Strategic Business Challenges in Defence Manufacturing

The UK defence manufacturing sector operates in a fast-moving, high-stakes environment. With geopolitical instability, regulatory shifts, and mounting cyber threats, organisations are under growing pressure to deliver quickly, securely, and at scale. This report addresses key challenges in the sector and shows how digital capabilities, implemented through trusted partnerships, can improve resilience, agility, and competitive advantage. Simplifying complex issues into actionable recommendations, providing a roadmap for organisations to modernise securely and effectively aligning with evolving mission demands.

“IT is no longer a background enabler, it’s a strategic foundation. Whether it’s enabling surge capacity, attracting security-cleared talent, or safeguarding supply chains, digital infrastructure now underpins every aspect of operational resilience.” Mordor Intelligence

The defence manufacturing sector is facing pressure on multiple fronts. From global instability to tightening regulations, the environment is increasingly complex and the stakes are high. These five strategic challenges are currently shaping priorities across the UK defence manufacturing landscape.

1. Geopolitical and economic pressure

The global security picture continues to shift. The war in Ukraine, growing tensions in the Indo-Pacific, and renewed focus on NATO have all contributed to a more volatile environment.

In response, the UK government has committed to the biggest sustained rise in defence spending since the Cold War. But with that comes greater expectations, not just in terms of funding, but in readiness, innovation, and the ability to deliver value at speed.

Defence manufacturers must now find a balance between surge capacity and cost control, between sovereign capability and supply chain resilience. And crucially, they must be able to deliver at what’s increasingly referred to as “wartime pace”.

“The need for sovereign capability and industrial readiness continues to dominate UK defence policy.” Defence Industrial Strategy 2025, GOV.UK

2. Talent and skills in a security-cleared environment

The defence sector supports around 427,500 jobs across the UK - including 23,000 apprentices and contributes over £15 billion to the economy. Yet the industry faces serious skills shortages, particularly in engineering, cyber, and digital roles.

The need for security-cleared personnel adds another layer of complexity. An ageing workforce and fierce competition for STEM talent make it harder to attract and retain the right people. And with hybrid working now a common feature, organisations also need secure and flexible digital infrastructure to support remote teams while staying compliant.

3. Regulatory compliance and risk management

Regulatory requirements are evolving fast and getting stricter. From procurement reform (such as the Procurement Act and Single Source Contract Regulations) to MOD and NATO standards, manufacturers are under growing pressure to prove compliance.

Add to this the increasing focus on ethical sourcing and supply chain security, and it’s clear that compliance is no longer just a box-ticking exercise. For many, it’s now a strategic differentiator, one that requires smart, data-driven processes to stay ahead...

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