The Congressional Research Service (CRS) is best in class research and analysis, judged against both public or private sector standards.  In a recent report, the CRS broke down the vital questions U.S. policymakers need to be asking vis a vis the future of the U.S. Defense Industrial Base – questions which apply to all organizations strategic sensemaking as the U.S. Defense Industrial Base undergoes a transformation that overlaps with many vital industry sectors.  

The U.S. Defense Industrial Base: Background and Issues for Congress

The U.S. defense industrial base (DIB) is the network of people, organizations, facilities, and resources that provides the U.S. government—particularly the Department of Defense (DOD)— with defense-related materials, products, and services.

Summary of the Report

Defining the U.S. Defense Industrial Base

The U.S. Defense Industrial Base (DIB) is the network that provides defense-related materials, products, and services to the U.S. government, particularly the Department of Defense. It includes various entities like commercial firms, research centers, and government-owned facilities.  The DIB is crucial for meeting defense needs and ensuring national security. Congress appropriates funds and oversees the DIB to assess its capacity and regulate the commercial defense industry.  Policymakers segment the DIB based on key products like submarines and helicopters. Understanding and managing industrial capacity is vital for Congress to ensure the DIB can meet defense requirements effectively.

From the report:

• The DIB encompasses a wide variety of entities, including commercial firms operated on a for profit basis, not-for-profit research centers and university laboratories, and government-owned industrial facilities.
• It provides everything from large, technologically sophisticated weapons platforms (e.g., nuclear submarines) and highly specialized operational support (e.g., intelligence analysis) to general commercial products (e.g., laptop computers) and routine services (e.g., information technology support).
• By supplying and equipping the armed services, the DIB enables the United States to execute national strategy and develop, maintain, and project military power.

Since World War II, the U.S. government has devoted considerable resources and attention to ensuring the DIB can meet the requirements of national defense. Within DOD and the executive branch, a diverse array of organizations and programs exist to monitor, protect, and strengthen the industrial base. Congress appropriates hundreds of billions of dollars annually to acquire materials, products, and services from DIB suppliers, and has established and funded a number of programs intended to assess or modify aspects of the DIB as a whole. Congress also routinely oversees the executive branch exercise of industrial base-related functions.

In conducting its role in resourcing, overseeing, and legislating for the U.S. defense industrial base, Congress may consider a number of questions, including:

1. Do suppliers have adequate capacity to meet U.S. defense needs?
2. What is the appropriate degree of regulation for the commercial defense industry?
3. How resilient should defense supply chains be? What role should sourcing, content, and production requirements play in government stewardship of the industrial base?”

What Next?

Summaries of the “Issues for Congress” sections of the CRS report:

‘Right-Sizing’ the Industrial Base

The U.S. Defense Industrial Base report by the Congressional Research Service highlights the significance of assessing and managing industrial capacity to meet defense needs. Congress appropriates funds for DIB suppliers and oversees related functions.    The CRS emphasizes the critical questions policymakers must address regarding the future of the U.S. Defense Industrial Base amid ongoing transformation and its implications for various industry sectors.

Assessing the appropriate capacity, regulation levels, and suppliers’ ability to meet defense needs are key considerations for Congress in overseeing the defense industrial base:

Assessing and Managing Capacity: One of the most fundamental DIB-related matters for Congress to consider is the level of industrial capacity required to meet the defense needs of the United States. As defined by the Federal Reserve, industrial capacity is a measure of “the amount of resources available to enable an industry to produce goods.”  Such resources may include production facilities and equipment, labor, and raw materials; some definitions also include less tangible assets such as intellectual property.

The DIB and Great Power Competition:  The U.S. Defense Industrial Base (DIB) report addresses the crucial need for industrial capacity to meet future military demands, especially in the context of great power competition like that with China. Concerns have been raised about potential shortages in critical defense equipment in case of a major conflict. Analysts highlight the importance of surge capacity to quickly respond to increased demand and the role of industrial capacity in stockpiling equipment in advance. The report emphasizes the significance of assessing and managing industrial capacity to ensure the defense needs of the United States are met. The DIB, consisting of a network of entities, plays a vital role in providing defense-related materials, products, and services to the Department of Defense, covering a broad spectrum from technologically advanced weapons to routine services.

An Arsenal of Democracy?:  The U.S. Defense Industrial Base report discusses the concept of the Defense Industrial Base serving as an ‘arsenal of democracy’ by providing significant support to U.S.-aligned governments like Ukraine. Some analysts argue that the DIB should have the capacity to produce a wide range of defense equipment for allies and partners beyond just meeting U.S. needs. The report highlights the ongoing support for Ukraine and the potential need to prioritize capacity allocation between different partners like Ukraine and Taiwan due to constraints. There are differing views on whether the U.S. can maintain a DIB large enough to support multiple partners effectively or if prioritization is necessary.

Competition and Consolidation:  The report highlights the importance of addressing competition and consolidation within the defense industry. Some policymakers advocate for supporting a defense industrial base large enough to meet various needs, while others prioritize supplying U.S. forces. Competition is seen as beneficial for outcomes like cost control, expanded capacity, and technological innovation, but consolidation may weaken competition and create challenges for the government. Congress also needs to consider the relationship between defense industry practices and the performance of the Defense Industrial Base.

Business Practices and the Role of Government:  The role of Congress involves appropriating funds and overseeing the industrial base.  Policymakers analyze different sectors within the defense industrial base, such as submarine and rotary-wing aircraft industries.  The government must address business practices like overcharging and underinvestment, which may impact national security.  Congress must determine if suppliers have the capacity to meet defense needs and regulate the commercial defense industry appropriately.  

Supply Chains and Sourcing Requirements

The section on Supply Chains and Sourcing Requirements in the U.S. Defense Industrial Base report highlights the importance of supply chain resilience for national security.  It emphasizes the need for healthy, diverse, and secure supply chains to support national defense capabilities.  The report also discusses the challenges related to sourcing requirements, including domestic content regulations and restrictions aimed at ensuring secure access to critical products and supporting domestic producers.  Policymakers are urged to evaluate the capacity of the industrial base to meet defense needs and consider collaboration with foreign entities to enhance industrial capacity and resilience:

Supply Chain Resilience:  The report emphasizes the importance of secure and strong supply chains for national security.  It discusses how supply chain risks are critical considerations, especially within the context of national security. Additionally, the report raises questions about the behaviors of suppliers in response to increased cash flow and outlines the complexities of growing industrial capacity amidst evolving shareholder remuneration dynamics. The report also delves into the significance of assessing and managing industrial capacity to meet the defense needs of the United States relative to supply chain capacities as resilience.

Onshoring and ‘Friendshoring’: The concept of “friendshoring”, which involves expanding industrial collaboration with foreign entities for defense equipment development, is highlighted in the report.  This collaboration can occur through multilateral or bilateral partnerships. The report also addresses the importance of domestic content requirements and restrictions in federal sourcing, such as the Buy American Act and the Berry Amendment, to ensure secure access to critical materials and support domestic producers. Congress plays a crucial role in overseeing and appropriating funds for the defense industrial base to assess capacity and regulate the commercial defense industry.

Advocates of onshoring defense production argue that having capacity within the U.S. improves access to critical materials during conflicts, stimulates the domestic economy, and enhances supply chain resilience. On the other hand, opponents raise concerns about increased costs and inefficiencies associated with mandating domestic operations. Policymakers and analysts consider onshoring and ‘friendshoring’ (transferring activities to U.S. allies) as strategies to bolster supply chain resilience. Congress plays a crucial role in overseeing and funding programs related to the defense industrial base, addressing questions about supplier capacity and regulatory measures.

The report elaborates:  “Friendshoring is frequently identified as a tool to help accomplish the goals of multilateral security pacts such as AUKUS or NATO…To encourage friendshoring, DOD is reportedly expanding the scope and scale of industrial collaboration with foreign governments and companies, including the co-development and co-production of weapons systems and other defense equipment…Such cooperation may occur as part of institutionalized multilateral partnerships or on a narrower bilateral basis.”

Domestic Content Requirements and Restrictions: The U.S. Defense Industrial Base includes a network of entities providing defense-related materials and services, from large weapons platforms to commercial products and services.  The report highlights the statutory and policy authorities governing federal sourcing, emphasizing restrictions on foreign sources and encouragement of procurement from domestic sources.  These requirements aim to secure critical services, avoid supporting entities working against U.S. interests, and stimulate the domestic economy.  The Defense Production Act defines the domestic industrial base as domestic sources providing materials or services for national defense requirements.

From the report:

“Lawmakers have cited numerous reasons for sourcing and content requirements, including

• Ensuring that the United States has secure access to critical services, products, and materials during a war or national emergency;
• Avoiding the provision of financial or material support to entities working against U.S. interests, such as strategic competitors or terrorist organizations; and
• Supporting domestic producers and stimulating the U.S. economy.

There is considerable variance as to which sources may be considered domestic. The National Technology and Industrial Base (NTIB), for instance, is defined as “the persons and organizations that are engaged in research, development, production, integration, services, or information technology activities conducted within the United States, the United Kingdom of Great Britain and Northern Ireland, Australia, New Zealand, and Canada.”…Such persons and organizations receive preference for certain limited procurement actions and some NTIB entities may be exempted from certain Foreign Ownership, Control or Influence (FOCI) requirements… However, for the purposes of other requirements—such as those created by the Buy American Act—sources must be located within the United States to qualify as domestic.

Congress may consider the extent to which these content requirements suffice to meet its goals regarding the DIB. If it determines that further preferences are necessary to encourage procurement from U.S.-based suppliers, it may, for instance, consider raising the threshold required for a product to qualify as American for the purposes of the Buy American Act, or implement additional restrictions covering specific products or materials. If Congress assesses that current requirements are excessively restrictive, it may consider actions such as lowering domestic content thresholds or expanding the membership of the NTIB. If procurement—whether by the government or by prime contractors—from particular entities, countries, or regions of concern is determined to be an issue, Congress may also consider passing restrictions that specifically apply to those sources.”

For a pdf version of the full CRS report, go to   The U.S. Defense Industrial Base: Background and Issues for Congress.

Additional OODA Loop Resources

The Inevitable Acceleration of Reshoring and its Challenges: The momentum towards reshoring, nearshoring, and friendshoring signals a global shift towards regional self-reliance. Each region will emphasize local manufacturing, food production, energy generation, defense, and automation. Reshoring is a complex process, with numerous examples of failures stemming from underestimating intricacies. Comprehensive analyses encompassing various facets, from engineering to finance, are essential for successful reshoring endeavors. See: Opportunities for Advantage

What is the Defense Industrial Base Consortium?:  The Other Transaction Agreement (OTA) was also used recently by the Department of Defense (DoD) to award Advanced Technology International (ATI) “to serve as the consortium manager for the Defense Industrial Base Consortium (DIBC). This DIBC OTA will enable rapid research and allow access to commercial solutions for defense requirements and innovations from industry, academia, and non-traditional contractors.”  As a result, we set out to learn more about the DIBC for the OODA Loop community.  Details here.

The Inaugural U.S. National Defense Industrial Strategy: The first-ever National Defense Industrial Strategy (NDIS) was released last week by The United States Department of Defense (DoD). THE NDIS “offers a strategic vision to coordinate and prioritize actions to build a modernized defense industrial ecosystem.” Details here.

The Current Debate on ‘Forging the Defense Industrial Base for the Digital Age’:  Overall, the war in Ukraine has acted as an accelerant in a clash between a wide range of points of view in the debate surrounding the future of war and the future of the defense industrial base.  A sampling of various voices on the issues is captured here which have been curated from an archive of sources from Q422  (a timeframe which appears, in hindsight, to have been a crucial period in the debate) along with a vital hearing from just last week.

The Disintermediation and/or Self-cannibalization of the Defense Industrial Base:  A strategic suggestion to organizations if they are experiencing disintermediation is to aggressively self-cannibalize, with ecosystems and platforms as the new value creation and capture architectures of a new business model (or – to start – a standalone, but scalable business unit).  Exponential Organizations’ (ExOs), platforms, ecosystems, and sources of new value creation are based on the disintermediation (innovation that undermines established or incumbent structures) of a market, organization, or industry sector.

Designing, Quantifying, and Measuring Exponential Innovation:  The Exponentials Framework is a proven framework for the design of a technology ecosystem built to sustain the exponential scale and speed of the current technological and scientific era.  Exponentials are not futurist high-level concepts.  They are not intellectual bugs, but the central organizing feature of the technological road ahead.

Technology Convergence and Market Disruption: Rapid advancements in technology are changing market dynamics and user expectations. See: Disruptive and Exponential Technologies.

The New Tech Trinity: Artificial Intelligence, BioTech, Quantum Tech: Will make monumental shifts in the world. This new Tech Trinity will redefine our economy, both threaten and fortify our national security, and revolutionize our intelligence community. None of us are ready for this. This convergence requires a deepened commitment to foresight and preparation and planning on a level that is not occurring anywhere. The New Tech Trinity.

The Revolution in Biology: This post provides an overview of key thrusts of the transformation underway in biology and offers seven topics business leaders should consider when updating business strategy to optimize opportunity because of these changes. For more see:  The Executive’s Guide To The Revolution in Biology

Quantum Computing and Quantum Sensemaking: Quantum Computing, Quantum Security and Quantum Sensing insights to drive your decision-making process. Quantum Computing and Quantum Security

AI Discipline Interdependence: There are concerns about uncontrolled AI growth, with many experts calling for robust AI governance. Both positive and negative impacts of AI need assessment. See: Using AI for Competitive Advantage in Business.