Assessing the health of the Army’s industrial base is a complex task
By Mr. Juan L. Millan
The Army industrial base of today is more global, commercial and financially complex than that of 10 or 15 years ago. Prime suppliers have increased their role as integrators and delegated key innovation and development roles to a vast and complex network of sub-tier suppliers. Sub-tier suppliers have responded with their own complex network of suppliers, some of which are small, highly skilled and defense-dependent firms. These small, specialized firms serve as the warning indicator for the health of the overall industrial base.
The Army understands that the industry supporting defense is reshaping itself to respond to significant changes in military missions that translate to a sizable reduction in the demand for supplies and equipment. Major defense firms are responding by reducing excess capacity, streamlining processes and revamping supplier relationships. In addition, the financial uncertainty of sequestration will affect the future demand for new systems.
All of these factors create a high-risk environment for manufacturers and suppliers. The key question is: “How is the Army addressing the challenges to maintain the industrial base that supports the warfighter?”
First, the Army must determine which industrial capabilities are unique and vital to our national defense, and whether the military and its capabilities will be in jeopardy when a company decides to terminate a vital activity or move production offshore. Second, the Army must determine how major players can support the smaller force so that it remains credible and capable. Doing this requires involvement from multiple organizations at the strategic, tactical and operational levels, developing strong, ongoing and mutually beneficial joint relationships with their counterparts in the private sector to help minimize the impact of a potential loss in capabilities.
The Army is taking a proactive approach to ensure the preservation of those critical and essential capabilities needed for future short- and long-term operations. In order to identify the risks and issues impacting the industrial base, the Office of the Assistant Secretary of the Army for Acquisition, Logistics and Technology (OASA(ALT)) has established collaborative efforts with major players such as the Office of the Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy, the U.S. Army Materiel Command, the Defense Logistics Agency, the U.S. Department of Commerce and the Defense Contract Management Agency.
ASSESSING THE RISKS
As the Army draws down from contingency operations, some of the industrial base issues being addressed include excess capacity, limited incentives for private investment, commercial sources exiting the defense business, a growing dependence on foreign suppliers, shrinking and aging stockpiles, and declining commercial research and development capabilities.
For assessment purposes, the Army has organized its industrial base into five sectors, following the way program executive offices (PEOs), life cycle management commands (LCMCs), and research, development and engineering centers (RDECs) are structured by commodity. (See Figure 1.)
The Army is also fully engaged in joint assessment efforts focused on the identification of risks and issues impacting the industrial base’s ability to sustain readiness. They are:
1. The Sector-by-Sector, Tier-by-Tier (S2T2) Assessment—S2T2 seeks to establish early-warning indicators of risk, particularly at lower tiers, to promote policies to mitigate potential points of failure, reduce overreliance on foreign sourcing and identify areas of limited competition. The S2T2 assessment, which started in 2011, entails surveying, collecting and analyzing data from the commercial sector, reviewing outside expert reports and assessing challenges to the manufacturing community. A critical part of the S2T2 effort is the series of fragility and criticality (FaC) assessments. The FaC assessments map fragile and critical niches in the defense industrial base, to facilitate risk-mitigation investment decisions. The information generated will allow program offices to accurately gauge how potential reductions in funding could affect suppliers who provide the capabilities, products, skills and services needed to support requirements. Below are some recent products of the S2T2 FaC process:
- The M1 Abrams tank assessment enabled the team to narrow down a list of thousands of suppliers to a manageable number. As a result, a supplier of critical components (tank periscopes) was identified and a project funded to keep this fragile capability available for future ground vehicle programs.
- The Warfighter Information Network – Tactical (WIN-T) assessment revealed specialized skill sets and a critical supplier at high risk of being lost due to decreased funding.
- The rotary-wing and missile sector’s Gray Eagle Unmanned Aircraft System (UAS) assessment provided a list of critical skills or production capabilities at high risk of being lost due to decreased funding. The assessment will facilitate the development of strategies to mitigate these risks.
2. The Industrial Base Baseline Assessment (IBBA)—The IBBA is another effort to evaluate the ability of the Army’s production base to sustain acquisition and readiness, and to provide recommendations for risk mitigation.
Through the integration of program inputs from each LCMC, RDEC, PEO and senior Army leadership, the IBBA focuses each organization’s assessment on critical industrial base capabilities, technologies and capacities.
It takes a joint approach by major players to assess the many challenges faced by the defense industrial base and find solutions that will preserve its health, integrity and technical superiority in support of the warfighter.
There is no doubt that the current wave of defense cuts, combining predictable effects of the drawdowns from Iraq and Afghanistan with the unpredictable consequences of sequestration, is very different from past defense budget reductions, and its impact on the industrial base is going to be significant. This impact calls on the Army to balance cuts across all parts of acquisition and force structure and to limit million-dollar problems to million-dollar solutions.
The challenges are forcing the Army to take a deep, hard look at the firms that supply the technologies our armed forces use, as they are important to national security.
Qualitative superiority in weaponry and other key military technology has become an essential element of American military power in the modern era, not only for winning wars but also for deterring them.
To be successful, the future industrial base must be capability- and capacity-based, using innovative practices to achieve integrated capabilities that are both flexible and responsive.
In the short term, the Army should focus on identifying only those truly critical and essential capabilities that it will need to preserve for regeneration purposes. In the long term, the Army should focus on identifying potential capability gaps and target its investments based on key fragile industrial capabilities needed now and in the future.
MR. JUAN L. MILLAN serves as a senior industrial base policy specialist in the Acquisition and Industrial Base Policy Directorate of OASA(ALT). He holds a B.S. in industrial engineering from the Polytechnic University of Puerto Rico, a B.B.A. from Puerto Rico’s State University and an M.S. in management from the Florida Institute of Technology. Millan is Level III certified in program management and in production, quality and manufacturing. He also holds a Lean Six Sigma Yellow Belt, and is a member of the U.S. Army Acquisition Corps.
- Previoulsy published in Army AL&T magazine (Jan-Feb 2014 edition).