Is the Australian Defence industry ready to meet supply chain challenges on the horizon?

A 2025 EY survey of current and prospective suppliers suggests Defence supply chain resilience is strong, although the experience differs between direct (Primes) and indirect (Tier 2 and Tier 3) suppliers.

In brief

• 73% of direct suppliers believe Defence has a resilient supply chain, but only 48% of indirect suppliers agree, revealing that the benefits of uplift programs may not be evenly distributed.
• Nearly half (48%) of direct suppliers report that international disruptions significantly impact operational readiness, highlighting the need to balance global supply chains with domestic manufacturing capacity.
• While suppliers working directly with Defence view procurement positively, many believe the system prioritises compliance over outcomes, suggesting opportunities to make processes more agile and innovation friendly.
• Workforce capability, technological innovation, and private capital investment are seen as important for supply chain resilience and mobilisation readiness.

The foundations for a resilient Australian Defence supply chain have been put in place. Government policies, workforce initiatives, and strategic investments are reshaping the landscape and delivering meaningful progress across the Defence industrial base.

The challenge now is to build on this momentum. Drawing on insights from nearly 500 Defence industry participants, this survey reveals both the progress achieved, the opportunities ahead and gaps that remain to be closed.

Collaboration between government, Defence, industry, investors, and research institutions will be integral to bridging these gaps. By scaling what's working and ensuring smaller suppliers participate more effectively, Australia can build a Defence industrial base that is truly resilient, innovative, and globally integrated – and ready to respond rapidly to emerging threats while maintaining mission-critical capabilities.

There is a clear disconnect between direct (Prime) and indirect (Tier 2 and 3) suppliers in their perceptions of Defence's supply chain resilience. While three in four (73%) direct suppliers view the Defence supply chain as resilient, less than half (48%) of indirect suppliers share that view.

This disparity suggests that current uplift programs are working well at the top tiers but not yet filtering through to smaller, regional or specialised suppliers. The gap highlights a fundamental challenge: ensuring that initiatives designed to strengthen the Defence industrial base reach all participants, not just those with direct contracts.

Impact of global disruption

Nearly half (48%) of direct suppliers say international disruptions significantly affect their operational readiness. Over a third (36%) of direct suppliers report having fully international supply chains, while 29% have real-time monitoring systems to track risks – demonstrating that many are proactively managing exposure.

By contrast, indirect suppliers are far more domestically focused, with 88% operating locally and fewer having formal risk tracking systems. These results underline a key resilience challenge: the need to balance sovereign capability with global integration, whilst ensuring critical dependencies are managed and Australia can scale rapidly when needed.

Confidence in Defence procurement - and where to go next

Direct suppliers perceive Defence procurement more positively than those without direct dealings, suggesting the reality is better than perception. This confidence is underpinned by recent procurement reform efforts.

However, the survey also points to an opportunity to rebalance compliance and outcomes. Many suppliers feel the system still values process over performance, particularly those most closely aligned with sovereign capability priorities.

Continued efforts to simplify tendering, increase transparency, and provide early demand visibility will go a long way in attracting new entrants and improving speed to capability. In short: industry sees progress but also potential to make procurement more agile, commercially fluent, and innovation-friendly.

Unlocking private capital for Defence

The survey identifies private capital as a primary enabler for resilience, innovation, and industrial scale. Nearly half of direct and prospective suppliers believe private capital should play a role in uplifting Defence industry capacity.

The opportunity lies in creating the right investment conditions – tax incentives, policy certainty, and clear partnership pathways – to attract private finance alongside government programs. Defence cannot be the sole customer for most suppliers. Dual-use innovation and co-investment models can help sustain businesses between major Defence contracts while keeping skills and facilities active.

With strategic signals from government, private investment can become a potent force to bridge the gap between research breakthroughs and deployable capability.