In order to complete this assessment, we conducted a months-long study of data related to eight different dimensions that shape the performance capabilities of defense contractors: market competition, cost and availability of skilled labor and critical materials, demand for defense goods and services, investment and productivity in the U.S. national innovation system, threats to industrial security, supply chain performance, political and regulatory activity, and industrial surge capacity. We analyzed over 40 longitudinal statistical indicators, converting each of them into an index score on a scale of 0 (bad) to 100 (excellent). By evaluating three years of data for these indicators, we obtained a three-year running average and controlled for data spikes such as the 2018-2019 government shutdown. Once we aggregated the individual indicator scores into scores for each dimension, we did so into an overall composite score for the defense industrial base, which turned out to be 77 out of 100 for this year—a passing C grade but with a worrying downward trend.

NDIA approached its assessment of the health and readiness of the defense industrial base by estimating an overall score—or grade—using a broad set of quantitative “vital signs” categorized within eight dimensions:

a. Competition Conditions – trends in overall financial performance and market structure.
b. Production Inputs Conditions – availability and cost of critical inputs to defense production.
c. Demand Conditions – trends in procurement and contracting by the DoD customer.
d. Innovation Conditions – trends in technology R&D investment and intellectual property production.
e. Industrial Security conditions – indicators of industrial security threats and capabilities with a focus on cybersecurity.
f. Supply Chain Conditions – operational performance of the defense supply chain.
g. Political and Regulatory Conditions – trends in defense-related legislative and regulatory affairs that affect the DIB.
h. Productive Capacity and Surge Readiness – indicators of potential output, industrial capacity utilization, and surge production capacity.

To access the full indicator list, click here. 

In developing Vital Signs 2020, NDIA collaborated with Govini, a leading provider of data science and market intelligence services for federal and corporate clients.

How to Read the Report

In each section of the report, we present composite scores for each of the defense industrial base health dimensions described above.

Our scores follow a nested approach, combining quantitative scores for each dimension’s conditions into an overall health score on a 0-to-100 scale. The score for each set of conditions is itself a composite of scores for variables that contribute to health and readiness in that area. To score each variable, we analyzed statistical indicators that serve as empirical proxies.

Indicator scores are calculated by comparing a three-year average of the indicator to a baseline value. Baseline values are either historical peak values (a prior value of the indicator that represents the best recent performance given available data) or, when conceptually appropriate, ideal standards. As a result, baseline values are chosen on a case-by-case basis, further depending on data availability. For each indicator, we provide an analysis that incorporates the influence of contemporary contextual events and forces that drive the indicator’s performance. 

In each section of Vital Signs 2020, graphs depicting the recent trend line in the scores accentuate the discussion of variables and indicators. Each section also includes a table detailing the current scores for each variable and indicator in addition to their net change over the two previous years. 

The indicators that form the basis of our analysis were constructed from multiple data sources. Furthermore, we developed many indicators from public data sources. Our financial indicators are based on data obtained through the FTSE Russell Mergent Online database. Several indicators, including those presented in the Demand Conditions section, are derived from custom data provided by our research partner, Govini. Some indicators are based on estimates generated by NDIA.