PODCAST: Manufacturing the future for defence SMEs, Medhat Wassaf, Milspec Manufacturing & AIDN NSW

This week on the Defence Connect Podcast, president of AIDN NSW and Milspec Manufacturing business development manager Medhat Wassef joins us to discuss the future of small to medium sized businesses in the defence industry and how Australia can create a successful defence export industry by emulating the US and UK models.

Wassef takes us through the history of Milspec Manufacturing, his three decades of experience in defence and now the defence industry, and offers his advice to SMEs looking to make it in the defence space.

Enjoy the podcast,
The Defence Connect team.

Listen to previous episodes of the Defence Connect podcast:

Episode 434: SPOTLIGHT: Mission engineering – a missing piece of the capability puzzle, with Downer’s Rachel Hatton and Nathan Rickard
Episode 433: SPOTLIGHT: Introducing the Australian Digital Defence Industry Matrix, with BenchOn’s Tim Walmsley
Episode 432: SPOTLIGHT: What does sovereignty mean in a post-DIDS industry? With Stephen Kowal, CEO of Atturra
Episode 431: PODCAST: Developing Army’s hand-to-hand combatives program, with Paul Cale
Episode 430: PODCAST: Aussie innovation supporting navies around the world, with Jeffrey Hawkins, Pivot Maritime International
Episode 429: PODCAST: Commercialisation essential to the success of space and defence industry, with Brian Lim
Episode 428: PODCAST: Firebrand topics on Ukraine, Israel, and Australian conscription, with Corporal Matthew ‘Willy’ Williams OAM
Episode 427: PODCAST: Unpacking the surface combatant review with the Honourable Kim Beazley AC
Episode 426: PODCAST: WA ready, willing and able to support defence industry opportunities – Paul Papalia CSC MLA, Minister for Defence Industry and Veterans Issues
Episode 425: PODCAST: Unpacking the independent analysis into Navy’s surface combatant fleet

Announcer: Welcome to the Defence Connect Podcast, with your host, Phil Tarrant.

Phil Tarrant: Well, good day everyone. It's Phil Tarrant here, I'm the host of the Defence Connect podcast. We're going to roll up our sleeves and get into some commentary, some insights, some interpretations about what's happening in SME land at the moment. And there's a lot of business right now getting attracted to defence who aren't traditional defence businesses and there's a lot of other SMEs with a lot of pedigree in the defence space who are capitalising on enhanced opportunities to maximise their opportunities with the increased government spending with defence right now.

And to help me have a chat around opportunities for SMEs, someone who's an SME themselves but is a proud advocate for SMEs right across Australia and particularly New South Wales, Medhat Wassef who is from Milspec Manufacturing, he's also the president of AIDN New South Wales. Medhat, how are you going?

Medhat Wassef: Thank you very much, thank you for having me.

Phil Tarrant: I've been excited about getting you on the show for quite some time, so it's nice to finally get you into the studio and have a bit of a chat over ... I've been fortunate to hear you speak at a number of AIDN functions over the course of the last year and, as I mentioned beforehand, you're a proud advocate of the SME space and you like to fight the good fight for SMEs within defence and it is a challenge, but how are you feeling at the moment? Sort of, the year gone past compared to years prior, about opportunities for SMEs in defence industry?

Medhat Wassef: Yeah, thank you Phil. Look, I mean, it is very appreciated to be here with you, but certainly as many of the people in the defence area know at the moment, we're living in an era that we haven't seen for years. So, I've been in the defence industry from both the defence side and the defence industry side for about 30 years, all up. I have never seen a period like what we are seeing now. So, there's a lot of interest in involving certain defence industry in the defence projects and defence is spending a lot of money, as we all know, so defence industry could not be any happier.

Phil Tarrant: So, is it a good time to be an SME in defence?

Medhat Wassef: Absolutely, absolutely. And so, defence is making it clear to all the primes, local and international, that they do need to engage local industry and to engage them in meaningful work, not just superficial type work. And as a result, they're all knocking on the doors of SMEs and trying to establish partnerships in areas to work together.

Phil Tarrant: So, today's podcast, we've got about 20 or so minutes. So, a couple of things I want to cover off. One is, I guess, your story and the business that you run, Milspec Manufacturing, but also the role you play as an advocate for SMEs within AIDN New South Wales and on the national stage as well, but I guess, we'll kick off quickly with Milspec Manufacturing. What's your story, Medhat? How did you end up doing what you do?

Medhat Wassef: Yeah, well, Milspec Manufacturing is really a good story. It's a family owned business, it used to be part of ADI, the Australian Defence Industries in the long time ago, about 15 years ago. When ADI got privatised and wentdefen through a number of different phases of acquisition, back then, ThalesAustralia as it evolved to be now, saw that area in Albury as a non-core facility. This facility was making target systems for training, so it had electronic assembly, it had metalwork, it had cabling systems, it had all those components. When this happened, essentially the production manager purchased the business and David and Wendy Cooper, they owned the business and they transformed it to a much wider scope and so, we do a lot of sub-systems for all the primes. Mostly all the primes. And we do have our own products, mainly the alternators and related power products, exportable power, auxiliary power units and so forth.

But, military vehicle alternators are developed here and manufactured here, basically out of Aubrey, on the border of New South Wales and Victoria. They're now, really are, the envy of the whole world. They're the smallest and the most output you get for a particular size and weight and they have been sought by European and exported to the US and UK. Some to Singapore. And many other interested parties at the moment. They're in trial in Europe in a number of areas. So, yeah, they're a very good story.

Phil Tarrant: And what percentage of the business is domestic, versus sort of export now, is it more-

Medhat Wassef: At the moment, the export is a very small percentage of our output. We certainly are growing that business aggressively. So, we're going just into DSEI, we've been to the Middle East a number of times and the USA and we are seeking to expand that area.

Phil Tarrant: And how do you feel about the government's support to champion export potential for SMEs? Do you think they're behind you guys?

Medhat Wassef: It is encouraging to see the Minister Pyne at the moment putting a lot of emphasis on defence exports. Certainly, his instructions to the defence representatives overseas is very encouraging. The Brits have been doing it for years, Americans doing it for years. So, now, our military attaches and defence representatives overseas are certainly helping SMEs and primes to sell Australian products. Certainly, they're not sales peoples, so they are in a very professional way, introducing us to the right people and opening the right doors. And that's very encouraging.

Phil Tarrant: And on a local level, obviously one of the biggest programs about to come online, Land 400 Phase two. We're still right in the midst of the competition between Rheinmetall and BAE. Both have very good products on offer. You've got one foot in each camp, is that pretty much right?

Medhat Wassef: That's right, yes, absolutely, yes.

Phil Tarrant: Smart way to play it, so ...

Medhat Wassef: Yeah, look, as I mentioned just before we started the discussion, both Rheinmetall and BAE Systems, they're our number one and number two customers for Milspec at the moment and they're very good partners to work with. So, we are, again, in a professional way, without going into a lot of details of what we do on both sides, we certainly believe that we're going to have a good chance of business either way and as Minister Pyne mentioned, whichever vehicle we end up with, it's going to be a very good vehicle.

Phil Tarrant: Yeah. How do you go about that fine balance when you're trying to provide capabilities into two competitors who ... And there's a big program for Land 400 phase two, and I speak with other SMEs and they often lament about the right strategy to put in place so that they can actually deliver value to both competitors without giving either of them an unfair advantage, which might shape the way in which an outcome might happen with the project. How do you manage it?

Medhat Wassef: Well, we basically work in a responsive mode with the two of them and similar projects where we have two competitors working with us. So, essentially, we offer a capability and this capability is available for both partners and we work closely with them to progress their requirements and draw a very clear line of communication so we don't comment on what we're doing with one of them to the other. So, we keep the confidentiality.

Phil Tarrant: There's a big firewall between-

Medhat Wassef: Definitely, yeah.

Phil Tarrant: Okay. That makes sense, and I guess the benefit of that is that you mentioned the capability of the alternators that you're providing, it sounds like the right sort of kit to be going into those vehicles.

Medhat Wassef: Absolutely, yeah.

Phil Tarrant: Irrespective of who wins it, it's nice. I'm sure the guys and uniform and the girls in uniform want to make sure they've got plenty of power when they need it, to put their foot down and get out of troubles.

Medhat Wassef: Absolutely. And having plenty of power is one thing, but having this power when the vehicle is not revving the engine, what they call engine idle, sitting under a tree somewhere and waiting and not necessarily running the engine in any speed, usually you get lower power in this mode. But with our new development, the permanent magnet alternators, we're getting about 92% of this power at idle, which is great.

Phil Tarrant: Which runs all the vehicle's systems?

Medhat Wassef: Absolutely, yeah.

Phil Tarrant: Yeah. Okay, which, pretty important.

Medhat Wassef: Absolutely.

Phil Tarrant: Yeah.

Medhat Wassef: Yeah.

Phil Tarrant: Interesting. And is there any other major program that you're looking at outside of Land 400 at the moment?

Medhat Wassef: Yeah. Obviously, we are talking to all the major players in most of the programs. We tend to do a lot more in land systems than the other two areas, Air Force and Navy. However, we do work as second-tier supplier in many of those programs as well, but we've got Land 400 phase two, followed by Land 400 phase three. There is Land 121 phase 5B coming up as well, with Rheinmetall. So, also there's the Nulka system, which we are working with BAE on that system and we're going to be manufacturing launchers and we'll be in maintaining those launchers for years. Yeah, so, a lot of exciting stuff. We're working with some submissions to Raytheon on the Land 19, again, with launchers and we see a lot of potential there as well.

Phil Tarrant: And what's your view towards Australian manufacturing now? Because, obviously there's a lot of debate that the price to create goods here in Australia versus cheaper parts of the world, Asia for example. You have a manufacturing plant down in Aubrey, did you mention?

Medhat Wassef: Yes.

Phil Tarrant: How do you ensure that you can keep the machines running, keep the people engaged, keep them employed and keep the quality of your output up there?

Medhat Wassef: Yes, look, obviously if we try to compete on price for simple metal products with the overseas cheaper markets, we can't win. So, more and more, Australian industry is trying to do the work that we do smarter. So, we have a lot of emphasis on quality, accreditations, naturally in the defence arena you have also some advantage being a local company. Not everything you can do overseas when you're working on defence projects.

Yeah, so, actually it's a combination of quality, emphasis on quality, but also focusing on the smart areas of business. Advancement structuring, the New South Wales government is putting a strategy to help grow the advanced manufacturing sector in Australia, in New South Wales. So, that's definitely important.

Phil Tarrant: And do you think the fact that, obviously, the New South Wales government is now firmly behind defence industry, I think for a period of time it wasn't as focused as some other states, but you know, we have the lion's share of ... Or quite a large, significant amount of ADF personnel in uniform working out of New South Wales. Do you think the New South Wales government is using that as a lot of leverage to try and influence national programs around capturing these defence projects? Where's that work, how's that work?

Medhat Wassef: Yeah, as you mentioned Phil, we are encouraged by the New South Wales government growing interest in the defence sector. So, they have produced the strategy, as you're well aware, defence industry strategy, which is focusing on doing that work in a smart way, connected way. And, essentially, trying to not necessarily chase building the big platforms here in New South Wales, but trying to make sure that our industry is involved all the way. So, New South Wales industry is very involved in defence projects. Land, air and sea. And we do a lot of things, including electronic warfare, advanced manufacturing, surveillance and a lot of simulation and display work.

So, there's a lot of capabilities. In fact, when KPMG conducted that exercise to look at sovereign Australian defence industry capabilities, New South Wales came very, very up on that chart.

Phil Tarrant: And I think it's ... A lot of people forget that New South Wales actually has a very strong defence industry. It might not win the large shipbuilding programs or the large Land programs, which often go to South Australia, WA, Victoria and potentially Queensland with Land 400, but the engine room, New South Wales is a huge piston for creating defence industry jobs outside of those large programs in the stuff that is persistent and always there.

Medhat Wassef: Absolutely.

Phil Tarrant: A lot of systemic building.

Medhat Wassef: Absolutely, and as you mentioned, with defence presence in New South Wales, we have about 80 bases here in New South Wales. So, naturally, through life support is also a big part of what New South Wales companies do. So, through life support for all those platforms based here in greater Sydney area, Holsworthy, Hunter net, Hunter area. Down Nowra area and Illawarra, there's a lot of defence presence around New South Wales and certain industry in New South Wales are very, very involved in full life support aspects. So, it's not just about buying the platform.

Phil Tarrant: And we spoke quickly about Milspec and its approach to manufacturing, and I'm sure Milspec, like a lot of SMEs, manufacturing or service providers, face perpetual challenges about finding the next line of revenue coming in, the incubation time to SKU a project can be years and years and years. So, you need to keep the doors open.

Outside of the major programs, how do you guys ensure that persistent cashflow to maintain what you're doing and keep investing in infrastructure so you can go out and secure these sort of marquee programs?

Medhat Wassef: Sure. Look, mainly, there's a couple of areas. One, as I mentioned, we are looking to grow our export market. So, that's definitely one of the strategies that we use to make sure that there is continuous work required from our factory, but we also are making sure to diversify. So, right now, we grew our infrastructure area, non-defense work, to about 30% of our business. So, that also is more consistent in the areas such as rail and other industries. So, they also help us with the continuous flow of work.

But again, it's always important to make sure that you're not only chasing the work that's happening now, but you're looking down the pipelines and trying to work out, "Where's my next measure of work is going to come from?"

Phil Tarrant: And putting the hat on as President of ADIN New South Wales, what would you say the biggest frustrations for SMEs at the moment ... We spoke about it's a good time to be an SME, to be in defence, but where are they key frustrations? Are contracts getting signed, is work coming down line, or is it still sort of in the wings waiting?

Medhat Wassef: Yeah, well, typically defence projects cycle is a long cycle to take a particular project from inception all the way to fruition and production. So, we do understand that dilemma. Having said that, obviously, it is a continuous pressure for SMEs particularly, to make sure that projects are happening.

So, for example, we're talking about the submarines, the new submarines. By the time submarines are actually in the water, I think I'm pretty tired, by then. So, certainly, the fact that we are working on that now, we have to make sure that we are aware that not everything we're working on now is going to give you results tomorrow, but maybe next year or next five years or next 10 years in some cases.

So, it's really about planning. But having said that, it is a frustration. And often, companies are waiting for decisions, especially when those decisions have been expected and just took longer than what they were expected?

Phil Tarrant: How do you often deal with ... Obviously, pre-planning's important and we have Land 400 and as we said, you've got a foot in both camps, which is a nice place to be, but if you're planning work coming online and switching manufacturing programs to start creating products for this particular program and it gets delayed and it gets delayed and it gets delayed, which happens in defence projects, how do you fill the gaps?

Medhat Wassef: Well, as I mentioned before, it's really ... If you rely on one or two projects fully, and we've seen stories like this before, where companies invested heavily in large defence projects and kind of waited for the decision to happen and the delay, essentially, resulted in those companies closing down. So, we have seen a few of those examples a while ago. Fortunately, not very recent, but you can't really put all your eggs in one basket. You can't rely on defence only and in the defence area you can't rely on one or two projects only.

You need to have a number of prospects coming up. You need to be chasing the work as it is planned, not when it's about to start happening. And also, you need to make sure that you diversify, as we talked about before, and you look at export potential and all those factors combined, hopefully with government support as well, which is refreshing. That would be, usually, a formula for success.

Phil Tarrant: And the recent development that defence industry is now recognised in a fundamental input to capability, which is important, and obviously the government is firmly behind growing defence industry. There's ads on TV now and you see it all over the place, which is good.

Medhat Wassef: Absolutely.

Phil Tarrant: Do you think, and SMEs being a core part of that fundamental imput to capability, has that changed the relationship, you feel, between primes and SMEs? Because my view of it is it seems to have got a bit stronger over the last sort of year, 18 months, two years. I'm just trying to look at what is the driver of that.

Medhat Wassef: Absolutely. It's really policy. The defence, as you rightly mentioned, Defence Department in the white paper, late 2016. They acknowledged Australian industry as a fundamental imput to capability. By the way, ADIN has been advocating for that for years and if you asked me about three or four years ago, why I'm still pursuing this message, I would have thought, "Well, it's just something good we're advocating." But I wouldn't have had any hope that we're really going to realise that.

But certainly, having realised that acknowledgement and with the government now putting its money where its mouth is, and in fact advocating and instructing primes, local and international, to find local partners, there's a lot of potential. Primes typically have good intentions to work with SMEs, they've always had this good intention, but that intention is now fueled by a government requirement, so it's a deliverable. The Australian Industry Capability Plans that is submitted with the measure projects is now being considered as one of the main areas of tender evaluation. So, that's definitely an area where the primes will work to deliver.

Phil Tarrant: And do you feel as though SMEs have a greater voice now with government, directly into ... I mean, we have now a dedicated Defence Industry Minister, obviously, but has that evolved a lot over the last sort of five, ten years?

Medhat Wassef: Absolutely, absolutely. And industry is maturing as well and growing in here, in Australia, so the government, again, particularly since that realisation of Australian industry being a fundamental imput to capability. There is a lot of consultation now happening. As you know, ADIN is a national body, it's not just a New South Wales group. So, on the national side, there is a very regular consultation between the department and using ADIN as a SME voice and also working closely with the AIG Defence Council. ADIN has got two seats on the AIG Defence Council and we are also on all the working groups of the AIG Defence Council. So, we are working more maturely together as industry and we are working in a closer way between us and government.

And, to a certain extent, state advocates as well are trying to work as a team. This is an area that certainly needs some improvement, so that we're not ... Competition is normal in this area, but it's a matter of working together as a team to maximise the opportunities for Australian industry as a whole, rather than one state as a time. So, but this area is also improving and growing.

Phil Tarrant: And, just, we're running out of time but I want to touch on this before we wind up. You've got defence industry scaling and STEM strategy, it's going to be released by the government next year, sort of ... I'm not too sure when, but what role can you see New South Wales universities, institutions playing in sort of developing this strategy? Is it ... I know it's important, I know it's your focus point, but what's your view of this?

Medhat Wassef: Yeah, well, we have ... We're fortunate to have a lot of the leading national universities here in New South Wales, with a lot of engineering focus and technology focus and STEM skills focus. So, they are very well placed to play a major role in that. As you mentioned before, defence is not just advocating for people to join the Forces now, they're also advocating for people to join the defence industry. And the STEM agenda is an important part of that. We believe that New South Wales has got a lot to offer for a lot of the CRCs and initiatives in that domain to be hosted in New South Wales.

Phil Tarrant: And we touched on this really quickly, about the backstory for how you've ended up doing what you do today and you're obviously deeply embedded now in defence industry, but before we come on air, you mentioned that you migrated from Egypt about 30 plus years ago.

Medhat Wassef: That's right, yes.

Phil Tarrant: How has this sort of happened? There's obviously an interesting journey ... Are you an engineer by trade? Like, what was your-

Medhat Wassef: I am, yeah. I graduated as an engineer in Cairo from a university in Cairo, worked in the engineering domain. I came shortly after I graduated, came to Australia as a migrant, but worked in other sectors in different engineering roles for about 10 years. Then, I joined defence in 1990 as an engineer and worked in a number of areas. Project management, contract management, industry advisory, export management and was, essentially, based in the DMO regional office, New South Wales ACT, so we basically ended up as a deputy director and director of that office and, essentially, advising industry on trying to put industry on the right track to do business with defence.

So, it was very interested when I moved to defence in late 2007, December 2007, about-

Phil Tarrant: 10 years ago.

Medhat Wassef: 10 years ago. When I moved then, it was very interesting to see if the theory actually works. So, applying what I've been teaching people to do, it was interesting to see that the theory actually does work.

Phil Tarrant: So it does work? So, we are on the right track?

Medhat Wassef: We are on the right track. Obviously you can see different aspects when you're sitting in industry and when you're sitting in defence. Two main areas. One, in ... As soon as I moved to industry, I remember moving there and talking to my CEO about some initiative and he said, "Yeah, do it." And I thought, "Well, fair enough." "When?" I said, "Now."

So, the decision making is a lot easier in a small SME than if you're sitting in the Department of Defence. No delegations and committees and much more than just a decision, by the right person.

Phil Tarrant: This is probably a broad, sweeping statement but do you think government really get what it's like to run an SME in defence?

Medhat Wassef: Well, obviously, different people are better than others. So, not everybody has got the same aspects. I think, and I say that genuinely, most of the people the Department of Defence and in the state government for that matter, they are trying to understand industry and work and put themselves into our shoes, but typically, defence and government are looking long term. Everything long term. In industry, and particularly in SMEs, long term is important, but dinner on the table tonight is paramount.

So, you cannot be looking into the pipeline from an ivory tower and looking over at how best you can do this or that if you don't have purchase orders coming in.

Phil Tarrant: Yeah.

Medhat Wassef: So, that's essentially the main difference.

Phil Tarrant: Yeah, and we'll wind up after this question, but ... And I know you have the connectivity in to Minister Pyne, but if you could have one thing from government to help shape the development of SMEs in the Australia defence industry, if you could say to Chris, "This is what we want." What would it be?

Medhat Wassef: Well, that's-

Phil Tarrant: I could've known what you said, so.

Medhat Wassef: Yeah, well.

Phil Tarrant: Yeah.

Medhat Wassef: Yeah, well, look. What I would say is, certainly, do appreciate the development thus far but SMEs are interested in being involved in the development of that agenda closer and to work with the government and the primes to drive that agenda and make sure that we achieve the best outcome for the war fighter. Now, most of us in the defence industry are either ex-military people or ex-defense people, or if not, have family. My daughter is about to join the Defence Forces early next year. So, we know that the main goal is for the war fighter to have the best piece of kit on the front line. We're not just chasing the dollar. But in whatever we're doing and whatever we're advocating, we are genuinely interested in being part of that ongoing consultation and ongoing driving of the defence industry agenda.

Phil Tarrant: Medhat, I really appreciated your insights.

Medhat Wassef: Thank you very much, Phil.

Phil Tarrant: So, it's been a good chat. Let's keep connected, keep engaged, and I know you have some very talented people within ADIN New South Wales and also on the national front who share the same sentiments with you, as increasing the overall capabilities for our war fighters and that's the end game.

Medhat Wassef: Absolutely.

Phil Tarrant: Thank you very much. Remember to check out DefenceConnect.com.au if you're not yet subscribing to our morning market intelligence. Be the first to know of what's happening in defence. DefenceConnect.com.au/Subscribe. If you're a social media person, you can get your news that way. Just search Defence Connect. Facebook, Twitter, LinkedIn, you'll track us down and please keep those reviews coming on iTunes as well, the team do appreciate it.

You might hear sort of banging on behind a microphone all the time, but there's a big team here behind the podcast and Defence Connect who all share the same passion for what Medhat was talking about, about equipping our war fighters and helping to improve the way in which defence industry operates. So, we'll be back again next time, until then, bye.