The United States defense industrial base faces a confluence of acute challenges, starkly revealed by the COVID-19 pandemic and the urgent need to support Ukraine. These crises have exposed significant vulnerabilities in the supply chain and depleted materiel stockpiles, which are being replenished far too slowly due to capacity limitations. Rebuilding and reshaping the industrial base, alongside overhauling acquisition, production, and procurement processes, has emerged as an absolute top priority for the Pentagon, deemed essential to meet the demands of the modern battlefield.
The Fragility of an Industrial Superpower
While widely recognized as the most dynamic and robust globally, the U.S. defense industrial base harbors a considerable brittleness, particularly in its capacity for rapid production surges. Experts in the field highlight a chronic struggle to bring in new market entrants and the inherent limitations of ‘just-in-time’ manufacturing and delivery models. Though efficient in normal circumstances, this model was unmasked by the COVID-19 pandemic as vulnerable to shocks. The prevalence of single and sole-source suppliers for specific military components exacerbates bottlenecks, and while challenges are identified, fundamentally addressing overall capacity issues remains a complex task.
Unlocking Innovation: IP and Open Systems
A significant portion of the problem stems from the government’s traditional procurement approach, which favored prime contractors and often left intellectual property (IP) rights in their hands, leading to ‘vendor lock’ – a dependence on a single supplier. For the better part of a decade, there has been a strong focus on more upfront negotiation of intellectual property rights with the government to build in greater modularity and foster ‘modular open systems approaches’ (MOSA). This evolving framework now allows for recompeting subsystems and even entire systems over time, aiming to eliminate single-source bottlenecks and choke points within the supply chain.
The New Acquisition Strategy: Ambition Meets Implementation
A new acquisition model was recently announced, laying out an incredibly ambitious agenda. While many of its core tenets – such as building capacity, incentivizing new entrants, and creating more profit and incentives for companies – are broadly agreeable, the real challenge lies in implementation. The defense market is unique, with the government setting and regulating its parameters. Companies, therefore, are tasked with responding to these different incentive structures and, crucially, to the ‘demand signals’ the government puts forth. If these signals are designed to foster more recurring competition throughout a program’s lifecycle, companies will adapt and find ways to remain competitive.
From Giants to SMEs: New Opportunities for the Industrial Base
While the government will largely continue to contract with established prime contractors, efforts are underway to create more opportunities for small and mid-sized companies. A key concept is ‘two-for production’ – building two similar systems by two different contractors for major platforms. At the component level, multi-sourcing is being encouraged. Common interfaces allow contractors to maintain their proprietary ‘black boxes’ while empowering the government with operational control to switch vendors over a program’s lifecycle. This is the essence of MOSA, and it promises to open doors for new entrants, and small and medium-sized enterprises (SMEs) alike. The ability to ‘plug and play’ not only replacement parts but also new capabilities is a major priority, whose full implementation is yet to be determined, though the intent and necessary authority are firmly in place.
Urgency of Rebuilding: The Hard Lessons from Ukraine
The current urgency to rebuild the industrial base is most starkly evident in the support provided to Ukraine. While the United States successfully shipped Javelins and HIMARS initially, the request to rapidly surge production met a sobering answer: two years. The reason? Production facilities are sized strictly to existing contract terms. For the future, the government must create demand signals that allow for quick production surges. One example is a ‘surge claim,’ where a contractor receives a contract but also funding to plan and prepare for a new facility or conduct an environmental impact study. This would allow production to be doubled in six months during an emergency, rather than two years. Such proactive measures are essential to ramp up capacity effectively.
The Ukrainian Paradox: Speed Versus Scale
The war in Ukraine has offered invaluable lessons on the rapid technology replacement cycle, particularly with drones, and the extensive use of commercial systems. A significant decentralization has been observed, with units directly procuring from commercial vendors, accounting for nearly half of Ukraine’s defense budget. However, this approach requires careful consideration. The Indo-Pacific theater, for instance, fundamentally differs from Ukraine, and small commercial drones might have a much lesser impact due to vast distances. Furthermore, while the Ukrainian model fostered remarkable adaptability, its high level of decentralization prevented it from achieving critical mass. Individual units acquire different, incompatible systems, hindering overall integration and scale. In contrast, Russia, with its cumbersome, centrally planned approach, has managed to achieve far greater scale in drone deployment. The delicate balance between speed and scale remains a critical challenge, underscoring some limitations of the Ukrainian approach.
