January 26, 2024
Pentagon Releases “First Ever” National Defense Industrial Strategy
The Department of Defense released the first National Defense Industrial Strategy (NDIS) on January 11, 2024. The document was finally made public after a draft was leaked in late 2023, delaying the original December 2023 release date. This 59-page aspirational strategy provides guidance for the next three to five years “…to coordinate and prioritize actions to build a modern defense industrial ecosystem…”, as stated by Defense Deputy Secretary Kathleen Hicks. The document was presented to the public by Dr. Laura D. Taylor-Kale, the first assistant secretary of defense for industrial base policy, appointed in March 2023.
The NDIS “…provides a path that builds on recent progress while remedying remaining gaps and shortfalls.” The Strategy argues recent world events such as COVID-19, the Russian Federation’s invasion of Ukraine, and the continuing rise of the People’s Republic of China not only economically but militarily, have pushed the defense department to look more closely at the current capacity and health of America’s industrial base, increase the use of existing authorities such as the Defense Production Act (DPA), and turn on surge capabilities for military equipment such as ammunition production. While the department knew vulnerable and shallow supply chains existed, COVID-19 revealed and exacerbated the problem, not only for the defense sector but for worldwide manufacturing.
The defense department has used recent executive orders focusing on manufacturing and supply chains to further complement their own industrial base programs and initiatives – Manufacturing Technology program (ManTech), Additive Manufacturing (AM) Forward, Industrial Base Analysis and Sustainment (IBAS) program, the defense department’s Organic Industrial Base (OIB) and DPA. As described in the strategy, there are many tools and authorities at the department’s disposal to strengthen supply chains, bring more small- and medium-sized businesses into defense acquisition, and promote innovation in traditional and non-traditional business sectors for national security.
Four Priorities are the cornerstone of the strategy.
- Resilient Supply Chains
- Workforce Readiness
- Flexible Acquisition
- Economic Deterrence
These four priorities guide the efforts for “industrial action and resource prioritization”. The strategy points out “Between 1985 and 2021 — even with the Afghanistan and Iraq conflicts — the Department’s budget as a percentage of U.S. GDP shrank from 5.8 percent to 3.2 percent with corresponding contractions of defense-oriented companies and a reduction of nearly two-thirds of the associated workforce.” At the same time, the commercial information technology sector has exploded and developed ever- more-powerful tools that DOD can use. However, commercial-off-the-shelf technology comes with supply chain and other risks.
Within the strategic framework laid out in the document, a discussion of challenges to address includes topics such as underutilization of multi-use technologies; inadequate workforce and domestic production; fragility of sub-tier suppliers; lack of market share, over-customization, and obsolescence; and funding uncertainty and constraints – specifically lapses in appropriations and continuing resolutions.
PRIORITY 1 – RESILIENT SUPPLY CHAINS
The goal is defined as “The DIB can securely produce the products, services, and technologies needed now and in the future at speed, scale, and cost.” Balancing speed and scale with cost for resilient, healthy, diverse, dynamic and secure supply chains is imperative for the department, especially with their shrinking percent of GDP. One aspect of the supply chain arena the strategy hopes to focus on is sub-tier suppliers by using “the full range of authorities and opportunities available…to strengthen mechanisms to ensure prime contractors are accountable for meeting their small business subcontracting plans.” Acceleration of payments will continue for small business contractors and the department will try to incentivize large prime contractors to do the same for their small business partners.
Each priority in the NDIS has specific actions for success. For resilient supply chains they are:
- Incentivize industry to improve resilience by investing in extra capacity,
- Manage inventory and stockpile planning to decrease near-term risk,
- Continue and expand support for domestic production,
- Diversify supplier base and invest in new production methods,
- Leverage data analytics to improve sub-tier visibility to identify and minimize strategic supply chain risks and to manage disruptions proactively
“Expand support for domestic production” includes promoting the use of accelerator programs (such as APEX Accelerators) to foster innovation and leveraging innovative funding mechanisms (presumably such as Other Transaction Authority, an alternative to traditional contracting methodologies for prototyping aimed at non-traditional partners) to strengthen supply chains.
PRIORITY 2 – WORKFORCE READINESS
The second priority is defined as “A skilled and sufficiently staffed workforce that is diverse and representative of America.”
As the American workforce ages and younger workers show less interest in manufacturing jobs and careers as well as less interest in science, technology, engineering and math (STEM) related areas of the workforce, labor shortages will become more commonplace. The scarcity of welders for ship building and maintenance affects readiness ratings and ship availability. Fewer engineers in the DIB means slower, and less, innovation and development of critical capabilities.
Actions in this area are:
- Prepare workforce for future technological innovation,
- Continue targeting defense-critical skill sets in manufacturing and STEM,
- Increase access to apprenticeship and internship programs,
- Destigmatize industrial careers,
- Expand recruitment of nontraditional communities
PRIORITY 3 – FLEXIBLE ACQUISITION
Priority 3 is defined as “Acquisition strategies that strive for dynamic capabilities while balancing efficiency, maintainability, customization and standardization in defense platforms and support systems. Flexible acquisition strategies would result in reduced development times, reduced costs, and increased scalability.”
The strategy emphasizes balancing standardization and customization to allow for more interoperability, interchangeability, economies of scale, commonality of material, and streamlined production processes. Managed customization for mission-specific requirements should take place without interrupting existing defense efforts. The goal here seems to be a more wholistic view of systems to reduce redundancy, increase multi-use and interoperability, save money and time for the provider and customer with clearer guidance and a steady demand signal.
Actions for this priority are:
- Broaden platform standards and interoperability,
- Strengthen requirements process to curb “scope creep”,
- Prioritize off-the-shelf acquisition where applicable and reasonable,
- Increase access to intellectual property (IP) and data rights to enhance acquisition and sustainment,
- Consider greater use and policy reform of contracting strategies,
- Continue to support acquisition reform,
- Update industrial mobilization authorities and planning to ensure readiness
PRIORITY 4 – ECONOMIC DETERRENCE
Defined as “Fair and effective market mechanisms that support a resilient defense industrial ecosystem among the U.S. and close international allies and partners and contribute to economic security and integrated deterrence. Fear of materially reduced access to U.S. markets, technologies, and innovations sows doubt in the minds of potential aggressors.”
Actions within this priority are:
- Strengthen economic security agreements,
- Enable international interoperability standards through active participation in standards-setting bodies,
- Fortify alliances to share science and technology,
- Strengthen enforcement against adversarial ownership and cyber attacks,
- Strengthen prohibited sources policy
So, how will the defense department act on the goals, actions, and assumptions put forth in the NDIS? An assessment framework is proposed but with the generality of guidelines and actions put forth, there is more work to be done. The House and Senate Armed Services will no doubt have questions about the strategy and perhaps there will be more clarity in the future classified NDIS implementation plan.
As with any strategy, without funding to implement specific executable actions to achieve the desired outcome, the outlook for success is fair to partly cloudy. Can some actions laid out in the document take place without additional funding or staff? Yes, but clear and concise guidance must be given to not only enable defense staff to start to turn the ship towards the change desired in the NDIS but also to show leadership is serious about implementing the strategy to achieve a “modernized defense capacity”. A key signal of the Administration’s commitment to this strategy will be whether the FY25 defense budget request maps funding to the four NDIS priorities.