliers and the governments that rely on them need to make judgements about how their facilities lay-down exposes them to international trade barriers, and, increasingly, to security threats from nefarious actors. This applies to asymmetric ‘grey zone’ threats with the potential for crude acts of sabotage at production facilities to disrupt supply chains. Also, in the event of a conventional conflict breaking out, defence production facilities are likely to be treated as military targets. Companies and governments, therefore, need to make difficult decisions to protect their facilities against conventional and unconventional security threats, as well as assessing the feasibility of using a more distributed network of production facilities across locations that can operate independently to bolster operational resilience.

Building requirements: Tailored facilities for mission-critical operations

State-of-the-art logistics units: Modern logistics units equipped with advanced technology and infrastructure are crucial for efficient operations. These units should include features such as automated storage and retrieval systems, climate control, and secure communication networks, all of which can make complex manufacturing and logistical processes, which are inevitable aspects of defence industry operations, more resilient and efficient.

Build-to-suit: Build-to-suit facilities can be tailored to meet specific operational requirements, including secure manufacturing areas, research labs, and testing grounds. Co-location of such functions can be integral to shortening innovation cycles, allowing for rapid iteration and deployment of new capabilities. Build-to-suit projects also allow for scalability, enabling companies to expand or adapt their operations as needed without the constraints of existing structures. Given rapid advances in warfighting capabilities, this ability to accommodate rapid reconfiguration for different platforms or mission needs is of critical importance for defence suppliers.

Security configurations: Defence companies need to take a threat-based, integrated approach when designing the security model for their facilities. Taking a threat-based approach will mean security models are better calibrated and less likely to be over-engineered, bolstering overall productivity in a facility. Adopting an integrated approach will also mean that companies are well placed to meet security objectives through a blend of physical, operational, technical, and cybersecurity measures, using layered access arrangements where necessary. Such security models also need to extend to how facilities interact with adjacent businesses, local law enforcement, and public transportation authorities, all of which can have a part to play.

Sustainability: Incorporating energy-efficient systems and renewable sources into manufacturing facilities can enhance long-term viability, reduce environmental impact, lower costs, and ensure compliance with any local regulations.

The relative importance of these factors will vary depending on the company and the prevailing socio-economic and geopolitical contexts at any given time. Whatever the context, a thorough analysis of location options for new facilities is a critical step that requires provision of sufficient time and expertise. This will enable defence companies to make decisions about investment in new facilities, so they scale in a way that best corresponds with their growth ambitions and meet ever-increasing demand.

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