Complex technology and tight budgets help Sparton leverage prime contractor role as contract manufacturer
U.S. Department of Defense (DOD) budgets continue to shrink, which means fewer opportunities for defense contractors ... or does it?
For companies in the right businesses, military contracting opportunities are expanding as defense budgets contract, and one of the right businesses these days is contract manufacturing for aerospace and defense electronics.
"Shrinking defense budgets is a catalyst for our customers to outsource more products so they can focus on their core competencies," says Dave Robinson, director of operations at contract manufacturing specialist Sparton Corp. in De Leon Springs, Fla. "Contracting out lets them spend less, and also less on capital equipment," Robinson says.
So why don't the prime systems integrators -- who are primarily the customers of contract manufacturers -- make frequent use of contract manufacturers even when Pentagon budgets are generous? The business goes in cycles, explains Jim Lackemacher, group vice president of DSS engineered products at Sparton.
"What we have seen from the DOD side is that in times of reduced defense budgets, there always are pools of money that go into cutting-edge technologies to make sure we don't lose our military technology edge," Lackemacher says.
In addition, prime defense contractors tend to keep as much work in-house as possible when the Pentagon budget has plenty of money. That way companies can keep tight control and maintain their workforces at high levels. Lean times, however, force prime contractors to look for every bit of savings they can, and often realize that contract manufacturing represents the best deal.
Plus, there are other corners of the defense budget that can come into play for technology development during lean years, and Sparton has developed expertise over the years to capitalize on these trends.
"Even in the tightest budgets is a core amount provided to DOD to ensure that our technology doesn't stagnate. We are involved in a lot of that technology from agencies like DARPA [the U.S. Defense Advanced Research Projects Agency] to develop those technologies up-front."
Although the level of contract manufacturing for military systems may be stable or growing in these austere financial times, however, maintaining that business is never easy.
DOD officials are working with a procurement strategy called DOD Direct Manufacturing, which means that some technology development, or even prototypes in some cases, are required before defense companies can get approved for contract jobs.
"This puts more commercial onus on us; we have to invest in products to sell to the government," Lackemacher says. "Years ago there was a lot of up-front funding to take a concept to prototype. A lot of that is being migrated so the expectation from our government customers now it that instead of a Power Point slide, they are expecting a working model that meets their needs."
Unlike some contract manufacturers, Sparton is uniquely positioned for electronics manufacturing in a changing financial landscape. Sparton is the lead systems integrator on the Navy's airborne sonobuoy programs, and is involved in DARPA research programs. As a result the company assumes dual roles as prime contractor and contract manufacturer, depending on the program.
"We have the ability to see the scope of what is going on in the industry as whole, where some of our customers see only part of the industry," Robinson explains. "We can leverage the lessons learned in a product or device, and from a manufacturing approach can capitalize on how we can do that. It is cost-savings at the end of the day for the customer."
As prime systems integrators these days rely increasingly on contract manufacturers for routine electronic subsystems work Sparton experts say the primes also are trusting their contract manufacturing partners with increasing technological complexity, as well.
"You have to engage in what's going on in the technology community today," Robinson says. "Think of how far your cell phone has come over the last five years; things are getting smaller, so in a complexity perspective it is a lot harder to manufacture components today."
Sparton executives have invested in advanced manufacturing technologies like automated optical inspection (AOI) machines, which determines based on engineering data that all the right parts are in the right places, Robinson says. "We are updating that equipment because of the advances in our community. As things advance, we want to make sure we are in a position to stay current."
It's not just manufacturing equipment that helps Sparton stay on technology's leading edge. The company's expertise as a prime contractor and technology researcher has built-in advantages.
"We not only manufacture equipment for primes, we also develop them," Lackemacher points out. "That allows us to develop a large group of engineers and a large group of design talent. We leverage that prime contracting capability across the company to support other contract-manufacturing work."