Annual Vital Signs Report Increasingly Useful (UPDATED)

The day after Thanksgiving, I awoke to a cacophony of noise behind my backyard. Hammers, construction equipment, blaring music. I was a little bit alarmed. I took a look outside and it was just siding being installed on the new homes being built behind my backyard. The houses have been sitting quietly for the past four months awaiting the delivery of siding, of which there is a shortage.

I’m told that when the pandemic lockdowns began last March, the producers of raw materials for new home materials stopped production in anticipation of a significant drop in demand. In the case of housing, demand actually increased and the availability of windows, siding, appliances and even sod has caused significant delays — and heartache — for new home builders and buyers.

Like the housing industry — and many other sectors throughout the global economy — the defense industrial base has not been immune to the supply chain hold-ups and disruptions caused by the COVID-19 pandemic. Unfortunately, the pandemic’s impact on the defense industry is not as easily observable as empty half-built homes and requires a systematic approach to first observe and understand the current situation. The National Defense Industrial Association’s upcoming Vital Signs 2022 report provides this systematic approach and will provide an unclassified look at the state of the defense industrial base, shedding light on the industry’s business conditions that are not readily observable.

Like the traditional vital signs that we are all familiar with from visits to the doctor — pulse rate, temperature, respiration rate, and blood pressure — NDIA’s third annual report, Vital Signs 2022: The Health and Readiness of the Defense Industrial Base, seeks to provide a measurement of defense industrial base well being. It’s based on an evaluation of eight environmental conditions that defense contractors must cope with to deliver the goods and services required to support national security and the needs of men and women in uniform. We hope that the report will be easily understood and useful for policymakers, students and the American public at large during discussion of the health and readiness of the defense industrial base.

Moving into our third year of this project, there are a few indications that the Vital Signs series is a useful contribution to discussions concerning the health of the defense industrial base. In the past year, we have had policymakers and major corporations invite us to speak about findings from previous editions. I’ve heard of previous editions used in university courses. I have even had a group of Syracuse University students use the series as part of a consulting project in collaboration with a government client. We welcome continued engagement with the release of this year’s report.

The 2022 report captures the impact of the first year of the COVID-19 pandemic on the defense industry.

The evaluation of the environmental conditions, in which we ask our defense industrial base to operate, resulted in a score of 69, for the first time dipping below a passing grade.

Surprisingly, this is only three points down from our previous edition of Vital Signs, when accounting for slight changes in our methodology. A closer look at the eight environmental conditions reveals several areas of concern: two more failing grades for the Supply Chain and Innovation categories, in addition to the two failing grades that remained from last year’s report — Production Inputs and Productive Capacity and Surge Readiness.

Industrial Security, which includes a measure of the number of cybersecurity vulnerabilities, remained the lowest scoring condition, just like our previous edition.

These are soberingly low marks and are reflective of the disruptions created since the pandemic began almost two years ago.

In addition to the overall scores, the upcoming Vital Signs report will include the results of our annual member company survey, which we fielded last summer. Not surprisingly, when asked: What is “the most important thing that the government can do to help the defense industrial base?” The No. 1 answer remained “streamlining the acquisition process.”

Within the data, we noticed that contract failures declined significantly in the first year of the pandemic. We saw a reverse of the trend of Americans increasingly feeling that the amount of money spent on military and defense is “about right.” The cost of production inputs began to increase and several supply chain indicators declined.

Like the previous editions, Vital Signs 2022 will not provide a series of recommendations for policymakers to consider. Instead, similar to last year, we will provide a set of recommendations in the new year which will be made available on NDIA’s website.

Just like last year, this study is a joint effort between NDIA and Govini, a decision science company.

NDIA could not complete the Vital Signs series without the hard work of the association’s marketing and strategy and policy teams, which includes graduate students from the Junior Policy Fellows program. This year, we were fortunate to have six graduate student Junior Policy Fellows during our summer and academic year cohorts. These individuals are students at renowned institutions including the University of California, San Diego GPS; Johns Hopkins SAIS; Johns Hopkins-Krieger; Harvard Kennedy School; George Mason University Schar School; and Georgetown’s School of Foreign Service.

We are lucky to have such a motivated group of graduate students and we cannot wait to see their impact as their careers unfold.

Nick Jones is NDIA's director of strategy.

Topics: Defense Department