NDIA PERSPECTIVE DEFENSE CONTRACTING
Building Supply Chains for the 21st Century
Lockheed Martin photo
As we ring in a new year, the impacts of America’s supply chain issues are becoming increasingly visible. The defense industrial base is no different.
In many cases, supply chain shortcomings were not caused by COVID, but resulted from longstanding issues unearthed by the pandemic.
These must be addressed for the United States to compete in a world fraught with new and evolving defense challenges.
Due to its unique position as the core industrial backbone for America’s national security, the defense industrial base faces intensified supply chain challenges that could leave U.S. armed forces vulnerable. First, the industry’s supply of critical raw materials is often sourced from geopolitical adversaries, or from U.S. allies that could be cut off during international conflict. The same is true for America’s manufacturing capacity. Many crucial components, such as semiconductors, are paramount to the success of the 21st century warfighter yet could be denied by adversaries.
Second, some defense goods are procured from a sole source or fragile market, which limits beneficial supply chain redundancy, impacting overall resilience. Lastly, the defense industrial base faces an ecosystem challenge due to fewer new market entrants, a smaller quantity and spread of small- and mid-sized businesses, and a burgeoning skilled workforce crisis.
Despite these challenges, through a whole-of-nation approach, we can address and reverse these challenges, enabling the defense industrial base to face the challenges of the 21st century.
One of the leading dangers to defense supply chains is the precarious sourcing of the materials and manufacturing capacity critical to supplying U.S. defense needs. As highlighted in the National Defense Industrial Association’s Vital Signs 2022 report, the United States remains highly dependent on certain nations for the import of finished rare earth minerals, often from a sole source provider. China is one such source, supplying 80 percent of U.S. refined rare earth material imports.
A lack of manufacturing capacity and redundancy poses a similar challenge to the industrial base. In a Vital Signs 2022 survey, 31 percent of industry respondents self-identified as a sole eligible supplier, representing a single point of failure for U.S. defense supply chains. Industry also relies on international sources for its manufacturing capacity. Over reliance on these sources can increase supply chain fragility when strength is required: namely, periods of increased international competition.
To counter these challenges, U.S. public policy should foster and support the revival of both domestic and allied sourcing, ensuring supply chain redundancy and resiliency while minimizing fragility. Because these efforts will increase costs for companies, the defense industrial base will require some level of government support.
Defense supply chain challenges are also compounded by broad trends within the overall defense ecosystem. The annual number of new vendor companies in 2020 has fallen by 28 percent since 2018.
These new vendors are a key part of the defense supply chain as they provide innovation, redundancy and new capacity. Concurrently, companies are leaving the defense sector at an alarming rate, with 20 percent of its total vendors exiting over the past five years.
It is critical that these trends are reversed. A broader swath of companies supports increased technological innovation, additional methods for procuring components, and a healthier and more resilient defense industry. As such, a greater focus on promoting entrepreneurship, along with courting companies of all sizes into the defense sector, would stimulate ingenuity and new economic solutions to supply chain challenges.
Policymakers should focus on carving out specific roles within the defense industrial base for technology companies and start-ups. Doing so would entail standardizing and balancing intellectual property laws, providing more contract training to small- and mid-size business sectors that are important for national defense yet not familiar with Defense Department practices, and bolstering support for small business programs such as Small Business Innovation Research.
Defense industrial base supply chain discussions often overlook labor force issues, an essential component. The Vital Signs 2022 survey illustrates this, as 78 percent of manufacturers indicated difficulty in obtaining the skilled workforce they require.
To address these challenges, industry and government need to build stronger, lasting partnerships at all levels. While a number of these private-public programs exist, more is required to address the longstanding shortage of science, technology, engineering, math and vocational workers facing the industry. The Defense Department and its industry partners must actively recruit from new talent pools and expand diversity and inclusion.
To succeed in these endeavors, the United States requires a national commitment. NDIA is committed to providing thought leadership on these issues and will soon release the full Vital Signs 2022 report.
To address talent shortages and build a stronger defense workforce, NDIA launched the Defense Workforce Project. This includes two working groups specifically focused on the preparation and readiness of the skilled career workforce and on expanding the diversity of talent sources defense related positions.
Additionally, the Emerging Technologies Institute launched the Supply Chain Task Force which will analyze the underdeveloped supply chains of emerging technologies, such as hypersonics, and produce actionable recommendations.
From government and industry’s lack of visibility into their own supply chains, to an increase in near-peer competition, it is time for a comprehensive reckoning with the status quo. No solution will leave every party fully comfortable, but NDIA is prepared to leverage its honest broker role, balancing competing interests to build a more resilient national defense.
Chris Sax, Robbie Van Steenburg and Jacob Winn are policy associates at NDIA.
Topics: Defense Contracting