HYDAC’s AIC journey as an SME

HYDAC’s AIC journey as an SME

By HYDAC National Development Manager for the Australian Defence Program James McEwen.

To date HYDAC Australia has invested considerable time and energy into the defence sector as a small-medium enterprise (SME) in pursuit of becoming a leading hydraulic, automation and control supplier to the Australian Defence Force (ADF).

This entails HYDAC scrutinising the ADF from an SME business point of view in terms of whether it has demand for HYDAC’s capability and how HYDAC would optimally work within it.

This is motivated by the defence ecosystem and its 20-plus year vision as presented in the 2016 Defence White Paper to modernise and ensure key defence objectives are in place and to protect Australia’s interests and advance the country’s strategic interests through the promotion of security and stability via military capability.

Of significance here are key industry policy statements behind this 2016 paper, which refer to guidelines as to how the defence industry operates and how defence investments are integrated into operation. They provide high-level insight where defence and industry partnerships come alive and the concept of Australian Industry Capability (AIC) is introduced.

AIC from a macro perspective

Through the AIC program government wants to provide Australian companies with the opportunity to compete on merit for defence work packages and work opportunities as well as influence prime contractors and major OEMS in their delivery of cost-effective support mechanisms. And of course, this program is about encouraging investment in Australian industry.

This integrated approach provides significant opportunity for HYDAC with its European manufacturing heritage as it underlies and encourages the facilitation of the transfer of technology and intellectual property to build and develop sovereign capability in Australia.

This can be put into the context of the ADF’s industry policy statement, which entails being aware of and respecting the process behind the scenes.

Here a significant amount of work and thought continues to be invested to support an industry committed to delivering on the ADF’s AU$270 billion program and the manner in which 3,000 Australian SMEs can maximise and leverage off this expenditure. And within that there's capability realisation from government in terms of how Australian industries can contribute and grow through these work packages. 

HYDAC’s personal ‘defence’ journey has been very much about understanding the AIC and its role within the AIC so that it can package its value proposition in a way that makes sense to the defence sector. 

There are many classic examples of SMEs working with major prime contractors to produce world-class products. In this regard the defence industry policy statement centres around recognising industry as a funnel input to defence capability.

The capability the ADF requires is made concrete in a modernised defence force with the ability to deploy, operate and sustain technologically superior capabilities to maintain its position as a strong and organised force at the forefront of technology.

The ADF achieves this by acquiring advanced technology from international partners, which once again lights up the importance of bringing in external expertise from around the globe to deliver on locally made solutions as a program theme.

For SMEs this is the inspired part of the defence industry’s policy statement because it is linked to securing sovereign industrial capabilities. What government and its vision are in effect saying is, “Hey guys, we want you to stand up and be recognised around the globe”.

Government has identified industrial capability as any information or knowledge, technology or technology application, which makes HYDAC a fit as it builds subassemblies, puts systems together and constantly innovates as well as providing personnel, skills, discipline, training and education, which too are very important.

All this permits HYDAC – from an industry point of view – to put up its hand as capable of enabling the ADF to meet a defence capability outcome.

Defence and data

One of the big things about the HYDAC and its defence story is that it hinges on data. 

Katherine Ziesing from Australian Defence Magazine highlights in an article that in 2019 The Capability Acquisition and Sustainment Group (CASG) processed 10,466 contracts worth $12.32 billion. Furthermore, it processed 16 out 1625 contract amendments totalling $6.7 billion over the same year, with $19.02 billion of taxpayer money spent.

The point of this is to show how many contracts are issued every day and how this sector is of true interest to SMEs like the HYDACs of the world.

AIC content stipulated in defence contracts

Global prime contractors awarded major ADF contracts are being held to account to achieve maximum Australian industry content.

The investment policy stipulates that they have to work with Australian companies by providing opportunities for them to stand up and showcase their ability to work with prime contractors.

Piper Alderman Insight article ‘Australian Industry Capability in the Spotlight’ by Tim O’Callaghan and Alister Waters jumps out here because it makes the point that AIC plans are a staple of the Commonwealth’s defence procurement program, with prospective contractors identifying supply chains that maximise Australian input.

It is at this point that HYDAC is becoming more attuned to the ADF’s requirements, including writing its story in a way that transparently reveals its value proposition and where its components are sourced because the name of the game is risk mitigation and the formation of partnerships with prime contractors.

Of critical importance here is the amount of AIC content required to form a contract, which is unclear and debated. This is especially relevant to me as my role within HYDAC Australia is focused on giving out AIC value, which is clear in HYDAC’s position as a German manufacturer of fluid power components that are globally distributed as well as its global quality and training programs and many years’ experience in the sector.

I really want to underscore here that a fundamental part of HYDAC’s AIC story is its global presence with global capability but also local competency in Australia to understand what’s going on.

In addition HYDAC has its own cutting-edge production facilities where core components have value added through the construction of subassemblies via the company’s internal expertise at hand. This shows the company’s capability to work in conjunction with other engineering firms and develop ideas because this is what it’s all about – working in partnership in terms of an AIC value proposition.

This journey of HYDAC continually becoming defence sector smarter includes realising that it doesn’t need to reinvent the wheel but rather to bring core IP technology to Australia for packaging in many forms to make life easier for stakeholders in the defence sector.

This obviously entails collaborating with other SMEs to put sub-systems in place for an easier time of it on the part of prime contractors.

On the ground experience from working with the ADF

In conclusion I’d like to highlight learnings from my experience of working with the ADF, which always evolves as every day constitutes a new learning experience.  

The first thing is acknowledging and respecting the ADF’s framework and background, which entails an appreciation of the different phases an idea or requirement has to undergo before a problem can be solved.

Secondly it’s acknowledging and respecting the ADF’s supply chain tier structure to understand the critical role that a prime contractor brings to the table, why a prime contractor is involved, and how HYDAC can support a prime contractor as a tier-two or tier-three supplier.

In this regard it’s all about risk mitigation, HYDAC’s internal supply network and the actual presentation of an Australian Industry Capability Plan (AICP) that involves articulating the story of HYDAC as a global presence with local competencies that can be applied to an AIC program as backed by quality assurance programs, quality procedures, quality certificates and an AIC supportive investment plan.

These three factors link together to create a proven story emphasising the commitment, investment and people HYDAC has at hand to develop and become relevant to the AIC story.

Critical to this is the company’s investment in developing training modules to upskill tradesmen based on the recognition that to deliver on promises a skilled and knowledgeable workforce is required with hands-on knowledge.

In addition to these focus areas, HYDAC is investing in improving its security, making progress on quality processes that need to be implemented for accreditation, and continually investing in education and training, including virtual reality training. 

This is in line with HYDAC’s quest to make sure its capability statement evolves constantly as well as its defence industry journey. 

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