What is the ‘virtual shipbuilding strategy’?

As attention turns to the impending release of the National Shipbuilding Strategy, the term “virtual shipbuilding strategy” has gained traction after the Parker Report, but what exactly does it mean for industry and the navy?

The government is committed under the 2015 SDSR to publish a National Shipbuilding Strategy in 2017. Its aim is “to place UK naval shipbuilding on a sustainable long-term footing”. Initially scheduled for release with the 2016 Autumn statement, the strategy has now been rescheduled for Spring 2017. In its place, Sir John Parker, the independent chair of the strategy, released an intermit report of thirty-four recommendations that will inform the strategy in late 2016.

Parker is a naval architect by training and has previously served as the chairman of Babcock International and BVT Surface Fleet. He presently serves as the chairman of the mining firm Anglo American. He was knighted in 2001 for services to defence and shipbuilding and awarded the Grand Cross of the Most Excellent Order of the British Empire (GBE) in 2012 for services to the voluntary sector and industry.

The Virtual Shipbuilding Strategy (or VSb) is an industry model that captures the skills and talents of the number of regional shipyards across the UK. These shipyards have seen a resurgence of late and have demonstrated clear cost competitiveness and the capability to build fully outfitted “blocks” though the aircraft carrier alliance and their other orders. It therefore represents a shift away from the current BAE monopoly.

Shipyards highlighted in the report include; Cammell Laird Merseyside – currently holder of several long-term RFA refit contracts, Babcok Marine Appledore – currently working on OPVs for the Irish Navy, Babcock Marine Rosyth, Harland and Wolff Belfast, A&P Tyneside and Ferguson Marine Clyde. All have demonstrated clear capacity over recent years to win contracts against international competition by promoting innovation and cost effectiveness.

The basic core of VSb is the use of block based construction for the Type 31 frigates. Each shipyard would be allocated a share of the vessels, producing sections (or blocks) which are then transported to a central location and assembled into the final vessel. This style of construction was used internationally for the ten Anzac Class frigates in the 1990s, allowing New Zealand’s small shipbuilding industry to contribute to the overall class. In Britain, it was most notably used for the Queen Elizabeth class aircraft carriers.

By building blocks in series and in parallel the shipyards would be able to capture the learning curve productivity benefits. This benefit was less evident in the aircraft carrier project as only two vessels were constructed. Improvements in block construction would reduce construction time and cost. This would increase the possibility of the government exercising the additional vessels options to increase fleet size. It would also make the class more competitive on the international export market.

Contracts for the shipyards would be carefully crafted under VSb. They must be taut, and properly incentivise delivery through profit incentives that will enable future investment. Management would be incentivised to avoid cost growth, rather than simply passing it on to the customer.

The shipyards would also be required to develop “global competitiveness plans”. This allows for targeted investments in emerging technologies to modernise processes. The use of global competitiveness plans has already been successfully with Jaguar Land rover and Meyer Werft in Germany. It also serves to encourage and enable shipyards to generate additional revenue streams and not solely rely on MOD contracts.

While proposed initially for implementation with the Type 31 programme, the Parker report highlights how the benefits of VSb could improve long term shipbuilding options. For example, this could allow UK shipyards to become a competitive option for support ships, such as RFA stores vessels, to prevent those contracts continuing to go overseas.

The importance of this proposal is clear. There is no precedent for building two ‘first of class’ frigates in a single shipyard in the UK. Both vessels are critical assets with a time crucial delivery for both the navy and nation. Parallel construction on the same site risks potential complications and delays compromising construction of both vessels. By have a separate lead shipyard and/or alliance build the Type 31 the risks to the programme from the Type 26 build are reduced. This allows frigate numbers to be maintained and an exportable light frigate model to be established.

The political implications of this plan are significant. Up until the 2015 SDSR the BAE shipyards on the Clyde has been expected to build the then planned thirteen Type 26 Frigates. The introduction of the Type 31 concept, and particularly the VSb model, would see their workload reduced from building five full vessels to either the construction of blocks or the final assembly stage only. The resulting reduction in workload and likely jobs could further impact the already highly politicised Scottish shipbuilding industry. It could however have positive political implications across the country as regional shipyards would be able to sustain their size and potentially expand.