One of the central thrusts of the upcoming DoD fiscal 2024 budget is likely to be building industrial capacity to satisfy surge demands for materiel in response to requests from allies, such as Ukraine, and to U.S. deterrence and conflict needs.
This month, the National Defense Industrial Association (NDIA) released its Vital Signs 2023 survey of more than 170 NDIA member companies, the association said.
According to the NDIA survey results, “only 14 percent” of the companies “thought defense contracting business conditions would improve” this year, per the report. “In addition, despite the continued public policy emphasis on acquisition reform, over half – or 57 percent – of survey respondents reported they expect defense contracting business conditions to remain the same in 2023.”
“Industry’s assessment that it will be harder to conduct business with the Department [of Defense] than in the civilian economy under these economic conditions is pointed feedback from an industry currently responding to surge demand signal with the illegal invasion of Ukraine and quietly preparing against the darkening security environment in the Indo-Pacific,” the report said.
To help sustain the defense industrial base, David Norquist, the president of NDIA, has argued for inflation adjustments for defense contractors–a stance that Sen. Elizabeth Warren (D-Mass.), a member of the Senate Armed Services Committee, questioned last October (Defense Daily, Oct. 19, 2022). Norquist is the brother of right-wing tax cut guru, Grover Norquist, and served as DoD comptroller and deputy defense secretary during the Trump administration and as acting defense secretary for just two days–from Jan. 20, 2021 until Jan. 22.
The NDIA Vital Signs report this month suggests, as some Pentagon officials have, that DoD needs to sacrifice some efficiency by moving away from “just-in-time” delivery to a reliance on a number of suppliers.
The DIB resilience “required to sustain the U.S. in great power conflict was sacrificed as part of the 1990s peace dividend,” the report said. “The powerhouses of industrial readiness – stable and predictable budgets, an experienced and specialized workforce; diversified and modern infrastructure; manufacturing innovation; and sufficient, including idle, capacity – have all atrophied under the combined transition to a services-based economy with a premium on just-in-time commercial supply chains. And it is suffocating under a worldview paradigm that fails to resource the industrial footprint required to prevail in near-peer conflict.”
NDIA said that “one key issue is the over-reliance of sole source suppliers, including from foreign sources.”
“In Vital Signs 2023, 42 percent of the NDIA member companies reported being the sole eligible provider in the U.S. for a defense related product,” the report said. “The U.S. defense sector is contracting and is not diversifying, the exact opposite of policy objectives.”
The Government Accountability Office (GAO) said last summer that DoD’s Annual Industrial Capabilities Reports help lay out risks to the DIB and Pentagon risk reduction investments, but do not measure progress through quantitative metrics.
Since 1994, DoD has been required to submit the Annual Industrial Capabilities reports to Congress that identify gaps or vulnerabilities in, and assessments of, the U.S. DIB. The DoD industrial policy website, however, only lists reports through fiscal 2020, but a report last February in response to President Biden’s Executive Order 14017 may have satisfied some of the annual reporting requirement. Biden issued EO 14017, “America’s Supply Chains,” in 2021, and DoD released its Securing Defense-Critical Supply Chains: An Action Plan Developed in Response to
President Biden’s Executive Order 14017 on Feb. 24, 2022–the same day as the Russian assault on Ukraine.
Andrew Hunter, the Air Force’s acquisition chief who was also acting as the undersecretary of defense for acquisition and sustainment early last year, said on Feb. 24, 2022 in a DoD statement on the defense-critical supply chain report that “a clear national consensus has emerged around the need for bold action in support of supply chain resilience” and that the report “is a strategic roadmap for the department to build lasting resilience in our defense industrial base.”
The report addressed what the military services and DoD said were critical shortfalls in four areas–kinetic capabilities to include current missiles systems and advanced and developing missile capabilities, including hypersonic weapons technology and directed energy weapons; energy storage and batteries; castings and forgings; and microelectronics.
“For the last 20 years, the DoD’s procurements for kinetic weapons have focused on meeting current operational needs (e.g., Operation Inherent Resolve) and reducing inventory shortfalls incurred from the counter-Islamic State of Iraq and Syria (ISIS) operations,” the report said. “The result has been a conflict-driven pattern of procurement that runs counter to the sustainment of the DIB.”
“The industrial base for kinetic capabilities faces persistent sub-tier supply chain vulnerabilities, from raw materials and chemical shortages to critical subcomponents produced by fragile suppliers,” the study said. “For several decades, the DoD has entrusted supply chain visibility and risk management to companies in the private sector that provide it with defense capabilities. Consequently, the DoD has limited visibility into some sub-tiers of defense supply chains and does not track these vulnerabilities as they impact weapons programs.”
Among the recommendations of the report were investing in the hypersonics industrial base; heeding the advice of DoD’s Critical Energetic Materials Working Group (CEMWG) for future funding for explosives and updating “decades old” chemical specifications for such explosives. The report charged CEMWG, as its first priority, with identifying chemical specifications to update and with developing funding options for energetics in the fiscal 2024 budget request.
The fiscal 2018 Defense Industrial Capabilities Report noted that the Holston Army Ammunition Plant in Kingsport, Tenn., was “the only domestic source for most DoD explosives.” BAE Systems operates the plant.
Pentagon officials have often discussed the need to bolster DoD production capacity and munitions stockpiles in the wake of U.S. materiel aid to Ukraine, but it is unclear whether major defense companies are operating at a high enough capacity to justify an investment in new plants or production. DoD has not released such production capacity percentages.