Americanizing the Defense Industry Supply Chain
Commentary: Americanizing the Defense Industry Supply Chain
Senior American officials and corporate executives have been sounding the alarm for years: America’s national security is at risk because of our military’s dependence on foreign countries for raw materials, parts and products.
It’s time for leaders to speak up and fight against the manufacturing and defense industrial base.
American companies have outsourced more than 5 million jobs and 91,000 manufacturing plants since 1998, according to the Economic Policy Institute. The closure of factories in the country over the past 24 years has forced the US military to rely increasingly on imports to keep its forces armed and ready.
The Alliance for American Manufacturing has been drawing attention to this precarious problem since 2013, when it released a report, “Remaking American Security,” which identified numerous weaknesses in military supply chains and global preparedness for defense. The organization proclaimed that the health of the manufacturing sector is inextricably linked to national security, and that it is vital that we strengthen the sector.
Five years later, the situation had not improved. A Pentagon-led review ordered by President Donald Trump in 2018 identified hundreds of instances where the US military depended on foreign countries, particularly China, for critical materials. For example, a US Geological Survey analysis at the time indicated that the United States produced no rare earth ores in 2017, while China accounted for 81% of global mining production. Rare earth minerals are used in magnets, radars and other electronic devices essential to defense systems.
Four years later, the next administration raised the same concerns. A February report compiled at the behest of President Joe Biden warned of the consequences of weak manufacturing investment in the United States. The study pointed out that the United States’ share of the global goods market has steadily declined, and that manufacturing output as a percentage of GDP has also declined, from over 25% in 1947 to 11% at the time. end of 2020. The report continues. to present 64 recommendations as initial steps in a longer-term effort to build a strong and responsive supply chain in the years to come.
Despite warnings, the situation continues to worsen. The COVID-19 pandemic has highlighted the need for a continued push to outsource and revitalize North American manufacturing. When the outbreak began, supply lines needed to maintain production within the defense industry were frozen, drawing attention to the vulnerability of the defense industrial base to being cut off. According to consultancy McKinsey and Company, only 22% of automotive, aerospace and defense players had regionalized their production to build supply chain resilience by May 2020, even though they had previously indicated that they had prioritized the approach.
After more than two years of disruption related to COVID-19, new challenges are emerging. Rising trade tensions with China, exacerbated by Russia’s invasion of Ukraine, have led to even greater delays and higher prices for beleaguered companies that use global supply chains to move products around the world. entire. No one knows if the war in Ukraine will cause China to take a more aggressive stance towards Taiwan, but with the defense industry heavily dependent on Taiwan’s semiconductor manufacturing capacity, it’s time to be even more vigilant.
What brought us here? It all boils down to companies chasing short-term profits to satisfy their shareholders at the expense of loyalty to the United States, coupled with a fierce competitive landscape. Once a large manufacturer outsources, other industry players have no choice but to follow suit to achieve the same cost reduction.
This cost-cutting mentality was amplified by the reduction in size of the military by more than 35% in the 1980s and 1990s, the relative ease of outsourcing, including the relaxation of oversight requirements, and the increased role of technology in modern warfare.
Yet, due to an all-too-common “kicking on the road” attitude, neither the military nor the private sector have considered the long-term consequences of outsourcing manufacturing. The reality of trade-offs is now only too apparent. Once a new product or technology is manufactured outside of the United States, process engineering, tools, and supply chain source control go hand in hand.
These hard-to-quantify consequences are often overlooked, but intellectual property can be invaluable. There are deep ties between research and development and manufacturing, and because of their close interdependence, U.S. cooperation with foreign suppliers is necessary to produce viable products. This cooperation includes finding the best engineering talent internationally and expanding the footprint of a company’s most sensitive and proprietary data. Knowledge sharing can result in the inadvertent transfer of critical intellectual property that can be difficult to protect. Although there has been a worldwide strengthening of overseas intellectual property rights, overseas production is even more likely to lead to theft and competition from counterfeit goods.
When outsourcing manufacturing, there is also a considerable risk that a foreign power could cut off vital supplies needed to sustain the US military. Unprecedented and unpredictable global shocks such as the pandemic or war in Europe are examples of how the continuity of supply chains can be crippled. We need to build domestic manufacturing capacity to ensure reliable access to our defense industrial base so that the supply chain can withstand such disruptions.
Still other risks include the threat of sabotaged equipment or espionage. The Pentagon has long feared that “kill switches” could be embedded in transistors that could disable sensitive US systems in the event of a conflict. This type of sabotage could jeopardize everything from satellites and cruise missiles to drones and cell phones.
The 2018 Pentagon review noted that 90% of the world’s printed circuit boards are produced in Asia, with more than half in China. According to Intel CEO Patrick Gelsinger, only 12% of global semiconductor manufacturing takes place in the United States. The outsourced production of these vital electronic components poses a risk to US defense. As a result, Congress passed the CHIPS and Science Act to stimulate increased domestic chip production.
After decades of Chinese dominance, transitioning the supply chain to local sources is essential. How to achieve this while controlling costs?
First, we need to keep in mind that the cost savings of offshoring aren’t what they used to be. It’s no secret that offshoring has become more expensive. As living standards improve in Asian countries, demands for higher wages also increase.
Sudden trade wars or disruptions caused by natural disasters or health issues can also drive up the prices of outsourced systems and components.
Additionally, relocation offers its own potential savings. By bringing more manufacturing ashore, shipping costs can be controlled and America is less vulnerable to geopolitical factors. Costs can also be controlled by relying on off-the-shelf commercial technology that is customized to meet military specifications and kept up to date with system requirements by maintaining control and configuration of all components of a system.
For Department of Defense customers, revision control is vital, as many cannot modify their software or must maintain exact component configuration for the life of the program.
Recent developments in the field of automation, robotics and analytics offer another attractive proposition to reduce costs for US manufacturers. Although factory workers do their best, they are prone to making mistakes due to fatigue and distractions. Automation can save manufacturers money by reducing these costly errors.
And while automation may supplant human labor for low-skill, repetitive jobs that require speed and precision, the long-term net effect on America’s workforce is positive.
Automation often creates as many jobs as it destroys over time. By automating a manufacturing plant, highly skilled opportunities are created to control and connect smart machines, automated warehouses, and develop artificial intelligence. This transition to highly skilled workers leads to an increase in the standard of living in the country due to higher wages and lower cost of goods.
Automation also makes it easier for manufacturers to analyze valuable data that is not readily available when humans perform manual tasks. In today’s modern manufacturing environments, data is the cornerstone of making informed decisions and maintaining an effective operational strategy. Automation can also increase overall production by keeping machines running longer. The net effect is increased profits while controlling costs.
It’s time for the nation’s leaders to heed the alarm bells, embrace suggestions to Americanize the supply chain in a hurry, and not let political hurdles slow us down. We cannot afford to be sidetracked by shortages, delivery delays, security threats, natural disasters or pandemics. With today’s modern technology, we can control costs and move our workforce into jobs that will drive even more innovation.
Overreliance on foreign suppliers for the defense industry leaves the nation vulnerable. Combat gear is simply better made in America.
Mike McCormack is currently President and CEO of CP North America. He also sits on the board of the Arizona Manufacturers Council and the Center for the Future of Prescott.
Topics: Manufacturing, industrial base