- Tags : Reduce Risk | Negotiate
This month, we caught up with Rick Sylvia, Strategic Sourcing – Market Intelligence, at Newport News Shipbuilding to find out what’s going on in his world of procurement.
IBISWorld: What challenge(s) do you and your company or department face right now?
Rick Sylvia: The predominant challenge in our department is that of a shrinking supply base. The material specifications and requirements for nuclear powered warships can be difficult for our suppliers to meet. The suppliers need highly specialized and expensive skill sets and are operating in an environment which requires continual capital investment in tools and equipment. When viewed against the low and lengthening frequency of order cycles and their margins, many suppliers have exited that sector of their business and, in some cases, closed their doors entirely.
Replacing those lost suppliers is difficult. It may take years and can be expensive for a new supplier to fulfill all the requirements to become government qualified and supply the material in question. In recent years, the resulting order cycles have been unpredictable due to delayed or partial funding as a result of Sequestration and Continuing Resolutions, adding to their risk. These challenges make it unattractive for new suppliers to enter the business and fill voids left by others.
At the same time, building warships must remain affordable for the taxpayers. Our company and procurement staff, in particular, are constantly under intense government audit scrutiny for all procurements. Increasing supplier margins in order to attract them to our business is not a viable option.
IW: How does/might IBISWorld help you overcome this challenge?
RS: Our Strategic Procurement team utilizes IBISWorld as one source of data to enable our buyers to more fully understand the markets in which they are operating. Although IBISWorld focuses on the commercial aspect of these markets, there are assumptions that we apply to convert data to Department of Defense use. While not an exact conversion, it does provide a framework for ensuing negotiations with suppliers. It also alerts us to changes in the market which may have an impact on our business downstream, such as a shrinking commodity market. As a result, these risks are identified and mitigated.
IW: What do you foresee happening within the procurement world in the coming year?
RS: At NNS, we see some supply base relief on the horizon. Two factors are developing in our favor. First, the Navy is procuring the Columbia Class Ballistic Missile Submarine, which will replace the aging Ohio Class. While material procurement has not begun, order quantities and order cycles for our submarine sector will improve as we begin this new work, which complements our existing Virginia Class Fast Attack program.
Secondly, President Trump is favoring an increase in defense spending and, in particular, Navy warships. While it takes congressional support and a number of budget cycles to feel the impact, the intent to spend versus cut is evident on the President’s part.
These two conditions should encourage our supply base to remain in the game. Margins will remain tight, but quantities will increase and elapsed time between order cycles may be compacted, both of which will benefit the supplier.
IW: Tell us something interesting about yourself (hobbies, experiences, travel, etc.).
RS: Although I work in a highly technical and specialized environment, my heart is drawn in the opposite direction to the simplicity of the mountains. I’d rather be on a remote and difficult trail than anywhere else in the world. As John Muir said, “The Mountains are calling and I must go.” I’ll travel, but my normal stomping grounds are the western portions of Virginia. And as a means of “paying back the mountain,” I spent a number of years on a volunteer wilderness search and rescue team, where I was trained, certified and sponsored by the Virginia Department of Emergency Management as a sign cutter, which in layman’s terms means human tracker.
Newport News Shipbuilding is the country’s sole manufacturer of nuclear powered Aircraft Carriers to include mid-life refueling and complex overhauls (RCOH) and end-of-life decommissioning. We are also one of two manufacturers producing nuclear-powered fast attack and ballistic missile submarines.