The US Army War College Quarterly: Parameters The US Army War College Quarterly: Parameters
Volume 24
Number 1
Parameters 1994
Article 17
7-4-1994
Managing the US Defense Industrial Base: A Strategic Imperative Managing the US Defense Industrial Base: A Strategic Imperative
Mike Austin
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Recommended Citation Recommended Citation
Mike Austin, "Managing the US Defense Industrial Base: A Strategic Imperative,"
Parameters
24, no. 1
(1994), doi:10.55540/0031-1723.1701.
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Managing the US Defense Industrial Base: A Strategic Imperative
MIKE AUSTIN
From Parameters, Summer 1994, pp. 27-37.
The United States government is hindered by the uncertainty which pervades nearly every aspect of domestic activity
and foreign policy. Unanticipated political, social, and economic phenomena--disorder, globalization of national
economies, and various regional attempts to integrate economic and national security policies--suggest the complexity
of the environment in which US defense planning is being conducted. It is within this dynamic context that the defense
industrial base must be managed to ensure that risks to national security--some old, some new, some merely
unfamiliar--are not aggravated by failure to preserve and exploit our competitive advantages in technology and
productivity.
It is difficult to isolate and analyze even the predominant factors that affect national security policy and national
military strategy. Many of the defining policies, doctrines, judgments, procedures, and organizational relationships
which once guided us in such matters have not been validated or reaffirmed since 1992. The division of labor among
nations, within the federal government, and between our domestic public and private sectors is confused. We struggle
to assign labels or devise enduring structures to deal responsibly with industrial and resource issues derived from
dramatically altered threat assessments, military force structure decisions, and the required adjustments in national and
military operational and logistical infrastructures. Much-abused paradigms and "New World Orders" emerge and are
disavowed or discredited before the ink is dry. Most observers, and certainly many of the participants, accept the
conclusion of the 1993 Naval War College Global War Games that "change itself has become the norm." We must
seek to understand and manage this process of living with constant change if we intend to preserve our national
interests.
We are replacing Cold War assumptions and concepts whose purpose was to ensure a robust and responsive military
component of national security strategy. Four topics among the many that confront defense planners in this new
environment deserve particular attention. All have in common a search for reasonable assumptions and affordable
policies to exploit what is undoubtedly our greatest national strength: a highly competitive and technologically
advanced industrial base which can be sustained largely by market forces independent of direct intervention by the
federal government. The four topics are the relationship between mobilization planning and the industrial base; the
requirement to develop and assess resource preparedness options; the need to remain aware of how the defense
technology industrial base is changing; and the Federal Emergency Management Agency's evolving role in managing
US industrial preparedness.
Industrial Preparedness and Mobilization
One cannot consider mobilization without assessing the strategic implications of industrial preparedness. It may be
fashionable to disavow the circumstances under which we would mobilize some or all of our production means.
Nevertheless, we have to consider such admittedly worst-case circumstances when managing the defense industrial
base. Any nation needs a credible mobilization capability to deal with an emergent threat which exceeds the capability
of its active military forces and their means of sustainment. Public support for limited US mobilization capability,
while reasonably assured, cannot be assumed to include industrial preparedness measures required to mobilize beyond
peacetime levels of operation. Herein lies the nemesis of defense planners in and out of uniform and in and out of
government: how to retain the organizational structure, human skills, and resource base needed in a crisis to balance
requirements, response time, and essential production capacities.
Even those military planners most dependent on the adequacy of industrial preparedness falter when choosing between
immediate operational capability and longer-term requirements. All the armed services have been sacrificing
investment accounts since 1990 to maintain near-term readiness.[1] In the absence of compelling warning indicators it
is easy to rationalize loss of production capability that is perceived to be in excess of immediate needs. Some might
conclude that our current emphasis on swift victory seeks to make a virtue of necessity, substituting speed for the
reduced ability to sustain the force.
Industrial preparedness requirements--plans for production surges, equipment modifications, and new systems--have
not changed substantially since the end of the Cold War. It is still true that peacetime planning and funding will not
sustain a significant military engagement or compensate for supply shortfalls during mobilization. If anything, the
Bottom-Up Review (BUR) has widened the normal gap between peacetime and crisis readiness requirements. Industry
must nevertheless be able to produce and sustain weapon systems that incorporate our technological advantages. Those
systems use sophistication, rather than volume, to prepare the battlefield. They minimize infrastructure support
requirements and they enable short-term power projection as a policy option. Industrial preparedness response in a
crisis will have to be carefully tailored, becoming "smaller," quicker, and more sophisticated, if we are to remain
dominant into the 21st century.
The planning, response, and recovery imperatives of this new era require a national industrial preparedness program
that has the clear endorsement and full support of the President. We need to support an industrial preparedness
planning system which would implement the National Security Strategy and be systematically updated, tested, and
evaluated. Most important, an executive-level federal agency must be able to translate White House support, required
to meet statutory and presidentially delegated responsibility, into effective programs that develop, maintain, and fund
the activities associated with national industrial preparedness planning. Periodic examination and presentation of
industrial preparedness deficiencies would be integral to the agency's mission. That task presently belongs to the
Federal Emergency Management Agency (FEMA).
Resource Preparedness Options
Federal agencies and industry, many of the latter having surged production during the Gulf War, have analyzed the
lessons from that war to validate current industrial requirements, identify production problems, and define potential
new requirements and associated preparedness problems. In support of this work, the Institute for Defense Analyses
(IDA) has used the Critical and Strategic Materials Stockpile planning process to design and assess a number of future
national security resource preparedness options. Follow-on work, which builds on macro and micro economic analysis
procedures used by the Defense Department and civil agencies, demonstrates the need for a systematic industrial
assessment methodology, one which incorporates key planning assumptions including the important dimension of
time.[2]
The end of the Cold War and the outcome of the BUR have not done away with the requirement to examine the
changing nature of potential threats and US capacity to respond to them. The required assessments can be illustrated
with two cases that are similar to the two major regional conflicts (MRCs) portrayed in the BUR. The results
demonstrate how, given minimal planning assumptions (such as approximations of defense guidance and the Joint
Military Net Assessment scenarios), we can anticipate industrial base problems and related constraints that would
impede, if not prevent, execution of national security strategy in response to BUR-like scenarios.
The methodology uses existing federal agency models to represent relationships--within specific critical industrial
sectors--of prime contractors and their essential sub-tier producers and vendors.[3] The methodology assumes that the
time required to identify and evaluate potential industrial bottlenecks and related shortfalls in peacetime is as valuable
to policy formulation as the time it will take to produce new end items and components in a crisis. In anticipation of
their use in contingencies, the models can and should be run regularly to support research projects and exercises. The
models can also be used routinely to explore peacetime resource options, measuring and assessing investment risks.
Within the limits of the assumptions that underlie the models, the illustrative cases identify the 15 US industrial sectors
that could not recover from two MRCs without government intervention. The models can estimate the nature of
manufacturing shortfalls and the time required to recover from first one and then a second MRC. The models also take
into consideration graduated mobilization response options to suggest how each of the 15 problematic industrial sectors
might be managed to prevent shortfalls. This capability suggests how we might operate successfully within the fragile
confines of the "two MRC" scenario. When coupled with a mobilization planning system, this assessment capability
would suggest ways to prioritize policy options. It could also indicate when we ought to temporize during a developing
crisis via diplomatic or economic responses.
The research goes beyond examining emergency preparedness options. It could be used to guide the process of
apportioning depot maintenance work between public and private sources; to establish capability thresholds for the
1995 Base Closure and Realignment process, and to suggest appropriate divisions of labor with allies and potential
coalition partners in any contingency.
The models provide only general indicators of industrial sector difficulties. Nevertheless, they can show us where to
look for specific industrial base problems that, if left undiscovered until a crisis, could degrade readiness or constrain
military response options. Such information, used with tailored intelligence assessments of the capabilities and
limitations of an adversary, could focus on the flexible and sustainable industrial preparedness needed to manage a
crisis or to prevail on the battlefield. The models could become essential management tools in political and military
command centers, and increasingly in corporate board rooms where key industrial response decisions will be made in
future crises.[4]
Evolution Within the Defense Technology Industrial Base
The defense technology industrial base (DTIB) is adjusting, or being adjusted, to compensate for changing defense
requirements and significantly altered civilian and government business opportunities. Defense budgets have fallen
nearly 40 percent since 1985.[5] This decline has curtailed independent research and development activities as industry
adjusted to shorter production runs and short term contracts. It has led to consolidations as prime contractors focus on
core competencies, and to erosion of the critical sub-tier of industrial contractors and vendors.
Two groups, with motives not necessarily in harmony, are fully engaged in adjusting the DTIB. Members of Congress
and the Administration are attempting to change the business environment, including the culture within which the
defense industry must operate, while protecting their constituents. Conversely, individual corporations and defense
suppliers, driven by the changed defense market, are facing the dilemma of refocusing on core competencies that may
have little, if any, relevance to known or anticipated defense needs.
Diversification has been proposed as a panacea for industries seeking alternatives to defense contracts. While it has
become apparent that diversification is generally not a useful option for major defense producers, the experience of the
past four years has produced some alternative strategies. These include continued low-level production to preserve a
"warm" production base; constructive international interdependence; expanded dual-use and commercial practices and
capacity; and "prototyping" to develop advanced weapon systems, keep the technologies current, and defer full
production. While each alternative offers some promise, none of them meets all requirements. Preservation of a warm
base, while easily the preferred solution, loses its appeal when overhead costs and prohibitively high unit costs must be
justified to constituents and shareholders.
Retention of excess capacity, even for national defense purposes, will be a hard sell as the defense industry moves
toward marketplace business practices. The Seawolf submarine program and subsidies to shipyards capable of
producing aircraft carriers will remain rare exceptions. Consequently, without excess capacity we may not be able to
surge in order to sustain two MRCs, let alone recover quickly from their combined effects on stocks of munitions, end
items, major subassemblies, and repair parts. Plans based on unexamined assumptions--about the duration of an
operation or the sustainability of committed forces--can be confounded by opponents willing to accept protracted
engagements to ensure that the United States achieves neither its military nor its diplomatic objectives.
International cooperation under the best of circumstances, such as the carefully nurtured standardized and largely
interoperable NATO environment, presents many difficulties. Even at the peak of the Cold War, NATO agreements
were profoundly influenced by differing national approaches to defense procurement. Traditions of government
intervention or direct support to industry, and national political, social, and economic demands, frequently proved
more compelling than national security. Not unlike members of Congress, Western European parliamentarians see most
industrial preparedness initiatives and co-production schemes through a different prism than civil and military
resource planners. Tangible short-term gains must be readily apparent, while long-term advantages have to be highly
leveraged to build and nurture fragile international commitments to defense production.
Dual-use and commercial applications, even with relaxed specification and procurement guidelines, are quickly
depleted as one moves up the subcontractor hierarchy to the few prime contractors that serve as system integrators.
Military-unique and technology-specific capabilities will continue to be found exclusively within the very small family
of prime contractors. The unprecedented commitment of DOD and the Congress to remove acquisition constraints
which have prevented some defense contractors from exploiting defense-funded programs in civilian applications is
encouraging, as long as expectations remain realistic. Flexible manufacturing and other innovative measures to shorten
production cycle time and improve responsiveness could significantly enhance the value of this alternative.
Finally, prototyping, like the others, offers some relief by creating options which preserve unique manpower skills,
retain a warm base, and foster continuing product enhancement and technology integration. However, costs associated
with prototyping limit applications of this alternative.
The challenge for government and industry alike is to guide the evolution of the defense technology industrial base to
exploit the advantages of each of the four alternatives described here. None of the four is entirely satisfactory.
Overhead costs, vulnerability to alliances and coalitions when involved with offshore production and procurement,
unrealistic assumptions about diversification and dual use concepts--all challenge industry and government to find
ways to reduce the burden of defense spending. Nor should we forget that companies are in business to make money;
they will not be able to bear a disproportionate share of the costs of any of the alternatives. Perhaps maintaining the
essential features of the defense technology industrial base is part of the insurance policy that Americans expect their
government to establish for them.
The Role of the Federal Emergency Management Agency
The Federal Emergency Management Agency (FEMA) is completing its reorganization from a traditional, hierarchical
vertical structure to a more horizontally oriented, functionally aligned organization emphasizing teaming and program
delivery.[6] It remains to be seen how the agency plans to meet its national security emergency preparedness
obligations while creating a government mechanism that works better and costs less than its predecessor.
A number of changed circumstances will define the choices available to logisticians, industrialists, and national
decisionmakers in responding to crises. Peacekeeping, whether under the UN or with coalition partners, response to
domestic or international disasters, crisis management, and other demands on national resources can no longer be
considered lesser included requirements of planning for a global Cold War. Focused planning is now required for each
of the potential types of operational requirements that the nation faces.
As we depend increasingly on dual-use and commercial elements of the industrial base to meet national security
requirements, our view of preferred ways and means to intervene in a crisis may also change. In many instances it will
be civil--rather than defense--industrial resources and capabilities that will determine the strategy employed, allowable
recovery time, and affordability, political as well as economic.
New emergency management roles and the optimal organization to fulfill them can go well beyond current
experiments with functional structures and matrix management to fulfill agency responsibilities. The "agile
manufacturing" concepts now evolving in industry offer an inherently more fluid and flexible approach to crisis
response and management. The Iacocca Institute at Lehigh University has worked closely for the past three years with
American business leaders, many of whom have played essential roles in defense preparedness, to develop a vision of
an "agile enterprise." Such an enterprise will compete aggressively on the strength of its employee skill base, a
horizontal and flexible management structure that empowers individuals and teams, and flexible content, process, and
communications technology that gets the right information to the right person at the right time.[7]
One source defined the concept of agility as follows:
Agile manufacturers of the future will be characterized by cooperativeness; rapid production of high-
quality, customized goods; decentralized decision-making power, and an information infrastructure that
links customers, manufacturing, engineering, marketing, purchasing, financing, sales, inventory, and
research. Speed in responding to market will be the principal virtue of agile companies, which will