A remarkably prescient CSIS report explores the premise that “it is no longer a question of whether the U.S. industrial base is prepared to rapidly surge production in the case of a direct conflict with a capable adversary—it is clear that it is not, and that is because the necessary investments have not yet been made to make it so,” and proffering the question: “Why is surging production so complicated, and why would it take so long?”

Reviving the Arsenal of Democracy: Steps for Surging Defense Industrial Capacity

Cynthia R. Cook, Director of the Defense-Industrial Initiatives Group and a senior fellow with the International Security Program at the Center for Strategic and International Studies (CSIS),  is the author of the CSIS report Reviving the Arsenal of Democracy: Steps for Surging Defense Industrial Capacity

Key Insights from the Report 

• To date, the robust support that the United States has provided to Ukraine has primarily come out of stockpiles, drawing the United States down to levels that have triggered concerns as to whether there are sufficient residual inventories for training and to execute war plans in the case of a conflict in which the United States is directly involved.
• In World War II, the United States served as the “Arsenal of Democracy”—a term President Franklin D. Roosevelt used to refer to the key industrial role U.S. industry played in the Allied war effort—but it took more than five years for the industrial base to fully gear up for the war effort.[1] If the United States were to be directly engaged in conflict, the time it could take to surge production represents a serious vulnerability. Why is surging production so complicated, and why would it take so long?
• Language in the 2023 National Defense Authorization Act (NDAA) authorizes an increase in the acquisition of new munitions, for example, including with multiyear buying authorities. 
• Reaching the programmed number may take years to finish at current production rates , so discussions are increasingly about the need to surge production levels as a solution, and the U.S. Army is taking steps to support this. However, years of underinvestment mean that the industrial base may not be sufficient to both refill and increase stocks while meeting demands from allies in the timeframe that can have a warfighting impact at the speed of relevance.
• The commercial defense industrial base itself faces an incentive structure that motivates a least-cost production model at the expense of capacity and delivery speed, which means that manufacturing slack has been eliminated to the extent possible. While this incentive structure is designed to ensure that the Department of Defense (DOD) can invest in as broad a range of capabilities as possible and to carefully allocate taxpayer funds, it has reduced the ability of the defense industrial base to surge.
• Without a formal requirement with clear targets for higher sustained volumes—and with issued contracts—defense contractors have not risked investing in the production capacity that is now needed. This issue is pervasive across the defense manufacturing ecosystem, not just for munitions. Refilling inventories in a reasonable timeframe or preparing for surge more generally may require contractors to invest in additional capacity to allow for production to increase.

What’s Next?

In the report, Cook lays out key questions that need to be answered and steps that need to be taken to truly prime the pump for a defense industrial surge of any significant speed and scale, notably:

1. The first question that must be addressed when considering surge production for any capability is whether existing factories and facilities have the necessary capacity to expand in-house production. Generally, an increase in production using existing facilities and workforce would be the most cost-effective approach, so assessing capacity is a key first step. 
2. The search for production efficiencies is not a new one, so one challenge is that the increasing automation and adoption of production approaches such as lean manufacturing may have already taken all significant slack and unnecessary expenses out of the system, an approach driven both by advances in industrial engineering and by government contract incentive structures that focus on reducing costs.
3. There may still be room for improvement, particularly if the factory is able to use robots where increased automation is possible. Changing production approaches might require additional training for the workforce, along with coordinating with a union if there is a represented workforce.
4. Increasing capacity within an existing facility will require an increase in other inputs besides labor. Deliveries of raw materials, parts, subassemblies, and whatever components go into the goods being produced will need to increase to support the new production rate. Increasing production at final assembly sites requires an increase in the full range of inputs. If supply chains are constrained, increasing production may be difficult or even impossible.
5. Aerospace is the largest market for titanium, but the metal has multiple consumer uses, including in automobiles—and there is a single U.S. producer of titanium sponge and titanium castings. Castings and forgings have been identified as risk items by all services of the U.S. military.
6. Semiconductors are used across the entire spectrum of manufacturing and have lead times of up to six months. Requirements for U.S.-sourced subcomponents, down to the material level, complicate production growth; contractors cannot just turn to the open market to look for new suppliers without a rigorous qualification process. Government regulations for defense contracting require U.S.-sourced subcomponents, generally down to the material level.
7. Some munitions materials have such adverse environmental impact that they are not available in the United States, causing dependence on foreign sources and critical points of failure. Thus, investments in increasing the supply of manufacturing inputs are fundamental to a successful manufacturing surge.
8. The time to develop and build additional infrastructure may not be the biggest schedule constraint. For complex production processes, advanced machine tools can take years between order and delivery and may need to be sourced from overseas. 
9. The U.S. government will also need to staff on-site regulatory functions such as the Defense Contract Management Agency and Defense Contract Audit Agency. This is not something that the defense contractors themselves can control or accelerate.
10. Building capacity for any type of defense manufacturing—not just munitions—is complicated by the lack of a clear market signal. For consumer goods, companies can make predictions about the long-term viability of a product and estimate the return on investment of building additional capacity before making decisions.
11. The hardest questions when planning for a surge are who is going to pay for it, and how. The question of funding any necessary increases in capacity will need to be answered before capacity can be increased. A long-term commitment on the part of Congress and the services will be necessary for defense contractors to make these investments. In addition, the government will need to ensure that future contracts support the maintenance of excess capacity—of slack—rather than continually drive to low-cost solutions.

Cook’s coda to the report has the following messages to the U.S. public and private industrial sectors: 

“The next war that the United States faces may not be one where it enjoys a distinct capability advantage, as in Operation Enduring Freedom and Operation Allied Freedom. For a long war against a more capable adversary, the United States may need to more directly draw on its industrial base, with production going directly from the factory to the front. After a year of supporting Ukraine primarily out of existing stockpiles, there are signs that political leadership recognizes the need to awaken the “Arsenal of Democracy” in continued support of Ukraine and to refill the ‘empty bins.’

Engaging the United States’ larger manufacturing sector for a longer-term production increase will be a more significant effort. Developing an implementation approach to do so—an operational or “OPlan” for mobilization—is something that planners should work on now. The challenges of supporting Ukraine should show us that we are certainly not thinking about this too early, and hopefully not too late. If there is a future conflict, the nation will have to go to war with the industrial base that it has at the time. The World War II model of engaging the industrial base in five years may not be sufficient for a conflict with a highly capable adversary with a strong industrial base, a strategy of onshoring all the components of production, and near-monopoly power over critical subcomponents, including critical materials used in defense production across the world.” 

For the full CSIS report, go here. 

https://oodaloop.com/archive/2023/02/13/the-disintermediation-of-the-defense-industrial-base/

https://oodaloop.com/archive/2022/12/07/accelerating-technology-for-use-in-governments-what-can-be-done-now/

https://oodaloop.com/archive/2023/02/27/is-the-capability-as-a-service-business-model-the-future-of-the-defense-industrial-base/