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 November 2009 

Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret)Defense Industrial Base: Active Management Needed

November 2009

by Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret) 

In a time of constrained defense budgets, it is important to consider how the United States will preserve critical industrial and engineering capabilities. The concern obviously is to make sure the nation does not lose access to skills and supplies for future conflicts.

So what are some of the basics to sustain a healthy industrial base? First and foremost are programs that keep companies in business. Most defense contractors only supply the military and have few, if any, commercial customers. If the government doesn’t buy, the design and engineering capabilities eventually disappear.

Another requisite is competition. So much has been written about competition that it hardly seems necessary to repeat this, but the evidence is that budget decisions routinely discount this critical element. When the U.S. industrial capability began to ramp up in World War II, the nation had the luxury of many suppliers that competed for contracts.

The reduced demand resulting from the collapse of the Soviet Union led to the fateful "last supper" with Defense Secretary William Perry, when the Pentagon directed the downsizing and consolidation of the U.S. industrial base.

That contraction has continued to this day to where we now have only one supplier for some major systems and numerous single sources (some overseas) for commodities. As competition is reduced, cost and quality suffer. This is almost axiomatic, but there is a real need, not only to maintain critical capabilities but to do so within the framework of a competitive environment. And that means keeping at least two suppliers in the game.

The two basic requirements for a healthy industrial base — ongoing programs and a competitive environment — can be achieved in a number of ways.

One way certainly is to have plans to implement follow-on programs to replace existing capability when it begins to wear out or technology mandates newer, more capable systems. What will the new fighter or submarine look like, and when do we begin the design process?  Every system at some point goes away and needs replacement. An orderly planning and development process demands this planning always be ongoing.

Another track is to sustain programs in production until follow-on initiatives get under way. This keeps both design and manufacturing engineers in the game as systems are refined, modified, and upgraded throughout their operational lifetime. It also allows feedback to flow back to the designers for incorporation into current or follow-on designs.

A question often encountered is what to do when systems go out of production. How to keep design teams busy is the number one issue. There are various techniques to do this, but one way has been investigated by the Navy and documented in a Rand Corp. study, entitled "Sustaining U.S. Nuclear Submarine Design Capabilities." The trick is to keep the teams employed between program starts.  The study posits two methods of doing this. One is to sustain design teams in between programs. The basic requirement is to find something useful for them to do. Another method is to stretch out the design effort for the next submarine. The problem to be overcome here is to keep the design technologically relevant through the extended design cycle. The study concluded that this actually shortens the time for next program start and results in reduced costs overall. This technique could be applied to other systems and platforms.

Maintaining competition when new starts are becoming fewer and further apart is becoming more difficult. But this, too, is fixable. One solution is to dual-source platforms and commodities. The response to this always seems to be that it costs too much. But many studies have documented that competition drives steeper learning curves and increases quality and responsiveness by contractors.

The new Air Force tanker and the second engine for the F-35 fighter are two prime examples. For sure, the alternative fighter engine for the F-16 was a great success. Those who flew the several versions of the F-16 with the old and both newer versions of the improved engines will testify to the vast improvement in quality and reliability. The advantage to the Defense Department is having two highly proficient makers of after-burning turbojet engines who are well positioned to develop the next generation fighter power plant when needed.

A final suggestion for the industrial base is to make the international trade regime more open for U.S. exports. NDIA has worked extensively on this issue. There has been some limited improvement in the International Traffic in Arms Regulations, but much more needs to be done.

U.S. industry depends upon exports for its financial health and to maintain proficiency. Some areas of the industrial base, especially the space industry, are suffering. Regulations in this sector are so restrictive that U.S. industry is losing business to overseas competitors. One now routinely sees advertisements of "ITAR-Free" products in the space sector. This reflects the unreasonable restrictions the space industrial sector suffers.

One conclusion is inescapable: The industrial base requires active management. It can’t be left on automatic pilot. And while cost is important, it can’t be the overriding determinant in acquisition policy. Face it, the nation would be ill served, indeed, in a future crisis by a crippled industrial base that lacked the requisite skills base and capital standing to respond with alacrity to the demands that are placed upon it. 

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