Thales: Value and Impact of Australian Supply Chain...May 19, 2020 · Key findings –supply chain...

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Thales: Value and Impact of Australian Supply Chain19 May 2020

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Executive Summary: Measuring Thales’s supply chain spend and impact

Key findings – supply chain spending trends

▪ Thales is a significant investor in local Australian businesses, with supply chain spend totalling $1.3b between 2017and 2019, of which 70% was associated with Maritime Service & Support, Protected Vehicles and Munitions & SmallArms. Thales’s supply base over this period included 1,616 Australian suppliers.

▪ In 2019, Thales spent $522m on 1,362 Australian firms, of which $140m was spent on procurement for Protected Vehicles, $113m for Maritime Service & Support and $113m for Munitions & Small Arms.

▪ SMEs are a critical part of Thales’s Australian supply chains, with almost 1,000 SMEs making-up 70% of all Thales’s Australian suppliers in 2019, and winning 61% of Thales’s Australian procurement spending.

▪ 89% of Thales’s Australian suppliers are in NSW, Victoria and Queensland, as this is where production is located;however, suppliers in all States and Territories receive some investment.

Key findings – supply chain jobs and economic impact

▪ Spending by Thales on suppliers supported 1,765 jobs in 2019, with Munitions & Small Arms, and Protected Vehiclesmaking the biggest contributions, at 414 (23%) and 380 (22%) jobs respectively.

▪ Nearly half of supply chain jobs associated with Thales’s Australian spending are in SMEs: of the 1,765 jobs 872(50%) are with SMEs.

▪ Thales supports jobs with suppliers all across the country, 88% of jobs are in NSW, Victoria and Queensland as this iswhere production is located.

▪ Thales sites have significant local economic impact: across major sites, 65% of suppliers, 55% of spend and 62% ofjobs supported are in the state where manufacturing occurs.

▪ Across major sites, Thales procures a substantial amount of manufactured machinery, either directly or throughwholesalers; however, purchases from other industries vary by location according to the type of productionundertaken at each site.

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Context for study

▪ Understanding the value and impact of Defence Prime spend on local Australian businesses is critical as the Australian Government ramps-up its $200bn Integrated Investment Program (IIP).

▪ Prime defence contractors, such as Thales, are key to translating IIP spend into effective local supply chain and investment programs because they provide a link between the Department of Defence’s investment and the many other Australian businesses that participate in the Prime’s supply chains.

– Thales is one of Australia’s largest manufacturers of Defence capabilities in Australia, with 12 major sites located around the country.

– Thales is a significant customer for other local Australian businesses that participate in its supply chains, with spending of $1.3b from 2017 – 2019.

▪ However, to date there has been little quantitative data available on the local investment programs of Primes, and and the impact that their investment has on other local businesses and economies.

▪ In an Australian first study, Thales Australia partnered with AlphaBeta Advisors to take a data-driven approach to quantifying supply chain spending and impact by using anonymised Thales procurement and expenditure data, matched with firm level data from Illion, to analyse Thales’s actual spending and its impact over three years, and in the 2019 year.

– Illion is a credit-check provider that specialises in commercial credit checks. The company collects data on firm financials, characteristics and payment history, providing rich insights into the composition of Australian firms.

▪ This enabled the study to use actual spending and firm-level data to measure:

a. The value of Thales’s spending on local Australian businesses in its supply chains

b. The value and characteristics of this spending by program, location and supplier business size

c. The impact of this spending on local jobs and economies

Executive Summary: Measuring Thales’s supply chains spend and impact

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1. Thales makes a significant investment in Australian businesses, with spending of $1.3b on Australian suppliers from 2017-2019

2. In 2019, Thales had 1,362 Australian suppliers, of which 70% were small or medium businesses

3. Thales’s spending has significant economic impact, supporting 1,765 jobs in Australian suppliers in 2019, and making a strong contribution to local jobs, businesses and communities

4. Thales’s major manufacturing sites in Australia have a significant impact on local economies and jobs

5. Appendix: Methodology

Contents

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Air Traffic Management▪ $59m spent delivering to:

Shared Services & Corporate▪ $154m spent with suppliers

delivering to:

Munitions & Small Arms▪ $350m spent with

suppliers delivering to:

Under Water Systems▪ $76m spent delivering

to:

Protected Vehicles▪ $301m spent with


Secure Communications & Transport▪ $104m spend with suppliers delivering

to:

Melbourne6

Bendigo

MelbourneMulwala/Benalla

Garden Island

Eagle Farm

Darwin

Lithgow & Orchard Hills

Rydalmere

Sydney Olympic Park

Canberra

Newcastle

West Leaderville &Rockingham

Thales is one of Australia’s largest manufacturers of Defence capabilities in Australia, with 12 major sites located around the country

SOURCE: ABS , Illion, Thales procurement and expenditure data, AlphaBeta analysis

1. OVERVIEW OF THALES’S AUSTRALIAN SPENDING ON SUPPLIERS

Between 2017 and 2019 Thales spent $1.3bn with Australian suppliers to deliver projects across 12 majorThales sites in Australia

Garden Island

Darwin

Newcastle

1

2

3

Bendigo

Eagle Farm

Melbourne

4

5

6

Sydney Olympic Park and nationally12

Maritime Service & Support▪ $272m spent with


Mulwala/Benalla

Lithgow & OrchardHills

Rydalmere8

West Leederville & Rockingham

9

10

11

Canberra7

Rydalmere8

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In 2017-2019 Thales spent $1.3b with Australian suppliers, with Maritime Service & Support, Protected Vehicles and Munitions & Small Arms accounting for 62%


$272m

$350m

$59m

Under Water Systems

$301m

$104m

$154m

Protected vehicles

$76m

2017-2019

Munitions & Small Arms

Maritime Service & Support

Shared Services & Corporate

Secure Communications &Transport

Air Traffic Management

$1,315m

Thales’s spending with Australian suppliers by program by year

$m, calendar year

Thales’s spending with Australian suppliers by program

$m, 2017-19

10%

33%

21%

18%

2019

11%

6%6%

2017

28%

20%

22%

12%

7%7%

22%

6%

2018

27%

22%

12%

5%

6%

$342m

$452m

$522m


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Between 2017-2019, Thales contracted an average of 1,313 Australian suppliers per year, including 1,616 different suppliers over this period

Thales’s Australian suppliers by program

# of suppliers, 2017-2019 average per annum

• Providers can supply for multiple projects, hence total number of providers by project is greater than total number of providers used across all programs.

• There has been substantial commonality in suppliers over the last two years. However, the total number of suppliers engaged is still significantly higher than the number engaged in a given year – hence the average number of suppliers used over 2017-19 is lower than the total number of suppliers used in that period.



# of suppliers, 2017-2019 count of unique providers

1,616

712

358

312

212

170

153

40

All programs


Secure Communications & Transport

Protected vehicles



Under Water Systems


1,313

614

275

270

148

135

121

28

Under Water Systems


All programs


Protected vehicles





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Contents

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Payments to Thales’s Australian suppliers were $522m across 1,362 suppliers in 2019, with Munitions & Small Arms having the highest supplier engagement



# of suppliers, calendar year 2019

• Providers can supply for multiple projects, hence total number of providers by project is greater than total number of providers used across all programs.

• Payment per supplier varies by program. The Munitions & Small Arms program averages c. $180K per supplier. Payment per supplier is notably higher for Air Traffic Management, Protected Vehicles, Shared Services & Corporate and Maritime Service & Support, and Secure Communications & Transport.

Spend (2019)

2. PROFILE OF THALES’S AUSTRALIAN SUPPLIER SPEND & IMPACT IN 2019

1,362

624

294

266

172

149

122

29Air Traffic Management

All programs



Protected vehicles


Under Water Systems


$522m

$113m

$60m

$140m

$113m

$37m

$27m

$32m

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SMEs accounted for 70% of the 1,362 Australian suppliers Thales procured from in 2019, winning 61% of Thales’s Australian procurement spending


44(8%)

410(30%)

649(48%)

303(22%)

Number of firms % of spend

270(52%)

Large businesses

207(40%)

Small businesses

Medium businesses

1,362 522

• Large businesses includes businesses with more than 200 employees• Medium businesses includes businesses with 20-200 employees• Small businesses includes businesses with less than 20 employees

314(61%)952

(70%)

Thales’s Australian suppliers and spend by business size

Number (%) of suppliers (LHS) and $m (%) spend (RHS), calendar year 2019


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While Thales’s supplier base is national, 89% of suppliers are in NSW, Victoria and Queensland as this is where production is located


7 Suppliers providing$5m goods & services57% SMEs






54 Suppliers providing $18m goods & services69% SMEs

NSW

TAS

VIC

ACT

QLD

NT

Melbourne

Bendigo Sydney Olympic Park

Mulwala/Benalla

Garden Island

Eagle Farm

Darwin

Lithgow & Orchard HillsWest Leederville &Rockingham Rydalmere

Canberra

Newcastle

Thales’s suppliers by state

#, $m, %SMEs, calendar year 2019,

1%

<1%40%

43%

3%

6%3%

40 Suppliers providing$21m goods & services

78% SMEs SA

Suppliers can operate in multiple states, such that count of suppliers by state is greater than the count of all suppliers


X - State share of national suppliers

4%

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Australian SMEs are most competitive in basic manufacturing industries as well as some services

Note: Excludes all industries with less than $6m in spendingSOURCE: ABS , Illion, Thales procurement and expenditure data, AlphaBeta analysis

Thales tends to contract SMEs to supply basic manufactured goods. SMEs provide over 50% of goods in 4 out of 5 key manufacturing industries. Other areas where SMEs have a dominant share include repair and maintenance, rental and hiring services, finance and construction (engineering and other)

Thales is more likely to contract larger firms to deliver a wide range of services.

ServicesManufacturing SME share Large share

100

100

100

100

100

100

92

77

70

67

63

61

56

51

29

19

10

6

8.2

Computer System Design and Related Services

Building Construction

Professional, Scientific and Technical Services

Administrative Services

Repair and Maintenance

Heavy and Civil Engineering Construction

Fabricated Metal Product Manufacturing

Polymer Product and Rubber Product Manufacturing

Rental and Hiring Services (except Real Estate)

Road Transport

Finance

11.0

Machinery and Equipment Wholesaling

Construction Services

Basic Material Wholesaling

Machinery and Equipment Manufacturing

21.3

Transport Equipment Manufacturing

13.3

Transport Support Services

Other Store-Based Retailing

Public Order, Safety and Regulatory Services

Textile, Leather, Clothing and Footwear Manufacturing

41.8

18.3

13.8

7.9

7.0

39.7

16.9

105.5

55.2

7.1

18.9

7.6

26.1

13.4

13.1

24.0

Thales’s spending by industry

% share for SME and Large suppliers, calendar year 2019$m spend p.a.


6

2

% share spent with SMEs

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Australian SMEs are competitive in larger spending industries, winning 5 of the 10 top industries Thales procures from

Note: Excludes all industries with less than $6m in spendSOURCE: ABS , Illion, Thales procurement and expenditure data, AlphaBeta analysis

% share spent with SMEs

20.2

10.6

8.0

7.6

5.0

4.6

4.1

3.6

3.5

3.2

2.6

2.6

2.6

2.5

2.1

1.6

1.5

1.4

1.4

• SMEs win a greater share of spending by value in 14 of the 20 major industries in 2019

• SMEs had a greater share of spending in 7 of the top 10 highest value industries by spend.

$m spent with SME and Large suppliers, calendar year 2019

Thales’s spending by industry

% Share of Thales’s total spend p.a.

SME share Large share

Heavy and Civil Engineering Construction

Finance

Professional, Scientific and Technical Services

61

11.0

100

39.7

77

100

51

Machinery and Equipment Wholesaling

7.6

Fabricated Metal Product Manufacturing

Machinery and Equipment Manufacturing

29Transport Support Services

100

Computer System Design and Related Services

13.8

Public Order, Safety and Regulatory Services

Construction Services 67

100

56

92

Repair and Maintenance

21.3

Administrative Services

Textile, Leather, Clothing and Footwear Manufacturing

Other Store-Based Retailing

Transport Equipment Manufacturing

Polymer Product and Rubber Product Manufacturing

100Road Transport

Rental and Hiring Services (except Real Estate)

Basic Material Wholesaling

Building Construction

105.5

55.2

41.8

26.1

24.0

18.9

18.3

8.2

16.9

13.4

13.3

7.1

13.1

7.9

7.0 1.3


2

10

19

63

70

100

6

6

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Contents

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Thales’s Australian supplier spend supported 1,765 jobs in 2019, including 872 with Australian SMEs

1,765

414

380

355

290

197

72

56

Protected vehicles

All programs


Under Water Systems





Thales’s jobs supported by program

# of jobs supported, calendar year 2019

893(50%)

Jobs supported

169(10%)

703(40%)

Small businesses

Large businesses

Medium businesses

1,765

Thales’s jobs supported in SME/Non-SME suppliers

% of jobs supported, calendar year 2019

• Large businesses includes businesses with more than 200 employees• Medium businesses includes businesses with 20-200 employees• Small businesses includes businesses with less than 20 employees


872(50%)

3. ECONOMIC IMPACT OF THALES’S AUSTRALIAN SUPPLIER SPENDING

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While Thales’s jobs impact is national, 88% of supplier jobs are in NSW, Victoria and Queensland as this is where production is located

0 Thales employees12 jobs through suppliers97% with SMEs

1,470 Thales employees525 jobs through suppliers57% with SMEs


1,700 Thales employees925 jobs through suppliers34% with SMEs

TAS

VIC

ACT

<1%

Thales’s jobs supported by state

#, $m, %SMEs, calendar year 2019,




NSW

QLD

NT

WA

Note: Excludes non-attributable Thales employees SOURCE: ABS , Illion, Thales procurement and expenditure data, AlphaBeta analysis

Melbourne

Bendigo

Mulwala/Benalla

Lithgow & Orchard Hills

Eagle Farm

West Leaderville &Rockingham

Garden Island

Darwin

Rydalmere

Sydney Olympic Park

Canberra

Newcastle

SA

<1%

52%

30%

3%

6%5%



X - State share of national jobs with suppliers

5%

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Thales sites have significant local economic impact: majority of suppliers, spending and jobs supported occur in the same state as manufacturing

35%45%

38%

65%55%

62%In state

JobsSuppliers

522

Spending

Out of state

1,7651,362

Thales’s suppliers

#, calendar year 2019

Thales’s spending with suppliers

$m, calendar year 2019

Thales’s jobs supported

#, calendar year 2019

Note: for the Mulwala/Benalla sites, all spending from VIC/NSW is classified as in-stateSOURCE: ABS , Illion, Thales procurement and expenditure data, AlphaBeta analysis

12% of suppliers are based in close proximity to Thales sites. These highly localised suppliers account for 10% of spend and 7% of jobs supported by Thales


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Contents

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In 2019 Thales’s Garden Island site was used to conduct maintenance for key navy assets

The site contracted 223 suppliers in Australia to deliver $97m in goods and services as summarised below:

258 other jobs supported in Australia, 37% of which are in New South Wales

4. MAJOR SITE CASE STUDIES: GARDEN ISLAND

The Garden Island site in NSW is used to repair and maintain navy assets

223 Australian suppliers contracted168 (75%) of which are SMEs

Jobs

All suppliers

463 employed directly by Thales

$97m spending with Australian suppliers$78m (80%) of which spent with SMEs


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In 2019 Thales’s Bendigo site produced:- Hawkei Protected Mobility Vehicles (PMVs)- Bushmaster PMVsThe site contracted 206 suppliers in Australia to deliver $97 m in goods and services as summarised below:

The Bendigo site is used to manufacture Hawkei and Bushmaster Protected Mobility Vehicles (PMVs)

4. MAJOR SITE CASE STUDIES: BENDIGO



Jobs

All suppliers



271 other jobs supported in Australia, 87% of which are in Victoria

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In 2019 Thales’s Lithgow small arms factory produced:- Small arms manufacture and maintenanceThe site contracted 122 suppliers in Australia to deliver $30m in goods and services as summarised below:


Jobs

All suppliers





The Lithgow site is used to produce Small Arms

4. MAJOR SITE CASE STUDIES: LITHGOW

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In 2019 Thales’s Rydalmere site produced products that include:- Design, manufacture and export of submarine sonar systems, anti-

submarine warfare systems, mine countermeasures, secure communications, training and simulation, ground transportation.

The site contracted 231 suppliers in Australia to deliver $65m in goods and services as summarised below:


Jobs

All suppliers




The Rydalmere site in western Sydney delivers sovereign industrial capability in sonar systems and mine countermeasures


4. MAJOR SITE CASE STUDIES: RYDALMERE

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The Mulwala and Benalla produce munitions and ordnance for the Australian Defence Force

In 2019, the Mulwala and Benalla sites that Thales operates produced:- World leading small arms ammunition and propellant for the ADF and

key export marketsThe site contracted 456 suppliers in Australia to deliver $71m in goods and services as summarised below:


4. MAJOR SITE CASE STUDIES: MULWALA / BENALLA


Jobs

All suppliers



228 other jobs supported in Australia, 97% of which are in NSW or Victoria

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The Eagle Farm site is used to provide support for Protected Vehicles

In 2019 Thales’s Eagle Farm site produced:- Support for Protected VehiclesThe site contracted 173 suppliers in Australia to deliver $27m in goods and services as summarised below:


4. MAJOR SITE CASE STUDIES: EAGLE FARM


Jobs

All suppliers



61 other jobs supported in Australia, 14% of which are in Queensland

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Contents

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Data sources used include ABS, Illion and Thales procurement and expenditure data; missing data was imputed by combining data from multiple sources

Appendix - Methodology

Spend Primary source

Spend

Industry

Thales

Illion

Supplier employee numbers

Illion/ABS

Business size Imputed

Imputed observations

- All supplier figures are based on Thales procurements and expenditure data, no imputed observations

- Where ANZSIC codes were missing, ANZSIC was assigned to firms’ based on a concordance of Thales’s purchase categories and ANZSICs

Where Illion data was missing employee numbers, employee numbers were imputed using ABS industry employee/revenue ratios for the firm’s industry subdivision (concorded from ANZSIC)

Business size based on either actual or imputed employee numbers:-Large: >200 employees-Medium: 20-200 employees-Small: <20 employees

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We estimated the direct employment impacts from Thales’s procurement spending on each supplier

Appendix - Methodology

Calculated as:

# 𝐽𝑜𝑏𝑠 𝑠𝑢𝑝𝑝𝑜𝑟𝑡𝑒𝑑 𝑝𝑒𝑟 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑟 =$𝑠𝑝𝑒𝑛𝑑 𝑏𝑦 𝑇ℎ𝑎𝑙𝑒𝑠

𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑟 $ 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑝𝑒𝑟 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒

1. Where all supplier data except ANZSIC is missing, ABS industry employment revenue ratios are used

2. Where ANZSIC data is missing, the average revenue per employee ratio for known Thales suppliers is used

Jobs supported- These are jobs with

Thales’s direct suppliers

Sources of jobs supported Sources of jobs by supplier

Thales: Value and Impact of Australian Supply Chain...May 19, 2020 · Key findings –supply chain...

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