Building Future Security: Strategies for Restructuring the ...

Building Future Security: Strategies forRestructuring the Defense Technology and

Industrial Base

June 1992

OTA-ISC-530NTIS order #PB92-208156

Recommended Citation:

U.S. Congress, Office of Technology Assessment, Building Future zSecuri y, OTA-ISC-530(Washington, DC: U.S. Government Printing Office, June 1992).

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ForewordThe collapse of the Soviet military threat holds out the prospect of a ‘‘peace dividend”

in the form of a smaller and less costly defense establishment. But despite the end of the coldwar, the United States still faces existing and emerging security threats, including the rise ofregional powers, the proliferation of advanced conventional military technologies andweapons of mass destruction, and the possibility of a renewed global military threat in thedistant future. The Nation will therefore continue to need a robust defense technology andindustrial base (DTIB) that can develop, produce, and support appropriate military systems inpeacetime and respond to additional military requirements in crisis or war.

Building Future Security, the final report of OTA’s assessment of the U.S. defensetechnology and industrial base (DTIB), discusses strategies for moving to a smaller and moreefficient DTIB over the next decade and maintaining that base in the future. It complementsOTA’s earlier report, Redesigning Defense, which developed a framework for analysis offuture defense needs, postulated some desirable characteristics of the future DTIB, andoutlined some broad strategic choices that will affect the future base. This framework providedthe starting point for the current report, which assesses some specific policy options forrestructuring the DTIB.

The principal finding of Building Future Security is that while powerful bureaucratic,economic, and political interests favor a proportional downsizing of the DTIB in which amaximum number of current firms or organizations would survive (albeit smaller and perhapsweaker), this approach would not best serve the Nation’s defense needs. Instead, if theseneeds are to be met, the anticipated cuts in defense spending will require a fundamentalrestructuring of the DTIB to 1) reallocate resources from short-term military capabilities tolong-term military potential, and 2) exploit the synergies that can result from a closerintegration of the R&D, production, and maintenance elements of the base.

For example, the future DTIB might seek to integrate R&D and production through a‘‘prototyping-plus’ strategy that involves the continuous development and limited produc-tion of selected prototypes during the periods between full production programs. Defensemanufacturing might be maintained through some combination of low-rate production, greaterintegration of the civil and military industrial bases, and changes in procurement of spare partsand maintenance services. It is clear that future managers of the DTIB will need a betterunderstanding of all elements of the base and should seek to enhance the strength of the entirebase rather than a single element.

In undertaking this assessment, OTA sought information and advice from a broadspectrum of knowledgeable individuals and organizations whose contributions are gratefullyacknowledged. As with all OTA studies, the content of this report is the sole responsibility ofthe Office of Technology Assessment and does not necessarily represent the views of ouradvisers and reviewers.

D i r e c t o r

. . .Ill

Advisory Panel—Building Future Security:Strategies for Restructuring the U.S. Defense Technology and Industrial Base

Walter B. Slocombe, ChairCaplin & Drysdale Chartered

Richard BohlenConsultant

Robert CalawayPresidentResources Management International, Inc.

Gordon CorlewVice President, Engineering and ProductionAIL Systems, Inc.

Jacques S. GanslerSenior Vice PresidentTASC

Julius HarwoodConsultant

William W. KaufmannSenior FellowThe Brookings Institution

General P.X. KelleyUSMC (Ret.)

James L. KoontzPresident & CEOKingsbury Machine Tool Corp.

Thomas L. McNaugherSenior FellowThe Brooking Institution

William McNeillProfessor EmeritusDepartment of HistoryUniversity of Chicago

John MearsheimerchairmanDepartment of Political ScienceUniversity of Chicago

William J. PerryChairman & CEOTechnology, Strategies & Alliances

Donald W. PutnamCorporate Director of ContractsGeneral Dynamics Corp.

Jack RuinaProfessor of Electrical EngineeringCenter for International StudiesMassachusetts Institute of Technology

Howard D. SamuelPresidentIndustrial Union Department AFL-CIO

Wickham SkinnerProfessor EmeritusBusiness AdministrationHarvard University

General William Y. SmithUSAF(Ret)

James SolbergProfessorEngineering Research CenterPurdue University

Leonard SullivanConsultantSystem Planning Corp.

Admiral Harry Train, USN, (Ret.)Division ManagerStrategic Research and Management Services

DivisionScience Applications International Corp.

General John W. Vessey, Jr.USA (Ret.)

Albert WheelonConsultant

NOTE: C)TA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory pz neI members, The panel doesnot, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the r:port and the accuracy of itscontents.

iv

OTA Project Staff—Building Future Security:Strategies for Restructuring The U.S. Defense Technology and Industrial Base

Lionel S. Johns, Assistant Director, OTAEnergy, Materials, and International Security Division

Alan Shaw, International Security and Commerce Program Manager

Jack H. Nunn, Project Director

Ivan Oelrich

Jonathan B. Tucker

Christopher Waychoff

Administrative Staff

Jacqueline Robinson-Boykin, Office Administrator

Louise Staley, Administrative Secretary

Contractors

Madeline Gross

Ivars Gutmanis

John Jury

Deborah Shapley

Peter Tarpgaard

Contents

PageChapter 1. Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 2. Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Chapter 3. Prototyping-Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Chapter 4. Efficient, Responsive, Mobilizable Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Chapter 5. The Maintenance Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Chapter 6. Good, Integrated Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Appendix A. Defense Technology and Industrial Base Policies of Allied Nation~ . . . . . . . . . . 157

Appendix B. Reviewers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

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Chapter 1

Summary and Conclusions

ContentsPage

INTRODUCTION . . . . . . . . . . . . . . . . . . . .Implications of Defense Budget Cuts

ORGANIZATION OF THIS REPORT .GENERAL FINDINGS . . . . . . . . . . . . . . .

Cross-Cutting Issues . . . . . . . . . . . . . . . .National Choices . . . . . . . . . . . . . . . . . . .

SPECIFIC FINDINGS . . . . . . . . . . . . . . . .Research and Development . . . . . . . . . .Prototyping-Plus . . . . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Efficient, Responsive, Mobilizable Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,A Robust Maintenance Capability . . . .Good, Integrated Management . . . . . . .

THE FUTURE INTEGRATED BASE . .National-Level Decisions . . . . . . . . . . . .Industrial Sector Strategies . . . . . . . . . . .Organizational Implications . . . . . . . . . .Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .

POLICY ISSUES FOR CONGRESS . . . .Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . .Organizational Changes . . . . . . . . . . . . . .Management Options . . . . . . . . . . . . . . . .

SUMMAR.Y . . . . . . . . . . . . . . . . . . . . . . . . . . .

BoxI-A. OTA’s Redesigning Defense Reportl-B. National Strategy in 2010 . . . . . . . . . .

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Boxes

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l-C. Armored Vehicles and Helicopters in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .l-D. Operations at Selected Defense Firms in 2010.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FiguresFigure1-1. Strategic Choices for the Future DTIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-2. The Future Integrated DTIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .1-3. Policies Supporting Future DTIB Strategic Choices . . . . . . . . . . . . . . . . . . . . . . . . . .

TablesTable1-1. Desirable Characteristics of the Future Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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1-2, Department of Defense Budget Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51-3. Policies to Assure Efficient Peacetime Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141-4. Hypothetical Annual DTIB Funding Alternatives for 2001 -2010 . . . . . . . . . . . . . . . . . . . . . . . 22

Chapter 1

Summary and Conclusions

INTRODUCTIONThe transformation of the global security environ-

ment is causing sweeping changes in the U.S.defense technology and industrial base (DTIB). Thecollapse of the Soviet military threat, which droveU.S. defense planning and spending for 40 years,combined with the urgency of domestic problemsand the spiraling budget deficit, have generatedpressures to reduce the defense budget by a third toa half over the next decade. Yet the Persian Gulf Warillustrated the continuing need for an effective U.S.military establishment, supported by a smaller butstill robust DTIB.

Cuts in funding for defense research, develop-ment, production, and maintenance could impair theability of the base to meet future national securityneeds unless the cuts are accompanied by changes inhow the base is structured. As a result, the Nationneeds to develop a comprehensive strategy formanaging the downsizing of the DTIB while pre-serving the core capabilities essential for the devel-opment, production, and maintenance of majorweapons and defense equipment. The broad outlineof such a strategy was examined in an earlier OTAreport, Redesigning Defense (See box l-A.), and inthree background papers.l The previous reportdescribed some desirable characteristics of thefuture DTIB, which are listed in table 1-1. Thisreport elaborates on the findings of the earlier OTApublications and examines in greater detail thespecific policy choices involved in restructuring theDTIB over the next decade.

Implications of Defense Budget Cuts

Both the administration and Congress appear tobe preparing for major, long-term reductions indefense spending. The administration’s fiscal year1993 Department of Defense (DoD) budget requestis for $267.6 billion in budget authority and $272.8billion in outlays—a 7-percent reduction after infla-tion from the fiscal year 1992 spending level. TheDoD projects that by 1997, budget authority will fallbelow $240 billion in constant 1992 dollars. (Seetable 1-2.)2 Many members of Congress haveproposed even deeper cuts.3 By the end of thedecade, the defense budget could well be between$180 and $220 billion in 1992 dollars. Even theseprojected cuts may be conservative given the contin-uing decline of the immediate military threat, thegrowing Federal budget deficit, and competingsocial priorities.4

Reductions in defense spending are likely toaffect procurement accounts more than other budgetareas. The fiscal year 1993 budget request, forexample, put a cap on B-2 bomber production at 20,terminated the SSN-21 Seawolf attack submarinewith the lead boat, shifted the focus of the ArmyComanche helicopter program from full productionto building prototypes and developing subsystems,and terminated or reduced a host of other weapons.s

A recent Congressional Budget Office report con-cluded that future budget cuts would leave littleroom for new weapon programs in the near term.G

Further, DoD funding for procurement is likely to beconstrained by competing demands. For example,the House Armed Services Committee noted in itsfiscal year 1990 authorization report that compli-

1 U.S. Congress, Office of Technology Assessment, Adjusting to a New Security Environment.” The D@ense Technology and Indusm”al BaseChallenge, OTA-BP-ISC-79 (Washington DC: U.S. Government Printing Office, February 1991); Redesigning Defense: Planning ~he Transition to theFuture US, Defense industrial Base, OTA-ISC-500 (Washington, DC: U.S. Government Printing Office, July 1991); American Military Power: FutureNeeds, Future Choices, OTA-BP-ISC-80 (Washington, DC: U.S. Government Printing Office, October 1991); Lessons in Restructuring DefenseIndustry: The French Experience, OTA-BP-ISC-96 (W’ashingtou DC: U.S. Government Printing Office, June 1992).

z Secretary of Defense Dick Chcney, Report of the Secretary of Defense to the President and Congress (Washington, DC: [J.S. Government PrintingOffice, February 1992), p. 21.

3 Eric Schmitt, “Move to Shift $15 Billion from Military Gaim Support in House, ” New York Times, p. A12, reports that Congressman hs Aspinhas proposed a $91 billion cut from the budget by 1997.

4 OTA’S assessment of opportunities for economic conversion has recently been published in a report that addresses many of the problems ofeconomic adjustment. U.S. Congress, Office of Technology Assessment, After The Cold War: Living wifh Luwer Defense Spending, OTA-ITE-524(Washington, DC: U.S. Government Printing Office, February 1992).

5 Cheney, op. cit., footnote 2, p. 25. These proposals are all being hotly debated, particulmly the termination of the Seawolf.

6 Congressional Staff Memorandum, Implications of AddirionaZ Reductions in Defense Spending, Congressional Budget Office, October 1991.

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4 ● Building Future Security

Box l-A— OTA’s Redesigning Defense Report

Redesigning Defense described the defense technology and industrial base (DTIB) and current pressures toreduce it, and developed a framework for debating the size and structure of the future base. The report postulatedsome desirable characteristics of a future base, described the broad strategic choices that the Nation faces regardingthe future base, and outlined tactical decisions that could be made to support the transition to the future base. Thereport’s key findings are outlined below.

Definition of the DTIB-The defense technology and industrial base is defined as the combination of people,institutions, technological know-how, and facilities used to design, develop, manufacture, and mnaintain the weaponsand supporting defense equipment needed to meet U.S. national security objectives.

The DTIB consists of three broad elements—research and development (R&D), production, and maintenance.Each of these has a private and a public component. The DTIB can also be divided into tiers —prime contractors,subcontractors, and parts and raw-material suppliers-and into different industrial sectors. While the DTIB is oftendiscussed as if it were an independent entity, it is really interwoven with the Nation’s civilian technology andindustrial base and, increasingly, with the global economy.

Current Base Conditions-The report noted that although the DTIB has produced some outstandingweapons, as demonstrated in the Persian Gulf War, it has serious weaknesses that limit its ability to support futurenational defense needs for peacetime production and crisis response. Other studies have documented the problemsof the high cost of weapon systems, growing dependence on foreign sources for critical components, and theShrinkln“ g number of defense subcontractors.

Desirable Characteristics of the Future Base-To avoid a weakened and potentially crippled DTIB, it isimportant to set goals for the future base. OTA suggested a list of desirable characteristics for a future DTIB as aguide for planning. These characteristics are outlined in table 1-1 of the text.

Broad Strategic Choices-The Nation needs a long-term strategy for identifying and maintaining criticalfacilities, technological know-how, and people needed to develop, manufacture, and maintain future systems. TheNation faces some broad strategic choices that will shape the future DTIB. Ad hoc decisions, made in lieu of astrategy, will result in a weak DTIB that will undermine the Nation’s defense.

Autonomy v. Interdependence- The Nation must choose the degree of defense industrial autonomy that isnecessary and possible in an increasingly global technological environment. There are risks both in excessivereliance on foreign sources and in attempting to be fully autonomous. In the former case, the: Nation risks losingto offshore competitors critical capabilities and control over which technologies are pursued; in the latter case, itrisks higher procurement costs, protected industries that lack innovative drive, and loss of access to foreigntechnological advances.

Arsenal System v. Civil Integration-A second choice relates the internal structure of the future base. On onehand, the Nation can rely on “arsenals, “ i.e., government or privately-owned, sole-source producers of particularmilitary systems. On the other hand, the Nation can modify military requirements to allow much greater use oftechnologies in the civilian sector. In the absence of deliberate choices, the DTIB is likely to evolve towards anarsenal structure, since current procurement laws impede civil-military integration and shrinking production willlower the number of private defense contractors, thereby reducing competition,

Current Capability v. Future Potential—A third choice concerns the allocation of resources between currentmilitary capability and future military potential. Although some deployed capability is needed for future theaterconflicts, the greatly reduced threat of a major global conflict allows a shift of funding away from production towardresearch and development.

Tactical Decisions-Besides the broad strategic choices mentioned above, the Nation needs to make tacticaldecisions to ensure that the future DTIB has the characteristics, outlined above, that are needed for a strong defense.These tactical decisions concern:

. Guiding and evaluating research and development

. Protecting core competencies* Developing human resources. Identifying critical manufacturing areas● Setting manufacturing priorities. Funding surge and mobilization planningRedesigning Defense’s description of desirable characteristics and the Nation’s strategic a and tactical decisions

were the starting point for the current report. They were modified and extended as this second report developed.

Chapter I---Summary and Conclusions ● 5

Table l-l—Desirable Characteristics ofthe Future Base

● Advanced research and development capability. Ready access to civilian technology. Continuous design and prototyping capability. Limited, efficient peacetime engineering and production

capabilities in key defense sectors. Responsive production of ammunition, spares, and

consumables for theater conflict● Healthy, mobilizable civilian production capacity. Robust maintenance and overhaul capability. Good, integrated managementSOURCE: Of fics of Technology Assessment, 1991. Characteristics are not

necessarily listed in order of priority.

ance with environmental legislation will cost theDoD $5 to $10 billion over the next 5 years.7

A recent DoD report on the defense industrial basenoted, in something of an understatement, that ‘‘theconsequences of DoD budget reductions will be oneof the most important issues facing defense contrac-tors in the 1990s. ”8 Individual defense firms willneed to restructure, and some face challenges to theirsurvival. The government portion of the DTIB mustalso restructure as government-operated arsenals,depots, and laboratories are faced with the newnational security and fiscal realities.

The DoD has asserted that its budget requestreflects a new approach to defense acquisition,featuring: 9

●

●

●

●

heavy emphasis on government-sponsored R&Dto maintain America’s technology base;more reliance on prototyping, advancing to fullproduction only after thorough testing anddemonstration of a “critical’ requirement;greater attention to the producibility of newsystems and to manufacturing processes; andmore reliance on upgrading and inserting newcapabilities into existing platforms.

The DoD proposals embody many of the desirableDTIB characteristics discussed in Redesigning De-fense. (See table 1-1 and box l-A.) But while thesepolicies represent the DoD’s first real response to thechallenges of the post cold war era, they are notsufficient to ensure an effective future base. OTA’sanalysis indicates that a more detailed andintegrated plan of action will be necessary if DoD

Table 1-2—Department of Defense Budget Authority(billions of dollars)

RealYear Current $ Constant $ growth %.

1985 . . . . . . . . . . . . . . 286.8 375.61986 . . . . . . . . . . . . . . 281.4 359.1 -4.41987 . . . . . . . . . . . . . . 279.5 345.7 -3.81988 . . . . . . . . . . . . . . 283.8 338.5 -2.11989 . . . . . . . . . . . . . . 290.8 333.7 -1.41990a . . . . . . . . . . . . . . 291.0 324.1 -2.91991’ a . . . . . . . . . . . . . . 276.0 292.9 -9.61992a . . . . . . . . . . . . . . 277.5 b 287.8 b –1 .81993 . . . . . . . . . . . . . . 267.6 267.6 -7.0

FY 1985-1993 real change: . . . . . . . . . . . . . . . -28.8

1994 . . . . . . . . . . . . . . 267.8 258.0 -3.61995 . . . . . . . . . . . . . . 269.9 250.4 -2.91996 . . . . . . . . . . . . . . 270.4 241.8 -3.41997 . . . . . . . . . . . . . . 274.6 237.5 -1.8

FY 1985-1997 real change: . . . . . . . . . . . . . . . -36.8a ~cludes cost of Operation DESERT SHIELD/STORM. This is ~nsistent

with the 1990 Budget Enforcement Act, which exempted DESERTSHIELD/STORM spending on an emergency basis from negotiatedbudget ceilings set by the Executive Branch and Congress. According tothe DoD, the net U.S. cost for this operation should not exceed $5.9 billionafter all foreign contributions are received.

b Enact~ in w 1992 DoD Appropriations Act, The FY 1992 figure in thisyear’s budget request ($270.9 billion) differs because it ref Iects proposedenvironmental supplemental appropriations and proposed rescission ofalready appropriated funds.

SOURCE: Repat of the Secretary of Defense to the President andCongress, February 1992.

initiatives are to result in a strong and healthyDTIB. What is missing from the current approach isan announced strategy and an implementation plan(including budget considerations) that links theseand other policies to ensure the ability of the DTIBto meet the Nation’s future national security needs.Such an integrated approach is suggested later in thischapter.

ORGANIZATION OF THISREPORT

This report consists of six chapters and oneappendix. Using the desirable DTIB characteristicsdescribed in Redesigning Defense as a starting point,the chapters analyze detailed policies for achievingthose characteristics, This chapter summarizes keyfindings and policy issues. Chapter 2 addressesalternatives for maintaining an advanced researchand development (R&D) capability. Chapter 3discusses OTA’s “prototyping-plus” strategy and

7 House Armed Services Committee, FY 1990 Au(horizution Report.8 Under Secretq of Defense (Acquisition) Assistant Secretary of Defense (Production and Logistics), ReporI to Congress on ~he Defense lndustria/

Base, November 1991, p. 4-1.9 Ibid.


its implications. Chapter 4 describes how a futureproduction base might manufacture quality militaryequipment at an affordable price in peacetime andalso meet the surge and mobilization requirementsof a future crisis or war. Chapter 5 discusses policyalternatives for ensuring a robust maintenance capa-bility. Chapter 6 considers the management of afuture restructured base. The appendix summarizesplans of selected allied nations to deal with changesin their defense industrial bases.

The findings of the assessment are divided intogeneral observations that apply to most or all of theDTIB, and more specific findings relating to one ora few parts of the base. The general findings alsoinclude a discussion of three issues that cut across allthe elements of the base.

GENERAL FINDINGSThe capacity of the current U.S. DTIB to

provide defense goods and services exceeds fore-seeable national security requirements. This over-capacity is largely a result of the reduced militarythreat and the large inventory of military materiel onhand. However, the current base has potentialproduction bottlenecks and shortfalls to quantityproduction that will be exacerbated as some produc-ers are forced out of the defense business by cuts infunding. Reductions in capacity must therefore beundertaken with care.

Powerful military, economic, and political in-terests support downsizing the DTIB in a mannerthat allows the maximum number of currentfirms and organizations to survive, albeit re-duced in size. Such a “proportional downsizing”would not best support the Nation’s futuredefense needs. What is required is not just asmaller DTIB, but a restructured base with a newallocation of resources among its three mainelements—R&D, production, and maintenance.The waning major military threat and large invento-ries of advanced weapons and equipment demand arelative shift of resources toward R&D, as has begunin recent defense budgets. The production andmaintenance bases, while still important, will bearproportionally larger budget reductions.

The elements of the future DTIB must be betterintegrated. There must also be an integratedmanagement approach that aims to achieve thebest use of resources for the DTIB as a whole. Inthe past, DTIB managers have focused on achieving

Photo credit: DoD

The reduced security threat of tile near future can bemet largely with existing inventories of weapons.

individual goals within their own organizations,with little attention given to the effects of thesepolicies on the entire base. For example, R&D costswere made to appear artificially low by shiftingsome of the true cost of R&D to production.Government managers have also sought to controlproduction costs through “spare parts breakout”(i.e., contracting production of’ spare parts to a firmother than the original equipment manufacturer) andthe use of second sources. The se policies, however,have reduced the funds available for full-servicecontractors to maintain R&D teams and facilities.

If the DTIB is to provide high-quality weapons atan affordable price in peacetime and to respond withincreased production in crisis or war, it must berestructured to exploit the synergies arising from acloser integration of R&D, production, and mainte-nance. For example, R&D can be directed moretoward improving production processes, and con-tractors can manufacture multiple products on asingle production line that also upgrades olderequipment. While rigid centralization is not anappropriate way to manage the future DTIB, it willbe essential to develop an integrated managementapproach that gives priority to the needs of the entirebase over those of its parts. Such an integratedapproach may require reorganizing DoD oversight atthe levels of the Office of the Secretary of Defense(OSD) and the individual Services to ensure anintegrated approach to managing R&D, production,and maintenance. Managers a: all levels may alsoneed incentives to take a broader view of the base.R&D managers, for example, right be evaluated in

Chapter Summary and Conclusions ● 7

part on their ability to promote the development ofsystems that can be manufactured more easily.

There may be a similar need to reorganizeCongress’ committee structure to improve commu-nication among the various committees monitoringdefense R&D, production, and maintenance. Thestructural changes in the DTIB described in thisreport will require a concomitant shift in think-ing about what constitutes national security andthe role of science and industry in maintaining it.This new paradigm will rest on a willingness topurchase knowledge rather than hardware inmany cases. While standing forces are the currencyof national power in a hot or cold war, militarypotential in the form of economic and technologicalstrength is more important during periods of reducedmilitary threats. Just as the Nation commits re-sources in peacetime to maintain divisions, airwings, and carrier battle groups against futurecontingencies, it must commit resources to preservea strong DTIB.

The “pipeline” model of acquisition, whichshapes current procurement policy and focuseson products rather than manufacturing proc-esses, will be counterproductive in the future.Instead, flexibility in development and manufac-turing will be essential. The automatic link be-tween development and production could be brokenso that the basic criterion for management success isnot to produce a new system against all odds, but todevelop new capabilities that only sometimes takethe form of new hardware.

The current debate over maintaining a warmproduction base is incorrectly framed; the realissue is how to maintain a “warm capability. ”Such a capability can provide for the future develop-ment and production of new systems. Changing theterms of the debate in this way would provide theopportunity to identify the defense industrial sectorsin which R&D alone is sufficient, those in whichwarm production lines must be preserved, and thosein which other alternatives may exist,

Legislative and regulatory barriers impedecivil-military integration. Current laws on defenseacquisition aim to give a maximum number ofcompanies access to public funds, while also ensur-ing maximum public accountability in the use ofthose funds. A negative effect of this approach hasbeen to impose different regulatory and accountingrules for civil and defense activities, forcing firms to

isolate their defense work from their civilian work.As the DTIB shrinks, this approach might bereexamined. Critics argue that greater integrationbetween civil and military production would actu-ally improve access by increasing the number offirms willing to do business with the DoD. Thisincrease would in turn provide greater opportunitiesfor competition and reduce the need for extraordi-nary government actions to ensure accountability.Although several DoD programs have sought totransfer more oversight responsibility to defensefirms, these programs have often failed because of alack of long-term support from the DoD acquisitioncommunity.

Since the DoD is unlikely to beat the forefrontof all defense-relevant product and process tech-nologies, it should establish priorities for whichtechnologies it wishes to pursue. Defense-relevanttechnologies are increasingly developed in the civilsector and by other countries. The DoD needs totrack these developments and to take advantage ofthem.

Cross-Cutting Issues

Some issues confront policymakers with commonchallenges across the DTIB. Three of these crosscut-ting issues—human resources, facilities, and tech-nology---will be key to whether the United Stateshas a strong DTIB in the 21st century.

Human Resources

People are the single most important ingredi-ent of the DTIB. They provide the knowledge toconceive of and build new systems, devise andimprove manufacturing processes, and manage thebase. To retain a healthy DTIB, the Nation musttherefore retain high-quality technicaI and manage-rial personnel, encourage them to improve theirskills, and attract new people. Even more importantthan individuals are teams with special know-howthat is passed down over decades, such as aircraftdesign teams and missile production groups, Thecontinuity of such teams is critical to technicaladvancement and the Nation’s future military capa-bilities. Yet private companies and governmentorganizations are slashing personnel and trainingprograms to remain competitive or simply to surviveeconomically.

The objectives of a future DTIB human-resources policy should not be to retain the


maximum number of people currently employedin the defense industry but to ensure that individ-uals and teams with essential skills are preserved,and to help those who leave the DTIB to maintainrelevant skills in the civil sector. The strategy forpreserving skills (both individual and team) dependson the industrial sector. Electronics skills, forexample, can be maintained in the civilian base withlittle government intervention. In contrast, sincesubmarine production and munitions design are notperformed in the civilian base, specific actions willbe needed to preserve know-how in these areas.

Facilities

The cold war mobilized a significant portion ofprivate industry and expanded the government’smilitary research, production, and maintenance fa-cilities. The end of the cold war requires thedemobilization of many private and governmentfacilities. Facilities can be replaced more easily thanpeople, but some facilities are unique and not easilyreplicated once closed, including large dry docks,aerospace test facilities, special laboratories, andmaintenance hangars. Nevertheless, the limitationson new production and maintenance work will makeit costly for the Nation to maintain duplicatefacilities. It will therefore be necessary to decidewhen to consolidate to a single facility, when tomaintain more than one, when to rely on alliedcapabilities, and when to close a unique facility andadopt an entirely different approach to meeting anational security need.

The objective of a facilities strategy should notbe to maintain current capacity, but to ensure theproper mix and size of future DTIB facilities.How this is done will vary by industrial sectorand technology. The government may have tointervene to preserve militarily unique facilities fortank assembly, nuclear submarines, and ammunit-ion. Technologies and industrial sectors with morecivil applications (e.g., electronics, fasteners, andclothing) can probably be maintained entirely in thecivil sector. Even so, this approach would requirechanges in DoD acquisition policy such as eliminat-ing overly rigid military specifications and design-ing military systems to allow use of commercialcomponents. Critical and unique facilities might bepreserved either by allowing them to be usedprofitably in the private sector or by converting theminto government-owned, contractor-operated (GOCO)facilities or government-owned, government-

Photo cfedit: DoD

Production facilities built to meet the needs of the cold warare in exoess of current requirements.

operated (GOGO) facilities. OTA’s analysis sug-gests that many critical facilities can be maintainedby encouraging greater civil-military integration orby concentrating activities at a few select facilities.

Technology

Advanced technology remains critical to theNation’s military strength. But the narrow focuson battlefield performance during the cold warshould give way to a broader approach that takesaccount of defense manufacturing and mainte-nance issues and economic security. The cold warspurred an outpouring of U.S. technological innova-tions aimed at outperforming a quantitatively supe-rior enemy on the battlefield and building a strategicnuclear deterrent. In the future, military innovationmight be sustained with relatively less funding andreorganized to take advantage of scientific andtechnological advances in the U.S. civil sector andabroad. Policymakers will also need to identifiedtechnologies with the potential to solve nationalsecurity problems (the aim of the congressionallymandated Critical Technology Plans) and make along-term commitment to fur ding their develop-ment.

National Choices

In a general sense, the chief defense-managementchallenge of the next decade will be to maintain theU.S. advantage in defense-related technology and toproduce high-quality military hardware on a muchsmaller defense budget. There are different ways of

Chapter I-Summary and Conclusions ● 9

.

Photo credit: bckheeo7Sarrders

A technician prepares gallium arsenide semiconductorwafers for a final manufacturing step. Such technologies

will be crucial to future military capability.

organizing the future DTIB to achieve these goals.The alternative policies involve strategic choices, asdescribed in the earlier OTA report RedesigningDefense. (See box l-A.) Further analysis by OTAhas led to refinement of these strategic choices, asindicated by the decision tree in figure 1-1. Thestrategic choices at each fork in the tree are notabsolute but merely suggest general tendencies. Forexample, the United States might emphasize R&Dand prototyping for most weapons systems, whilestill keeping some items in production at any giventime to modernize selected portions of its forces.

The first choice for the Nation is between currentand future military capabilities. To the extent theUnited States faces an immediate military threat, theDoD will need to allocate funds for current capabili-ties. If the immediate threat is reduced, however, theDoD has the option to shift funds to the developmentof military potential. The administration’s fiscalyear 1993 budget proposal made a tentative move inthis direction by calling for a small real increase inR&D funding, a 13-percent decrease in procure-

ment, and the cancellation of several productionprograms.

Subsequent

1. betweennologies

2. between3. between

choices are:

dual-use and militarily unique tech-(both product and process);private and public ownership;competitive procurement and single

sourcing; and4. between reliance on domestic and interna-

tional sources.

The decision tree outlines some of the reasons formaking each of these choices.

For much of the military materiel required by theDoD, OTA’s analysis suggests that for reasons ofcost, total capacity, and potential for innovation,the path defined by chosing dual-use technolo-gies, private ownership, and competitive acquisi-tion is preferable to alternate paths. Nevertheless,in some cases other paths may be necessary becauseof unique military performance requirements ormanufacturing processes (e.g., for production ofammunition and nuclear submarines), or technologysecurity (e.g., for nuclear weapons).

Following the dual-use/private/competitive pathwould require a number of changes in current U.S.laws and regulations, including the adoption ofaccounting and manufacturing practices that do notisolate defense from civil production, a change in theprofit/risk ratio for private-sector defense work, andan emphasis on flexible performance specificationsrather than rigid military specifications for productsand manufacturing processes.

Finally, there is a choice between national auton-omy and international cooperation. OTA’s analysisconfined that this choice is important but issubordinate in most cases to other choices. In thenew security environment, the government will needto ensure that the benefits of international armscollaboration, sales and purchases are weighedagainst the potential drawbacks.

SPECIFIC FINDINGSThe discussion below focuses on the desirable

characteristics of the future DTIB (see table 1-1) andthe policies for achieving them. It is important tokeep in mind that these characteristics should beviewed as an integrated set. Policies developed forthe R&D and maintenance elements, for example,


Figure l-l—Strategic Choices for the Future DTIB

= DjrnjnjSh~ ~reat. Desire for technological advances■ Economic dimension of security A

■ lmme~iate threat■ Obsolete systems■ Maint dn skills and facilities

■ Critical performance ■

= Technology security ■

■ No a“vilian counterpart

\

Lower costsIncreased capacityEconomic dimension of security

■ Ensure addability andmaintain skills

Greater bureaucratic Control

\ ~ 0. 4 *Q~ ■ Cost discipline

■ Promote technological■ Limited requirements inovations■ Planning stability ■ Increases capacity

‘ k

).-

8

= U.S. jobs and economic gain ■ National technological development ■

■ Greater foreign policy flexibility ■

SOURCE: Office of Technology Assessment, 1992

Access to foreign marketsAccess to foreign technologyPotential for reduced unit costs

Chapter Summary and Conclusions ● 1 1

will affect the health of the production base. Adiscussion of the integrated future base follows adescription of the R&D, production, and mainte-nance elements.

Research and Development

Redesigning Defense stressed the importance tofuture national security of an advanced R&D capa-bility that can 1) maintain qualitative weaponperformance superiority against potential adversar-ies; 2) create opportunities for innovation and hedgeagainst technological breakthroughs by opponents;and 3) support the Nation’s overall economicstrength, which is ultimately the source of itsmilitary strength.

An advanced defense R&D capability includesworld-class personnel (individuals and teams); cutting-edge research that guards against technologicalsurprise; robust efforts in critical technologies; abalance between the near-term technology needs ofeach Service and long-term U.S. defense needs;strong links to manufacturing, so that proposedweapon systems are producible; and integration withcivilian R&D, even in the absence of a nationalconsensus on directed federal support for civiltechnology programs.

Both the Administration and Congress haveexpressed a desire to support defense R&D. TheDoD’s current budget request contains a shift inrelative emphasis toward R&D. Over the long term,however, the military R&D base will almost cer-tainly shrink. Funding is expected to drop in realterms from around $40 billion today to $25 to $27billion (in 1992 dollars) by 2001. Moreover, theDoD will have to pay explicitly for defense R&Drather than follow the past practice of funding itpartially through production,

Without offsetting actions, funding reductionswill result in disproportionate cuts in defenseR&D performed by private industry. Direct R&Dcontracts to industry will decline, and lower procure-ment budgets will also reduce companies’ willing-ness to invest their own money in R&D. DoDsupport for research in colleges and universitiescould also decline as the defense budget shrinks. Asa result of these trends, the DoD will not have thebenefits of some leading-edge research by industryand universities that it has enjoyed in the past. TheDoD will also have less of a chance to familiarize thenext generation of scientists and engineers with the

Nation’s defense needs. A national DTIB strategyshould compensate for this trend by providingproportionately more direct support for private-sector R&D than in the past, and by maintainingfunding of university basic research.

Present Service plans to consolidate R&Dactivities do not adequately meet the need for amajor restructuring of the defense R&D base. Adefense R&D base that is smaller and has a newmission will also need a different organizationalstructure. Current and proposed plans to consolidatethe Services’ ungainly complex of laboratories andcenters were developed before the demise of theSoviet Union. Such plans are therefore unlikely tocreate the integrated structure that the R&D elementof the future DTIB will require. If R&D funding isnot shifted to the private sector, the Service laborato-ries and the Federally Funded Research and Devel-opment Centers will have to shoulder much of theresponsibility for research and innovation nowperformed by private companies. If, however, poli-cymakers do shift R&D funding to the private sector,far more Service consolidation will be required. Inany event, a smaller DTIB will necessitate greatercoordination and consolidation among the Services’R&D efforts and between the Services and theprivate sector.

The DoD must make greater efforts to exploitcivilian technology. Yet without regulatory changes,current performers of military R&D will have noincentive to improve their links to civil R&D.Three areas deserve attention. First, current rulesgoverning independent research and development(R&D) impose barriers between military and civilR&D activities within companies. Second, currentrules allowing the government full rights to corpo-rate technical data developed with governmentfunding discourage specialized subtier fins-aprimary source of innovation in defense systems—from developing technologies for both civil andmilitary use. Third, reduced funding will precludethe DoD from maintaining world leadership in alldefense-relevant technologies, increasing the needfor the United States to benefit from R&D efforts inother countries. Yet current import and exportrestrictions inhibit interchange between defense andnondefense sectors and prevent the DoD fromdrawing on technology developed abroad, even byU.S.-based multinational firms.


Current policy places too little emphasis onimproving manufacturing technologies. The DoD’seffort to develop a Manufacturing Technology Planwarrants support as a way to address the currentimbalance between process and product technolo-gies. A remedy will require a new focus onmanufacturing technologies by the Service laborato-ries and the private sector.

Prototyping-Plus

Many people now advocate prototyping in someform to maintain technology innovation during aperiod when fewer new weapon systems are underdevelopment.

10 A DoD acquisition Strategy t ha tcombines greater use of prototyping and limitedproduction, along with changes in manufacturingand maintenance, might help to preserve criticaldesign and manufacturing capabilities. As currentlypracticed, however, defense prototyping is nar-rowly focused on performance and does notusually incorporate manufacturing and mainte-nance considerations. As a result, it does notenable defense contractors to move efficientlyinto production when needed.

This report assesses a prototyping strategy thatcombines prototyping with limited production.Termed prototyping-plus, it would seek to promoteinnovation and maintain America’s technologicaledge and its ability to deploy new generations of themost advanced military systems. Prototyping-pluswould involve the continuous development andlimited, intermittent production of technologydemonstrators and prototypes for operationaltesting during the periods between full produc-tion programs. By always having some prototypeprograms under way, the Nation would be in a betterposition to move the most advanced availablesystems into production. At the same time, it couldmaintain a robust weapon design and developmentcapability that could respond flexibly to the uncer-tainties of the new security environment.

A prototyping-plus strategy is an importantpart of an overall plan to restructure the DTIBand should break the nearly automatic linkbetween development and production in the

current acquisition pipeline. The strategy shouldbe rooted in an understanding; of which defense-related design and manufacturing capabilities mustbe preserved in the absence of ongoing production.Nevertheless, prototyping-plus is not a “research-only’ strategy. It includes future force moderniza-tion with advanced weapons as needed, after thedevelopment and testing of Alternative concepts.Some prototyping efforts would aim to developimproved subsystems for upgrading current plat-forms. Others would focus on developing newplatform configurations for potential deployment inthe event of a breakthrough in performance (e.g.,stealth), the need to replace obsolescent equipment,or the emergence of a large-scale military threat.

Industry has raised a number of objections topursuing a prototyping strategy. First, some firmcontend that while prototypic: could preserve de-sign teams, it would involve too few productionworkers to maintain manufacturing skills. Prototyping-plus, however, calls for the limited production ofoperational prototypes. Recent trends in manufac-turing, such as greater use of co concurrent engineeringand flexible manufacturing systems, increase thepotential to produce limited numbers of prototypesfor field testing and to preserve key manufacturingskills without quantity production. The challenge forthe future will be to use the construction of a smallnumber of prototypes to identify and correct manu-facturing problems associated with quantity produc-tion.

A second criticism of a prototyping strategy is thatsince profits for defense contractors today comefrom production and not R&D, a prototyping strat-egy could not keep defense firms in business. Thisis a valid point, and in the future, prototypingactivities will have to be filly funded by thegovernment. 11 Moreover, defense contractors willnot rely exclusively on prototype development fortheir livelihood. Instead, they might derive theirincome from several concurrent activities, includingthe low-rate production of new weapon systems; theretrofit, overhaul, and maintenance of deployedmilitary systems; R&D; and prototyping.

10 ~e ati5~tiou for example, has announced that it will make much more use of prototyping. Congressman k A5pb Chairman of tie HouseArmed Services Committee, has proposed a prototyping strategy tbat he has termed “rollover-plus.” OTA proposec a prototyping strategy inRedesigning Defense.

1 I F~s Would not, however, be precluded from paying for their ownprototyping if they believed they hadan idea that would ‘sell, ’ but the incentivesto do so might be low.

Chapter I---Summary and Conclusions ● 13

A third criticism of pursuing a prototypingstrategy is that it would have a negative effect on thesubcontractors and suppliers at the lower tiers of theDTIB. This objection has some merit because thevolume of parts required for prototyping may be toosmall to keep many subtier firms in business. Butnew production will not cease entirely in all systems.Subtier firms will build components for continuing(but much reduced) new production, and supplyparts for upgrades and retrofits of fielded systems.Many subtiers also have a diversified product linethat includes nondefense markets. As a result, thenumber of subcontractors and suppliers at risk froma prototyping-plus strategy may be small. In somecases, key technologies may have to be acquired byprime contractors or preserved in government facili-ties. In addition, subtier firms will likely be consoli-dated into a smaller number of diversified suppliersmore closely linked to primes. This restructuringwill require changes in acquisition laws and regula-tions that currently inhibit rather than promote suchlong-term associations.

Implementing a prototyping-plus strategy wouldrequire more integrated DoD management andthe reform of defense-procurement laws andregulations. It would also demand a change inmindset by both government and industry fromthe current focus on producing hardware to anew emphasis on acquiring new technology andknow-how as the basis for the Nation’s futuremilitary potential. A prototyping-plus strategy canhelp maintain the key design and manufacturingpersonnel required to develop the next generation ofsystems. But it should be a part of an overall DTIBstrategy that includes continued manufacturing anda viable structure for maintaining and upgradingfielded equipment.

Efficient, Responsive, Mobilizable Production

Redesigning Defense noted that a continuedstrong production base is essential and suggestedthree desirable characteristics for future defenseproduction:

1. it should produce weapons and military equip-ment efficiently in peacetime,

2. it should be responsive to a regional crisis orwar perhaps through increased production(“surge”), and

3. it should be capable of greatly expandingproduction (’‘mobilization”) in a timely fash-ion if a large global military threat emerges.

The policies needed to achieve these differentcharacteristics may be in conflict and require trade-offs. For example, reducing excess manufacturingcapacity to promote efficient peacetime productionmay limit the ability of the base to meet surgerequirements in wartime.

The current defense production base has consid-erable overcapacity when measured against antici-pated military requirements. The overall procure-ment budget may drop by two-thirds (in real terms)from its peak in the mid-1980s. Such shrinkagerequires a major restructuring of the productionbase. Redesigning Defense concluded that if thisrestructuring takes place haphazardly, it could creategaps in critical defense industrial sectors. Thegovernment could adopt policies to smooth thetransition to a smaller but sounder production base.Alternatives for achieving the desirable characteris-tics of efficiency, responsiveness, and mobilizabilityare examined in chapter 4 and briefly summarizedbelow,

Efficiency

Efficient production is defined as manufacturingquality products at an affordable cost. However, forthe future DTIB, retaining a manufacturing skillbase is also a major stated goal. An efficient defenseproduction base must streamline individual busi-nesses and consolidate industrial sectors. Theseprocesses are currently under way. But unplannedrestructuring of the base in response to marketforces risks the loss of critical production capa-bilities, as manufacturers shed important basecapabilities such as R&D staffs and trainingprograms. Policymakers might act to facilitate theconsolidation of the production base into a fewstrong, quality producers rather than retaining manyweak firms. To do this, they would need to identifycritical producers, modify contracting practices, andchange competition rules. (See table 1-3.) In the caseof militarily unique sectors, such as nuclear subma-rines and gun tubes, it may be necessary to supporta private or public arsenal to maintain a capabilitythat might otherwise disappear.

The government should ensure that an essen-tial capability continues to exist in the DTIB, butit might be indifferent as to whether a particular


Table l-3—Policies to Assure Efficient Peacetime Production

Base Structure Identify critical producers at the supplier, subcontractor, and prime contractor levels.. Intervene in the market if necessary to save and strengthen these critical producers through sole-source production, upgrade, spare part,

or repair contracts; by removing barriers to mergers and monopoly; or by creating a private or public arsenal.. Allow consolidation of subtier producers to support innovative, dependable, quality producers.. Move aggressively toward increased civil-military integration of the base.

Procurement Reforms● Substitute “best value” or some similar formulation for “lowest bid” as the criterion for contract awards.. Reexamine the rules on the protection of proprietary data rights.● Continue the trend towards greater commercial product buys and greater reliance on commercial business practices.● Reduce costly paperwork, data, and oversight requirements that have been created by law or by the procurement culture. Rationalize military specifications to emphasize final quality and performance overproduction process and I use only where necessary.

Aquisition Strategy●

●

●

●

●

●

Mandate increased commonality and modularity in systems.Increase joint procurement, possibly by moving to “purple suit” procurement, specialized Service procurement, or a civilian acquisitioncorps.Fund the stockpiling or production of items not produced domestically but considered too important to continue sourcing abroad.Support low-rate production in critical industries through predictable, multiyear contracts.Fund manufacturing skills directly through scholarships, manufacturing technology apprenticeships, the creation of training centers, orindirectly through procurement and incentives.Support manufacturing technology developments where appropriate.

international Activities● Reduce barriers to foreign military sales.. Support international development and production ventures as a source of technology transfer to the United States.. Continue to purchase essential supplies and components abroad and determine whether increased reliance on allies is in the national

interest.● Source critical foreign components from multiple countries to avoid cutoff.● Adopt international specifications and standards where appropriate.

SOURCE: Office of Technology Assessment, 1992.

company continues to produce defense goods andservices. The survival of a particular firm ororganization need not drive DoD production policyin the long run. Government policies are thereforebest targeted toward maintaining capabilities ratherthan particular companies or government organiza-tions.

Planned low rates of production (unlike theunplanned production stretchouts that have charac-terized the cold war) can provide U.S. forces witha steady flow of materiel while preserving manu-facturing skills, facilities, and equipment thatmight otherwise atrophy. A DTIB strategy thatincludes low-rate production will need to establishproduction rates at an appropriate level: one thatpreserves the manufacturing complex (primes andsubs, private and public facilities) and providespredictable funding so that producers can makemajor organizational and capital-investment deci-sions with confidence.

Defense production during the cold war wascharacterized by plans to equip U.S. forces rapidlywith new weapon systems by means of highproduction rates. In practice, however, budget con-straints often lowered actual production rates, result-

ing in higher unit costs. More realistic futureproduction planning will save money, although itwill also reduce surge capacity

The DoD could supplement low-rate produc-tion with prototyping of follow -on systems, spare-parts production, and upgrade and maintenancework. Industrial sectors could be further consoli-dated so that several related products are built in thesame factory (e.g., a variety of armored vehicles oraircraft), a practice common in subtier companiesand in some prime contractors. The advent offlexible manufacturing techniques and organizationwill make this last option more practical over time.

Peacetime production efficiency will be en-hanced by lowering barriers between defense andcivilian production. These barirers—including spe-cial accounting requirements for defense productsand stringent military specifications and standards—were created to safeguard public funds and ensurequality. But they also increase defense acquisitioncosts, place extra burdens on defense companiesseeking to diversify into the civil sector, deterleading-edge commercial firms from participating indefense work, and obstruct the flow of technologybetween the two sectors. A radica1 solution would be

Chapter Summary and Conclusions ● 1 5

to absorb the defense production base into the civilbase, leaving only a few militarily unique productsto be built in arsenals. At a minimum, the DoD couldcontinue its efforts to procure more products off-the-shelf and to reduce excessive oversight and specifi-cations through management reforms that shift moreresponsibility to producers.

Foreign sales of American military hardwarecan help maintain defense manufacturing andadvance U.S. foreign policy objectives. They alsocarry significant risks. While foreign military salescan maintain U.S. production lines and supportallies, sales to unstable or potentially aggressivecountries can create new security threats. Collabora-tive programs with allies help share R&D costs andenable the United States to gain access to foreigntechnologies. But arms sales often involve ‘‘offset’arrangements that give the purchasing country ashare of the development and production work, ortransfer technologies that can accelerate the prolifer-ation of advanced weapons and may eventuallyundermine U.S. competitiveness. 12 purchasing sys-tems, components, and supplies abroad is already afact of life in an increasingly global economy. Butthe benefits of lower costs need to be weighedagainst any risks to security of supply.

Finally, peacetime production efficiency can beenhanced through manufacturing innovations,including a reliance on common subsystems andparts. Manufacturers, given the right incentives, canincrease efficiency by incorporating new ideas inmanagement, organization, technology application,procedures, and training. Commonality in productsubsystems and procurement practices among theServices, if pursued vigorously, would simplifylogistics and lower costs,

Responsiveness

A responsive production base is one that is able toreact to a crisis or war that is smaller and lessdemanding than a “total’ war demanding nationalmobilization. A response to regional threats mightbe accomplished through some combination ofsurge production of key items, stockpiles, orreliance on allies. Each of these three alternativeshas strengths and weaknesses. Planning to surgeproduction of materiel when needed avoids the costsof manufacturing and stockpiling. But it entails

Photo credit: DoD

Substantial U.S. military materiel has been prepositionedabroad. Requirements for future conflicts must be met

with a combination of production surge capabilityand stockpiling.

investment in excess production capacity and thuslowers the efficiency of the peacetime productionbase. Stockpiled military materiel has the advantageof being available on demand, but it carries manu-facturing and storage costs, and it may becomeobsolete before it is needed. Foreign purchases maycost less but may be susceptible to cutoff orunacceptably long delivery times in crisis or war,and may hinder U.S. development of defense tech-nologies. Moreover, most U.S. allies have smalldefense industrial bases and are consolidating them.Thus, they may need their own entire output if theyare combatants alongside the United States in somefuture conflict.

The United States might best focus its surgeplanning primarily on consumables (e.g., muni-tions, food, fuel, and spare parts) for interventionin regional conflicts. For the foreseeable future, theU.S. military will probably not require a surgecapacity for major weapon platforms and should notfund such a capability.

Mobilization

Responding to a major new military threat on theorder of the former Soviet Union would require amobilization of the Nation’s industrial base, asoccurred during World War II. Even though thelikelihood of a major attack on the United States andits allies is extremely low, the large planned cuts inU.S. active forces would increase the need to

12 U.S. Congfis, office of TectmoIo~ Assessment, Global Arms Trade: Commerce in Advanced Military Technology and Weapons, OTA-ISC-461(Washington, DC: U.S. Government Printing Office, Jun 1991).


mobilize if a large-scale military threat emerges inthe future. The dedicated defense base would serveas the core of any mobilization effort, supplementedby the domestic civilian production base, warreserve stockpiles, and allied industry.

As a result, there might be greater emphasis onmobilization preparedness planning and main-taining essential DTIB capabilities. This task willrequire a good understanding of the broader nationalindustrial base and realistic estimates of availablewarning time. Mobilization plans should be reas-sessed and exercised periodically. Low-rate produc-tion, prototyping-plus, and other strategies designedto retain defense manufacturing skills are alsocentral to mobilization preparedness. Policies thatfoster increased integration of the defense andcivilian production bases will aid any future mobili-zation.

A Robust Maintenance Capability

Depot maintenance, the overhaul of militaryequipment in specialized facilities as opposed toroutine repairs in the field, is critical to the readinessof future U.S. forces. The U.S. defense maintenancebase is large ($13 billion in fiscal year 1991). Itincludes an organic, ‘‘in-Service’ component oper-ated by the different Services that currently performsbetween 60 to 70 percent of the depot maintenancework. A private-sector component does the remain-der of the work and also supplies billions of dollars’worth of spare parts, which are included in the $13billion. The Nation needs a plan to preserve themaintenance base through the present turbulentperiod of force reductions, and to restructure it tosupport smaller numbers of more sophisticated andreliable systems. The most important choices affect-ing the future maintenance base are:

1. the extent of consolidation,2. ownership and control of the base (private v.

public),3. emphasis on efficiency v. wartime responsive-

ness, and4. the extent to which maintenance can be

integrated into the future manufacturing base.

In-Service maintenance facilities were mod-ernized during the 1980s, and there is generalagreement that current capacity exceeds realisticfuture requirements. New DoD initiatives imple-mented as a result of the 1989 Defense ManagementReport are streamlining and consolidating the gov-

ernment maintenance base, but there is disagreementabout its future structure. The Services generallyseek to retain in-Service capabilities, while industryseeks to promote a greater role for the private sector.

Future depot maintenance requirements willdiffer from those of the past 40 years. Initially, theUnited States will retire many of its older weaponsin response to the waning military threat, reducingthe average age of equipment in the field anddecreasing the near-term maintenance workload.Over time, however, the lower rate of new weaponsproduction will increase the average age of deployedequipment and make upgrading more important.Future systems will be more sophisticated but alsomore reliable, changing the nature of the mainte-nance task and reducing maintenance requirements.

The ongoing consolidation of in-Service depotmaintenance (including single sites for eachtechnology and signif icant reduct ions inworkforce) is a major achievement by paststandards, but is still insufficient to meet theneeds of the new security environment. Perform-ance of maintenance tasks across Service linesremains limited. Moreover, despite reductions inmanpower and consolidation of workload, the main-tenance base contains almost the same number ofmajor facilities as existed to support a defenseestablishment prepared for war with the formerSoviet Union. While the drive for peacetime efi-ciency must be tempered by the need for responsive-ness in a major future crisis, the foreseeable demandfor wartime maintenance support has greatly dimin-ished with the end of the cold war.

Private industry has the capability to do moredepot maintenance work and is eager to assumethis role. Proponents of transferring more mainte-nance work to private firms note that they alreadypossess an inherent maintenance> capability by virtueof having manufactured the equipment. Further,manufacturers typically provide depot maintenancesupport until a system has been deployed in suffi-cient quantity to permit standardization of mainte-nance procedures by the military user. Since themanufacturing firm has already developed testequipment and trained personnel, there is an addi-tional cost (depending on the particular system) indeveloping a separate Service maintenance capabil-ity. Proponents also argue that private firms are moreefficient than government depots.

Chapter I-Summary and Conclusions ● 17

Photo credit: Lockheed Aeronautical Systems

A private company maintains ejection seats and othercomponents for the T-33 jet trainer built in the 1950s. As

production funding declines, private industry isincreasingly interested in maintenance work.

Those who favor retaining Service maintenancecapabilities contend that shifting maintenance toprivate fms would reduce Service flexibility,increase the risk of inadequate responsiveness inwartime, and leave the DoD vulnerable to costescalation. Yet there is no clear evidence that privatefirms cannot be responsive or that private-sectorcosts cannot be controlled. Nor is there clearevidence that private firms are inherently moreefficient than Service depots. Accordingly, there isa need for more study of the proper private-publicmix in the future maintenance base.

During the downturn in production, mainte-nance might play an important role in supportingmanufacturing capabilities in industrial sectorswhere there is an overlap in processes, equip-ment, and skills required for manufacturing andmaintenance. In many cases, maintenance andupgrades could be carried out in the same factoriesas new manufacturing. Some industries, however,

have little overlap between manufacturing andmaintenance. In such cases, combining maintenanceand manufacturing would require restructuring theproduction process to take advantage of synergiesbetween manufacturing and maintenance on thefactory floor.

Congressional actions have made the rationali-zation of the depot maintenance base moredifficult. legislation limiting competition, directingwork to particular facilities, and mandating jobprotection have all constrained the DoD’s ability tooperate the maintenance base efficiently. Properlysizing the future maintenance base will require abroader view of overall DTIB requirements anddecisions designed to support the integrated baserather than its individual parts.

Good, Integrated Management

Good, integrated management is fundamental tothe successful operation of the future DTIB. Suchmanagement must anticipate future needs and takeaction to ensure that the base can meet them at anaffordable cost. Good management does not implyany particular amount of direct government inter-vention in the DTIB, but it does allow for interven-tion if needed to ensure the survival of a criticaltechnology or industrial capability.

Future DTIB management could be integratedwith respect to the three functional elements ofthe base (R&D, production, and maintenance),the three Services, the Executive Branch andCongress, and government and industry. Peace-time procurement could also be integrated withcrisis and war planning. Integration among theR&D, production, and maintenance elements of thebase would ensure that managers understand howthese three elements interact and make decisionsoptimized for the entire base rather than an individ-ual element or subelement. Integration of DTIBplanning within the DoD and the Services caneliminate redundancies in Service capabilities (e.g.,laboratories and depots) and Service-specific con-tractors. Several DoD initiatives are addressingthese issues, but there is still much resistance toclosing and consolidating facilities. The difficulty ofconsolidating the current base would be easedthrough better coordination among the ExecutiveBranch, Congress, and private industry, since DTIBmanagement is ultimately a national, rather than aDoD, responsibility.


Photo credit: Defense Systems Management Co/lege

The Defense Systems Management College trainsgovernment acquisition personnel responsible for

billions of dollars of purchases a year.

The immediate management challenge is to planrationally for the major shrinkage and restructuringof the DTIB. Three strategies for approaching thetransition to a smaller base are discussed in chapter6. The Nation could employ:

1, a free-market strategy that relies on marketforces to decide which defense contractors andgovernment facilities will survive,

2. an activist strategy in which the U.S. govern-ment attempts to manage the change byidentifying critical firms and facilities andensuring their survival, or

3. a mixed strategy that allows market mecha-nisms to operate when possible but uses gov-ernment intervention to preserve critical de-fense industrial capabilities that might other-wise be lost.

Applying exclusively a free-market approachto DTIB management is likely to result in a

weakened and inefficient base as firms shedcapabilities to remain competitive. Yet the DTIBis too complex to allow detailed centralizedcontrol. Thus, an optimal approach might com-bine centralized planning with decentralizedexecution. For 40 years, the DTIB has been anincreasingly regulated market with a single govern-ment buyer, so that free-market forces are unlikelyto operate efficiently. Because the DTIB is part ofthe larger national industrial base, however, it canpotentially take advantage of market forces withinthe larger base. Modifyng acquisition laws to openup the DTIB to a larger number” of companies wouldenhance the effects of market forces. But if poli-cymakers choose to retain the current acquisitionsystem, more government intervention may beneeded to ensure that crucial elements of the base arepreserved.

Laws, regulations, and bureaucratic behaviorinhibit DTIB managers from making greater useof the civilian technology and industrial base.Future base managers will need to be more creativein using the entire range of potential technology andindustrial resources, including civil and foreignfins, rather than concentrating on dedicated de-fense producers. Key to successful management ofthe future base will be the purchase of commercialproducts, the use of civilian production facilities,and the adoption of commercial operating proce-dures. Achieving such civil ad military integrationwill require less day-to-day DoD and Service controlover technology and industria1 assets and an in-creased ability to make use c f the wide array ofgoods and services existing in the civilian sector.

THE FUTUREINTEGRATED BASE

The previous sections described desirable charac-teristics of the future DTIB and suggested somealternative strategies for achieving each. Thesecharacteristics cannot be viewed in isolation, butmust work together for the future base to behealthy and meet the Nation’s security needs.

OTA’s analysis suggests that, given the likelyreductions in defense budgets, minor changes in thestructure and operation of the DTIB will not sufficeto provide the Nation an effective future militarycapability. One of the principal findings of thisassessment is that the base can be restructured toexploit the inherent synergies that can result from

Chapter 1--Summary and Conclusions ● 19

Figure 1-2—The Future Integrated DTIB

R&D Production

■ Streamlining and consolidation= Foreign sales and purchases

■ Lab consolidation■ Global collaboration

■ Full government funding of R&D■ Manufacturing innovation

■ Emphasize dual-use tech research ● Joint procurement

~ Global collaboration

■ Contract maintenance,

\\\ I

\

■ Depot consolidation- Increased competition■ Increased interservice

maintenance/

Maintenance


closer integration of the R&D, production, andmaintenance elements.

The interrelationships among the three functionalelements of the future DTIB-R&D, production,and maintenance—are portrayed in figure 1-2.Although these elements are largely managed sepa-rately in the current base, the figure suggests that thethree elements could be structured and managed inan integrated reamer to yield greater efficiencies.For example, R&D could be directed not just tocreating new products but to making the manufac-ture and maintenance of those products as simple aspossible. Similarly, carrying out production andmaintenance activities in the same factories wouldfacilitate low-rate production.

Integration could also be carried across Servicelines and between defense and civilian industry. TheDoD could enforce joint Service use of commonequipment (for example, air-defense systems) andultimately eliminate all barriers between the civilianand military technology and industrial bases. Itcould move to a centralized acquisition corpsseparate from the Services, perhaps along the linesof the French model. A fully integrated industrymight handle R&D, production, and maintenance,with very little of the base remaining under govern-ment ownership. Such a radical restructuring of theDTIB would require a substantial change in theattitudes of both government and industry.

Chapters 2 to 6 consider ways to exploit thesynergies among activities, including prototyping-plus, low-rate production of selected military equip-


ment, restructuring of assembly lines to be morediversified and flexible, increased civil-militaryintegration, and more competition in all threeelements of the base. Yet if each of these alternativeswere pursued in isolation, it would have only amodest impact and might even be detrimental to thebase as a whole. For example, critics have arguedthat prototyping alone cannot maintain an effectivemanufacturing capability and would not be profita-ble enough to keep defense firms in business; thatlow-rate production of new systems would fail toprovide an adequate economic return, result in highunit costs, and lead to failures among subtierproducers; and that shifting more maintenance workto the private sector would reduce the responsive-ness of the base to military requirements.

None of these criticisms lacks validity. Althoughthe options suggested in this report all entail risks, sodo current DTIB policies if they are simply extendedinto the new era of reduced budgets. The criticalquestion is not whether the DTIB will shrink, buthow best to restructure the base to assure theNation’s future security.

The following section describes the general char-acteristics and management activities of a futureintegrated DTIB. Boxes 1-B to 1-D contain ahypothetical scenario set in the year 2010 illustratingsynergies among the elements of the DTIB and theimplications of alternative policy choices.

National-Level Decisions

National decisions on overall defense funding andtiding priorities are based on assessments of themilitary threat, as well as economic and politicalconditions. Once the total resources to be directed todefense have been established, DTIB managers atthe national level allocate them to the variousnational security goals and elements of the base.These funding decisions involve the strategic choicesoutlined earlier in figure 1-1 and require supportingpolicies if they are to succeed. Examples of policiesassociated with each of the choices are shown infigure 1-3.

In the post-cold war era of diminished immediatemilitary threats and reduced budgets, a healthyfuture DTIB requires shifting funds from currentproduction to R&D. The policies outlined in figure1-3 indicates that a healthy base also requires acommitment to purchase knowledge rather thanhardware. As noted earlier in the discussion of

figure 1-1, a shift of resources to future-orientedinvestments will not be universal, since somesystems will need to be produced to replace obsoleteequipment or to respond to an emerging threat.

A decision to emphasize dual-use technologies orcivil-military integration WOUld require the DoD andthe Services to increase reliance on commercialfins, provide incentives for using non-develop-mental items, and stress performance criteria overrigid military specifications. These policies wouldrequire greater initiative on the part of governmentcontracting officers than is currently allowed, andtherefore better trained government acquisition per-sonnel.

A decision to retain strong private-sector involve-ment in the DTIB, instead of letting most activitiesin the base devolve to the Services and the DoD,would require rule changes that enable industry toobtain profits commensurate with risks. Althoughthe overall strategy stresses the private sector, theDoD may still have to maintain some criticalcapabilities in GOCOs or GOGOs.

The choice of single-source or competitive pro-curement will be driven by demand and marketstructure. Policies to support dual-use technologiesand civil-military integration would increase theparticipation of commercial firms and therebystrengthen competition, While militarily uniqueitems might also be acquired competitively, sole-source procurement may be preferable to artficialcompetition in those areas where civil-militaryintegration is not feasible.

Finally, the United States has the choice ofdrawing on international sources of technology toenhance its own military capabilities. The ability todo so would be facilitated by negotiated interna-tional agreements that promote reciprocity in de-fense trade. Nevertheless, domestic sources for somecritical defense-related items should be preserved.The policy questions are, ‘‘which items?’ and ‘howto preserve them?’ Improved databases are essentialto answering these questions.

Despite significant reduction, the actual levels offuture defense funding are very uncertain. Allestimates indicate that as long as the United Statesseeks to remain a major world power-let alone thepreeminent one-defense spending will remain at afairly high level. Table 1-4 shows some possibleDTIB funding allocations for the frost decade of the

Chapter l-Summary and Conclusions ● 21

■

●

m

■

Figure 1 -3—Policies Supporting Future DTIB Strategic Choices

= Shift funding from production to R&D- Emphasize science and technology support■ Pursue continuous prototyping 9 Fund production= Be willing to buy knowledge . Favor weapon-specific- Fund generic manufacturing advances manufacturing advances● Emphasize mobilization planning and the . Emphasize weapon development

health of the broader national base

\

over generic research

Maintain strict military specificationsEmphasize performance specificationsAdopt commercial manufacturing practices

that promote quality and efficiency■ Increase use of commercial competition● Increase use of nondevelopment items

Fully fund development rests D Identify critical technologies

\

#“Q

■ Emphasize performance specifications~, ■ Adopt commercial manufacturing practices

and standards■ Streamline oversight to provide incentives

to use commercial quality approach= Improve training and quality of government

acquisition personnel

- Provide profits commensurate

m

■ Move criticzd military technologyto public faalities

D Government assumes greater

■ Buy American/

I ■ Support cooperative development and■ Supporf critical industries production arrangements

and technologies = Support foreign purchases and sales



Table 1-4-Hypothetical Annual DTIB Funding Alternatives for 2001-2010a

(billions of fiscal year 1992 dollars)

Total DTIBTotal DoD budget funding R&D Prototyping b Production Main enance

220 . . . . . . . . . . . . . . . 88 24 9 47 8180 . . . . . . . . . . . . . . . 72 20 10 35 7150 . . . . . . . . . . . . . . . 61 17 11 27 6a~timat~areb~edon ~]dwara~~ations with adjustments forchanges inthe natureof themilitar~ threat.b Asoverallprodu~tion d~lin~, prototypingfunding isi~reasedtom~nt~n t~hno[ogical innovation, key( esign skills

and some manufacturing techniques.


21st century, assuming a reduced global militarythreat and a shift from fill-scale production towardgreater use of prototyping. Assuming reasonableU.S. economic growth rates, these budgets mightrepresent expenditures of 2 to 3 percent of the GNP.

The table suggests that even with major budgetcuts, DTIB spending might be adequate to support asignificant defense R&D, manufacturing, and main-tenance effort. But DTIB restructuring would beneeded and within these funding constraints, forcemodernization decisions would be made at the DoD,rather than the individual Service level.

The hypothetical scenario in boxes 1-B to 1-Dreflects a policy emphasis on future over currentcapability, dual-use over militarily unique technol-ogy, private over public-sector facilities, competi-tive over sole-source procurement, and internationalover domestic sourcing, where international isdefined as choosing the best technology regardlessof source. (See box l-B.)

Industrial Sector Strategies

A national strategy to restructure the DTIB wouldbe implemented differently in the various defenseindustrial sectors because the sectors differ in:

1. their degree of integration with the Nation’sindustrial base (e.g., electronics is more inte-grated than ammunition);

2. their economic health (e.g., the aircraft indus-try is healthier than shipbuilding); and

3. the amount of military goods and services themilitary buys from the sector in peacetime.

To maintain at least one source of design,development, production, and maintenance for eachsystem and component, the government may have tocompromise on weapon performance and makesignificant changes in acquisition laws and regula-tions. Indeed, in some sectors the demand maybe solimited that a single-source arsenal (public or

private) may be required to preserve the technology.(See box l-C.)

DTIB managers will need to look for synergies toreduce overall costs and improve efficiencies. Forexample, research on common technologies may beconsolidated among the Services. It will also beimportant to identify bottlenecks and gaps in theDTIB so that remedial action can be taken. Toachieve a small but flexible defense base, managerswill need a better overview of industrial capabilitiesand potential than has existed in the recent past.

Organizational Implications

Companies that decide to stay in the defensebusiness may have to make significant internalchanges. These include:

1.

2.3.

4.

concentrating on a defense market niche or,alternatively, becoming a full-service defensefirm with high-quality design, production, andmaintenance capabilitiesstreamlining;expanding horizontally or vertically into newmilitary product lines on, alternatively, con-centrating on current lines; andbetter integrating military work with civilianwork and/or expanding into the civil sector.

Any move to low-rate production suggests thatfirms will probably need to manufacture more thanone product and engage in some maintenanceactivities. To give firms an incentive to move in thisdirection, the DoD will need to change its contract-ing criteria and acquisition rides, and might alsofund innovations in manufacturing technology suchas multiproduct assembly lines As the DTIB movestoward greater civil-military integration, the DoDmay also have to modify weapon design in order tomake better use of the civilian base and takeadvantage of commonalities in systems. (See boxl-D.)

Chapter I-Summary and Conclusions . 23

Box l-B—National Strategy in 2010

Beginning in the 1990s, the United States undertook a major shift of resources from defense to other nationalpriorities as a result of the reduced global military threat, fiscal problems, and the need to strengthen the economicfoundation of national security, U.S. military forces have been involved in a few limited military operations overthe past decade, but no major new military threat has emerged. Defense spending for 2010is$180 billion in fiscalyear 1992 dollars. DTIB funding as a percentage of overall defense spending has increased in relative terms, buthas fallen in absolute terms. - -

Allocation of DTIB Funding in 1991 and 2010

Fiscal year 1991 DTIB Fiscal year 2010 DTIB

Production

Maintenance

R&D*

Production

Maintenance

Prototyping

R&D

“Prototyping is included in the fiscal year 1991 R&D funding.

SOURCE: Office of Technology Assessment.

The United States remains not only the strongest global military power, but also the one having the greatestmilitary potential. With limited funding, the U.S. DTIB strategy emphasizes three principaI thrusts. First, DTIBspending generally emphasizes maintaining military potential rather than current capability. A prototyping strategyis being pursued across the weapons spectrum. This strategy includes a shift in emphasis from preproductionprototypes to the use of computer simulations, technology demonstrators, and low-cost prototypes to test newconcepts. The $10 billion prototyping budget maintains several design teams in critical defense areas such ashigh-performance aircraft, ground combat vehicles, and new munitions, as well as for the myriad of subsystems andcomponents that go into these systems. R&D is receiving a relatively large share of DTIB funding compared to1991, and more funding has been dedicated to manufacturing and maintenance technologies.

Second, even with the emphasis on military potential, production remains the largest single component ofDTIB spending at $35 billion-a drop of about 40 percent since 1991. Current production includes end-items (e.g.,ships, aircraft, armored vehicles, and munitions), their embedded components (including upgrades), spare parts, andprototypes. The DoD is following a systematic approach to force modernization and continuing to replace weaponsystems as they become obsolete. But, because of the limited production funding, decisions on major new weaponprograms require more joint-Service analysis and cooperation to achieve national, rather than individual Service,objectives. A significant percentage of procurement funds go to upgrading older fielded weapon systems to improvetheir overall capabilities.

Third, the defense acquisition process and the DTIB have been restructured to make extensive use of civilianindustry. For example, defense R&D administrators leverage their $20 billion budget by focusing in-house effortson militarily unique technologies and by assimilating or adapting new civilian scientific and technical developmentsto meet defense needs. Weapon and component designs increasingly incorporate commercial products andprocesses, and military and civilian products are often manufactured side-by-side. Private firms are heavily involvedin providing depot level maintenance and upgrades for deployed forces.


Box l-C—Armored Vehicles and Helicopters in 2010

Armored vehicles and helicopters remain important components of the United States’ combat capability, butthey are evolving over time. There are about 13,000 armored vehicles and 2,000 helicopters in the active U.S.inventory. Most are older, but some new systems have been introduced during the last 15 years.

Strategies to maintain the two sectors have both commodities and differences. Attempting to maintain areasonably modem force (vehicles and aircraft not more than 30 years old) at current force levels requires an averageproduction of several hundred new vehicles and more than one hundred new aircraft each year. Actual productionis limited by available funding. Armored vehicle production is receiving a little less than 3.5% of the fiscal year2010 procurement budget (about $1.23 billion in fiscal year 1992 dollars), and helicopter production, with higherpriority, is receiving about 5.5% ($1.93 billion) of the procurement budget. These funds would be insufficient tomaintain the current force at the unit cost levels existing in the early 1990s.

The national DTIB strategy stressing civil-military integration of the base (i.e., reducing unnecessary militaryspecifications and purchasing components and using processes from the civil sector) has helped reduce unit costs,but not enough to maintain the desired force structure at current funding levels. The DoD is exarnining additionalways to lower unit costs, the possibility of increasing the relative share of production funding ‘or these two sectors,or further reducing force levels.

System upgrading is a major component of each sector strategy. Upgrades include new electronic componentswith improved reliability, improved night-vision systems, fire-control electronics, and antititank missiles in bothhelicopters and armored vehicles. The consolidation of R&D in some critical defense technologies (e.g.,optoelectronics and advanced materials) has enabled the DoD to maintain a world-class effort in these areas evenwith reduced R&D funding.

Prototyping is a particularly important part of the armored vehicle sector strategy. Funding is divided amongcomputer simulations, technology demonstrators to explore new technical conceps, and the development andtesting of operational prototypes. The Army continues to develop prototypes of lighter weight armored vehicles.Component prototyping efforts have been the backbone of all the weapon system upgrades that have occurred overthe last decade. DoD policy emphasizes using private firms with production facilities for the design andprototyping,but some prototyping is occurring in specialized “design firms.” Contracts for operational prototypes requireproduction of these operational prototypes on standard flexible manufacturing tools, thereby favoring organizationswith manufacturing capabilities or engineering firms linked to manufacturing firms. Research and development onsome militarily unique technologies is being conducted in government laboratories and arsenals.

The DoD has a stated policy of maintaining more than one source for design, development, production, andmaintenance for each system and component wherever feasible. To date it has been able to maintain this policy inboth these sectors, but the DoD has sometimes been forced to comprornise on initial performancee criteria to increasepurchases from companies developing similar equipment commercially. New armored vehicle and helicopterdesigns now have many more common components with other vehicles and helicopters than in the past.

New design concepts have been encouraged by DoD investments in flexible manufacturing throughgovernment manufacturing technology programs and investment incentives, and through changes in procurementrules that have cut back direct government oversight. The government has made it easier for firms to use defenseproduction lines and machines for non-DoD work as a result, the DoD can support more than one prime contractorand several sources for many components (though some components are single sourced). Changes in acquisitionprocedures, and the replacement of many military specifications by international standards, have increased thenumber of potential producers of military equipment. Foreign sales remain an important but relatively small partof overall production.

Although both sectors have fewer defense prime contractors in 2010 than in 1991, there are more subtier firmswith the potential to provide components to the defense sector. Further, the surviving defense firms remain strongand capable of developing and producing future systems.

Chapter I--Summary and Conclusions ● 25

Box I-D-Operations at Selected Defense Firms in 2010

Both private defense contractors and government facilities have been restructured to support smaller U.S.military forces. Surviving prime contractors have either consolidated their manufacturing of similar products intosingle, privately-owned facilities (sized to meet expected peacetime production needs and lacking excess surgecapacity) or have become managers of government-owned facilities—also sized for peacetime rather than wartimeproduction. Subtier firms usually run integrated civilian and military production lines. Consolidated armoredvehicle and helicopter production facilities manufacture as many as 3 to 5 different types of armored vehicles and2 to 3 types of helicopters. Income from low-rate production of several systems is supplemented with spare partsproduction, repair and overhaul work, prototyping and the continuous upgrading of older equipment. Multiyearcontracts provide greater predictability of cash flow and enable the firms to make long-term investments andestablish links with subcontractors and suppliers.

Developments in manufacturing technology (such as flexible or “agile” manufacturing) have aided therestructuring process, Firms are employing multidisciplinary engineering teams to develop prototypes that are builtin their regular production facilities. Prime contractors have relatively more design and engineering capability thanin the 1980s. Firms are less concerned with the yearly production of any single system than with maintainingadequate levels of production of several different systems over several years.

Summary

A defense establishment funded at $180 billion(fiscal year 1992 dollars) or even at $150 billion, asshown in table 1-4, will require first-rate technologyand industrial support. The portion of the defensebudget allocated to the DTIB may fall to the $55 to$70 billion range (fiscal year 1992 dollars). Thoughconsiderably smaller than today’s DTIB spending,this level of industrial activity would remain asignificant national investment. This investment canonly be used effectively, however, if the DTIB isrestructured successfully through the collaborativeefforts of the White House, Congress, the DoD, andindustry.

POLICY ISSUESFOR CONGRESS

The DTIB described in both Redesigning Defenseand this report is complex. Although it is bestunderstood by breaking it down into its componentparts, the base can only be managed effectively if itis viewed as an integrated whole and if decision-makers take actions optimized for the entire base.

Policy issues concerning DTIB restructuring inwhich Congress has particular interest fall into threeareas. The fist involves funding, both total DTIBfunding and the funding mix within the Federalbudget. The second involves organization, includ-ing restructuring the institutions in the current DTIB,integrating them with the civilian base, and improv-ing the ability of private firms to meet future defenseneeds. The third involves management of the

transition and improving the DoD’s coordination ofthe critical elements. A key issue is how qualifiedDTIB managers can be recruited, trained, andretained.

Funding

Congress has the constitutional responsibility toprovide for the Nation’s defense. The decline in theSoviet military threat permits major reductions indefense spending. The administration estimates thatdefense spending will fall to $237.5 billion (fiscalyear 1992 dollars) by 1997. This level correspondsto about 3.4 percent of the gross national product, thelowest percentage in the past 50 years. ManyMembers of Congress advocate even deeper cuts.Whatever the level of overall defense spending,Congress will also have to make a judgment on theappropriate level of DTIB funding within thatbudget.

Funding for the DTIB should reflect the factthat it is a critical component of U.S. nationalsecurity. The DTIB is vital both to the ability of U.S.forces to handle regional military threats and as ahedge against a reconstituted global threat. Duringthe cold war, the combined R&D and procurementbudgets averaged about 36 percent of the DoDbudget. This share fell after the Korean and Vietnamconflicts but rose by almost 10 percentage pointsduring the military buildup of the early 1980s. Thecurrent DoD budget request envisions DTIB fundingin fiscal year 1993 slightly below the cold-waraverage.


In the post-cold war era, with a requirement forfewer active forces and the potential for greaterleverage of military forces through technology,Congress might consider giving the DTIB a rela-tively larger share of the defense budget than hasbeen the case in the past. Since such funding wouldcompete with force readiness, it would probably notbe attractive to military leaders. Nevertheless, main-taining relatively high funding would provide mod-ern weapons and support to smaller U.S. forces,assure them a technological advantage in the field,and hedge against future threats. A smaller, better-armed force is preferable to a larger, less-well-armedforce.

Congress will also have to consider whether tocontinue funding defense R&D at a high level. Analternative would be to limit defense R&D to arelatively small number of militarily unique technol-ogies, relying on civilian R&D, perhaps governmentfunded, to generate dual-use technologies withdefense applications. Congress should also considerwhether to fund manufacturing technology throughthe DoD, with the possibility that side benefits willfalter into the broader industrial base, or to fund suchefforts in the civil base and let defense productiondraw on that larger commercial technology pool. Ifthe Nation adopts a strategy for strengthening civiltechnology, as several recent studies have proposed,defense could also benefit.13

Within the overall DTIB funding level, theappropriate allocation among the R&D, production,and maintenance elements of the base is criticallyimportant. A prototyping strategy, whether implem-ented as proposed by the DoD or along the lines ofchapter 3 of this report, would take funds away fromproduction. Prototyping should anticipate no auto-matic connection between the development of aprototype and a decision to go into quantity produc-tion. Congressional debate is likely to revolvearound the wisdom of spending relatively large sumsof money on prototyping programs that may yieldlittle operationally useful hardware for extendedperiods. Further, since companies are unlikely toinvest their own funds in developing prototypes thathave no immediate prospect of entering production,the government’s share of the bill may appearrelatively large compared with the past. Frototyping

under these conditions often involves buying knowl-edge rather than hardware.

Despite the shift toward R&D, it will be essentialto maintain production capabilities in the future.Cancellations or stretch-outs of ongoing andplanned procurement programs will shrink theproduction base and may leave some manufacturingfacilities with no production contracts for severalyears. As a result, Congress will have to considerfunding options that maintain key manufactur-ing skills and facilities during a period when fewnew systems are produced. Greater civil-militaryintegration, if pursued, will require legislative changes.

Funding options for future defense productioninclude:

1.

2.

3.

4.5.6.

7.

low-rate production spread over multiyearprocurements,intermittent production at higher productionrates followed by laying away productionlines,funding international collaborative productionprograms,increased foreign sales,innovations in manufacturing technology,designing for more commonality in systems,andthe use of single sources o gain economies ofscale.

These options can leverage limited funding, butall have drawbacks. Low-rate production may in-crease unit costs (although the increases might belimited if facilities are kept small and the product isdesigned for low-rate production); intermittent pro-duction can result in the dispersal of workers duringperiods when there is no production; collaborativeprograms can involve the partial loss of technologyto foreign competitors; and foreign arms sales mayprovide weapons to new military threats.

Government funding for production may usesome mix of these approaches, combined withfunding for prototyping and maintenance. Changesin manufacturing funding that encourage firms toproduce multiple products may help make low-rateproduction a more effective tool for maintaining theproduction base. The DoD can encourage this shift

13 A Carnegie Comrnission Study, Technology and Economic Pe@orrnance, September 1991, recommended that the E efense Advanced ResearchProjects Agency (DARPA) be refocused into a Nationat Advanced Research Project Agency (NARPA) to provide stronger II nks between military needsand commercial industry. A subsequent report by the Hudson Institute recommended the establishment of a National Tecl nology Agency.

Chapter 1-Summury and Conclusions ● 27

by funding manufacturing advances to assist defensefirms that seek to produce multiple products.

Funding for maintenance will also decline, butprobably not as much as for production. Mainte-nance funds are currently spent mainly in the publicsector. Congress will want to consider the mosteffective future mix of public and private mainte-nance depots. Increased competition is expected tolower maintenance costs, but competition is cur-rently concentrated on work traditionally availableto the private sector. Meanwhile, the governmentsector retains a large core of work that is not open tocompetition. Both the role of competition and thefuture size of the in-Service maintenance coreshould be examined in detail.

Congress will want to consider ways to retainpeople who are critical to the strength of theDTIB. Policy options include predictable defensefunding, which can provide the basis for longer termpersonnel planning; support for technical educationand apprenticeships that benefit both the DTIB andthe broader national industrial base; support forengineering education in relevant technologies; aprototyping strategy that maintains design teams aswell as innovation; and some continued defenseproduction. The recent Defense AcquisitionWorkforce Improvement Act was an important steptoward improving the contracting and program-management capabilities of the defense acquisitionprocess. Corresponding steps are required to ensurethe technical competence and overall managementof the DTIB.

Organizational Changes

Congress will face a number of organizationalchanges in the DTIB. Some of these changes areinternal to the traditional base, while others areexternal to it. The external structural changes appearto be the more important. Redesigning Defenseconcluded that the DoD faces the choice of greaterintegration with the civilian industrial base ormaintaining a defense-unique base that will mostlikely devolve to a set of sole-source providers(“arsenals”) in the public and private sectors.Several studies have found that increasing theintegration between military and civilian technologyand production will lower overall defense costs,promote technology transfer, increase available

industrial capacity, and strengthen the economicdimensions of national security .14 OTA’s discus-sions with industry and government personnelsupport these conclusions. The expected deep reduc-tions in defense spending make civil-military inte-gration all the more important.

Moving toward greater civil-military integrationwill, however, require Congress to make majorpolicy changes in a number of areas. First, it will benecessary to amend the Federal procurementlaws that have tended to isolate the DTIB fromthe broader base. Redesigning Defense outlinedsome of these laws, and chapter 4 of this report listsareas of additional concern. The DoD AdvisoryPanel on Streamlining and Codifying AcquisitionLaws is expected to make significant recommenda-tions in January 1993 for simplifying the acquisitionlaws, and Congress will want to consider theserecommendations carefully.

Second, the DoD’s ability to increase purchasesof commercial and nondevelopmental productsdepends on reform of acquisition laws andmodification of the military specifications thatcontrol most defense manufacturing. One ap-proach is to accept commercial and internationalstandards in place of military specifications. TheDoD could make a concerted effort to implementstandards that, in addition to serving defense needs,help make U.S. firms more competitive internation-ally, The inability of the United States to accept themetric system is one indication of the difficulty ofimplementing new standards.

Third, the shift toward greater civil-militaryintegration may require substantial changes indefense R&D. As noted above, Congress x-nightrestrict funding for militarily unique R&D and shiftmore funds to research on dual-use technologies ofboth military and commercial interest, perhaps bycreating a new agency for promoting technologicalinnovation in the civil sector.

Fourth, in the absence of a shift toward greatercivil-military integration, Congress will have toconsider ways to assure the benefits of competi-tion in a smaller DTIB that has fewer sources ofsupply. This might entail allowing more competi-tion with allies.

14 ~u~ ~~dl~~ ~clud~ ~. Defense Scienw Board Reports on tie Use of comme~i~ items for defense, a Defense Science Board study on the defenseindusrnal base, and a study by the Center for Strategic and International Studies on civil-military integration.

326-447 - 92 - 2 : QL 3


The second broad organizational issue facingCongress concerns the internal restructuring of theDTIB. Congress will want to examine the consolida-tion now going on within and among the Services, inindustry, and between the private and public sectors.The public-private split that is appropriate will beinfluenced by the degree of civil-military integra-tion. Congress might promote more rational consoli-dation by supporting multi-Service procurement andincreased inter-Service maintenance for equipmentand supplies, and by providing firms an incentive tomaintain R&D as well as production capabilities.Changes will also be needed in multiyear procure-ment rules and the Competition in Contracting Actto promote long-term association between primecontractors, subcontractors, and suppliers.

Management Options

The immediate task facing Congress is to ease thetransition to a much smaller post-cold war DTIB.Although the administration has generally advo-cated letting the free market shape the DTIB, it hasalso expressed concern over the need to preservesome components of the base. In recent testimony,for example, Secretary of Defense Cheney specifi-cally cited shipbuilding as a problem area.15 Con-gress will need to consider the degree of interventionthat is appropriate to downsize the base in a rationalmanner. Chapter 6 observes that increased civil-military integration of the base, accompanied bychanges in acquisition practices, could increasefree-market competition.

The best approach to restructuring appears to bea mixed strategy that fosters true competitionwherever possible (enhanced by greater use of thecivilian base) and limits government intervention tothose cases in which there is no alternative. But sucha strategy would require good information on currentDTIB capabilities and future requirements. To thisend, Congress might establish and fund a jointlegislative-executive commission that would reportto the President within 6 months concerning thecurrent capabilities of the base and future require-ments and provide some overall guidelines for thedownsizing of the DTIB. There is also a need for amore systematic approach to DTIB data collectionover the long term. As the future defense basebecomes more integrated with the broader civil base,the DoD might not be the best agency to maintain

this information, and Congress might consideralternatives such as the Department of Commerce.

Finally, Congress will wan: to consider how bestto balance efficiency and accountability in the futureDTIB. Although accountability y in the use of taxpay-ers’ money is essential, the issue is how to achieveit most efficiently. Increased civil-military integra-tion has the potential to impose market discipline onmore producers, but not necessarily on manufactur-ers of militarily unique products where accountabil-ity will probably still require administrative over-sight. Although the DoD has had numerous pro-grams to increase contractor responsibility, theprograms have largely failed because of inadequatesupport or lack of incentives. Congress mightconsider ways to improve the effectiveness of suchefforts.

Ultimately, good management will depend onrecruiting and retaining skilled and experiencedDTIB managers. Recent steps to improve educationand pay are helpful, but Congress should monitorthese activities to ensure an improvement in thequality of management personnel.

SUMMARYThis report analyzes the desirable characteristics

of the future DTIB described in Redesigning De-fense and considers alternative policies for achiev-ing them. Restructuring the DTIB will requiremanaging the base as a whole: rather than allowingmanagers in the individual elements (R&D, produc-tion, and maintenance) to pursue policies optimizedfor their separate benefits. Achieving a strong andhealthy future base will require an overall strategythat properly considers the trade-offs between in-vestment in current capability versus military poten-tial. Currently these trade-off~~ are being debated interms of continuing to invest in current productsversus moving funds to research and development.

If DTIB planners look beyond the next decadethey will see that even in a relatively peaceful worldthe Nation will need an effective defense base. TheDoD and Congress can plan the transition to asmaller but robust base by emphasizing militarypotential over current capability. Such a strategymust be applied with care and include limitedproduction of new products to permit force modern-ization and avoid the erosion of manufacturing

IS ‘ ~~eney Owm Mr for steps to Preserve IIKIUSISM Base, ’ Aerospace Daily, Feb. 3, 1992, p. 174.

Chapter l-Summary and Conclusions ● 29

expertise. Overall, the changes in the military threat funds to nondefense priorities is a great opportunity.facing the Nation provide many opportunities and Deciding how best to spend the remainin g defensechallenges for Congress. The ability to transfer dollars is a great challenge.

Chapter 2


ContentsPage

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33MAINTAINING A ROBUST R&D CAPABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

R&D National Security Goals in the New Environment .. .. .. . .. .. ... . +........ . . . . . . . . 34Funding for R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Allocation of Funds Among R&D Performers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Setting R&D Technology Priorities in the New Security Environment . . . . . . . . . . . . . . . . . . . 40Organization of Government Support of Defense R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Present Structure and Consolidation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Issues for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

OTHER CRITICAL ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45Defense R&D Personnel: Maintaining the Know-How . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Independent Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Technical Data Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Import and Export Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

FiguresFigure2-l. Budget Authorization for Research, Development Test, and Evaluation as a

Percentage of Total Defense Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2-2. Nominal Decline in Future Spending for Research, Development Test,

Page

. . . . . . . . 35

and Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362-3. Possible Distributions of Future Research Effort . . . . . . . . . . . . . . . ● . . . . . . . . . . . . . . . . . . . . . . 372-4. Defense R&D as a Percentage of Total Government R&D Spending and as a

Percentage of Total National R&D Spending .*,.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Chapter 2


INTRODUCTIONThe Nation and the Department of Defense (DoD)

have along-standing policy of support for a vigorousresearch and development (R&D) program to meetimmediate and long-term defense needs. Two of thedesirable future DTIB characteristics described inRedesigning Defense are an advanced R&D capabil-ity and greater exploitation of civilian R&D.1

The national R&D base has had many successesin providing the military Services the technologythey need, although questions persist about theefficiency, direction, structure, and size of defenseR&D. These questions include concerns aboutwhether the Nation is pursuing the correct techno-logical paths (e.g., process or product technology)and whether the defense R&D effort is properlyorganized (e.g., among Service R&D efforts).

There is a broad national consensus today, rein-forced by the Persian Gulf War experience, that theUnited States should preserve qualitative superiorityin weapons performance. Unresolved issues thatCongress should consider are: how great this quali-tative superiority should be, how should it bemaintained, and against what threats should it bemeasured? The most cautious alternative is tocontinue to compare U.S. weapons across the boardto the best capability of any potential adversary.Given the waning military threat from the formerSoviet republics and the global arms trade, this maymean U.S. weapons would be compared to the bestsystems available on the international market.2

Even with the world’s best weapon performanceas a benchmark, the magnitude of the desiredperformance edge remains a matter of debate. Someanalysts argue that the United States should maintaina military advantage sufficient only to defend core

national interests and that the weapons already in thepipeline have capabilities in excess of foreseeableneeds; therefore defense R&D could be reduced orshifted largely to civil objectives. Other analystscounter that there will be severe political constraintson the casualties the United States will be willing toaccept in any future conflict for stakes less thannational survival and thus the required relativeperformance advantage must remain very high.

This assessment assumes that the needed rate ofimprovement in military systems will slow, but that

the Nation will seek to preserve an advantage in keymilitarily unique technologies to at least match thebest of the rest of the world and provide the potentialfor reduced U.S. casualties and collateral damage inany future conflicts.

This assessment also considers the advancedR&D capability needed to carry out the ‘prototyping-plus” approach described in chapter 3. One of thefindings of this assessment is that R&D must not bepursued, as in the past, according to the “pipeline”model in which research leads to near-term produc-tion. Rather, as the present DTIB shrinks and fewersystems are produced, R&D must be pursued with aneye to maintaining superiority in critical technicalcapabilities and as a hedge against technical break-throughs by potential adversaries, even if the tech-nologies are not incorporated immediately in newweapons. New technology can be demonstrated inlaboratories and prototypes, and need not lead toadvanced development and production.

Another function of the “advanced” R&D capa-bility needed for the future DTIB is to keep themilitary community apprised of scientific and tech-nical developments, both military and civilian,throughout the world. Should a global threat arise,the Nation’s military establishment would be poised

1 Throughout this report we use common definitions of ‘research” and ‘‘development. “ “Reseafch” is used to describe investigation intended toadvance science and technology without necessarily being directed to a specific end product. The work that follows research and leads to productionor specific application is called “development.” The Department of Defense (DoD) defines ‘‘reseruch’ very narrowly to mean onty what is generallycalled ‘basic researck for example, what the National Science Foundation classifies as “applied research’ the DoD calls ‘exploratory development.This report’s use of ‘research’ corresponds to the activities covered by DoD budget categories 6.1 through 6.3a. ‘ ‘Development” corresponds to budgetcategories 6.3b and 6.4. Some DoD documents refer to the activities funded under categories 6.1 through 6.3a as ‘‘technology base” support but mostinclude only 6.1 and 6.2. The meaning of ‘technology base’ has become muddled so the DoD has created a new category, “science and technology”that clearly includes 6.3a. Thus, figures for ‘‘research’ cited from DoD documents in this chapter are ‘‘technology bme’ (6.1 and 6.2) funds plusAdvanced Technology Development (6,3a) funds.

2 Weapons performance is just part of the story. As the Gulf War revealed, the quality, training, and organization of the people using the weaponsis also an important determinant of the Nation’s relative strength.

–33–

34 . Building Future Security

to exploit the best technology at hand to reconstitutea force that can meet the new challenge. Since ahealthy civilian industrial base is an importantreservoir of scientific and technical potential, anadvanced military R&D capability should also bestructured to encourage transfer of technology fromthe defense sector to the commercial sector.

To best meet future national security require-ments, the variety of government laboratories andR&D centers, universities and other nonprofit insti-tutions, and private defense and civilian industrialfirms both in the United States and abroad, that carryout today’s military R&D will have to change.

The Nation and Congress face fundamental choicesregarding the future of defense R&D. What level ofeffort is appropriate? What should be its scientificand technical focus? Who should perform the R&Dand how should it be organized and integrated?What is the proper balance between a near-term andlong-term focus? The DoD’s ability to influence theNation’s overall R&D base is declining, but itsinfluence is still considerable. U.S. defense R&D,for example, was about 31 percent of all U.S. R&Din 1987 and almost 16 percent of the total R&Dspending in the European Community, UnitedStates, and Japan.3

The following sections of this chapter examinehow to maintain an advanced R&D capability. Thefirst section reexamines the goals of an R&D effort.The next section addresses the priority of militaryR&D within the defense budget and the Federalbudget as a whole. This is followed by a discussionof technical priorities for defense R&D and prob-lems in the future organization of the defense R&Deffort. Finally, the chapter discusses how Congresscan affect defense R&D.

MAINTAINING A ROBUST R&DCAPABILITY

A robust R&D capability requires an overall R&Dstrategy, policies, organization, equipment and facil-ities, predictable funding, and skilled people toexecute the strategy. These requirements are closelyintertwined. For example, good people are attractedto research only in part because of salaries. Interest-ing and meaningful work is at least as important ac-cording to many researchers. Front-line research

Photo credi: Naval Research Laboratory

A radar being tested in 1937 on the roof of the NavalResearch Laboratory. Some scien< ific and technological

advances result in revolutionary newmilitary capabllil ies.

also requires state-of-the-art equipment and facili-ties. Thus, retaining good people requires meaning-ful work, good facilities, proper policy, and goodmanagement.

R&D National Security Goals inthe New Environment

In the new security environment the United Statesfaces two types of military threats with distinct andcharacteristic warning times:

1.

2.

As a.

a currently hypothetical major military threatthat-were it to occur— would develop overyears, andsmaller threats that might flare up with little orno warning.

result, defense R&D must have two goals thatare not completely complementary:

1. to maintain a scientific and technologicalcapability to guard against surprise and toprovide the basis for a buldup-perhaps overseveral years-of the forces needed to opposean evolving military threat, and

3 National Science Foundatio% 1nrernutionu/ Science and TecAno/ogy Datu Updufe (NSF-91-309) (Washingto~ DC: 1{91), pp. 5, 9, and 13. Theseare the most recent published figures for which consistent comparisons between nations are possible.

Chapter 2----Research and Development ● 35

2. to continually provide standing forces withtechnology to meet smaller current threats atreasonable cost.

At present the United States is pursuing bothpaths, supporting R&D and moving to a smalleractive military force at a high state of readiness.4 Thereemergence of a major military threat like that ofthe former Soviet Union (which the administrationterms a ‘‘reconstituted threat’ would require theNation to build up its forces at least as fast as anypotential enemy can. However, until the need forsuch a buildup arises, the DoD emphasis will shiftaway from providing current capability towardmaintaining potential capability. Current budgetsalready reflect an understanding that R&D must bemaintained. The administration’s fiscal year 1993defense budget request included a 1.5 percent realincrease in R&D but a 13 percent real decrease inprocurement. 5

Tradeoffs between current capability and futurepotential will affect allocation of resources withinthe defense R&D budget. If current capability isemphasized, a large proportion of R&D would go todevelopment of specific weapon systems, as duringthe cold war. Emphasis on future capability, how-ever, would shift funding away from development ofspecific weapons toward more generic researchaimed at the development and demonstration ofweapon technologies and perhaps to manufacturingtechnology to produce systems later as the needarises.

The fiscal year 1993 budget request sends mixedsignals on the tradeoffs desired by the Administra-tion. The request would cancel or delay severaldevelopment programs, but development funds arestill large and research priorities would not changedramatically. Defense research is proposed to risefrom $10.4 billion in fiscal year 1992 to $11.8 billionin fiscal year 1993.6

Figure 2-l—Budget Authorization for Research,Development, Test, and Evaluation as a Percentage

of Total Defense Authorization

35 ‘-

I

301

5 “

01 ! T Tr l l r T n . . T l l ” T 1 l l ’ ” T ’ T I T T i

1965 1970 1975 1980 1985 1990

SOURCE: Historical Tables of the Budget of the United States Govern-ment.

Funding for R&D

Over most of the last 30 years, spending on R&D,plus the test and evaluation that is a part of anydevelopment program (i.e., RDT&E), has beenabout 10 to 11 percent of the DoD budget.7 (Seefigure 2-l.) If historical ratios continue, absolutefunding for defense R&D will shrink along with therest of the defense budget, unless there is a commit-ment to support R&D as a means of maintainingmilitary potential.g The threats the Nation faces havenot been reduced evenly across the board and thereremains the possibility that a major military threatcould emerge. Thus, even if a large reduction incurrent capability is warranted, it does not necessar-ily follow that investment in military R&D should bereduced proportionately.

Most independent projections are, however, thatthe resources for R&D will decline in the future. Forexample, the Electronic Industries Association (EIA)annually makes 10-year projections of defensespending that have been accurate in the past. The

d Military planners appear to give a high priority to the training and readiness of whatever active force the Nation keeps. This may be reflected inpress speculation about future shifts of resourees from procurement to training. See, Andy Paztor, “Pentagon Weighs Cut of $50 Billioz’ The Wall.Street Yourna/, Dec. 20, 1991, p. A3.

5 Dick Cheney, Annual Report (O the President and the Congress (Washington DC: U.S. Government Printing Office, February 1992), p. 131.

b Department of Defense, RDT&E Programs (R-I), Jan. 29, 1992, p. III. These figures are the sum of the “Technology Base, ’ that is, budgetcategories 6.1 and 6.2 and the ‘‘Advanced Technology Development, ’ that is, 6.3a.

7 Executive Office of the President, Budget of the United States Government, Fiscal Year 1992, Part 7, Table 3.2. Test and evaluation adds about25 percent to the R&D budget.

8 Extensive prototyping, including limited production of weapons for operatioml testing, may be expensive compared to current developmentprograms. Thus, a prototyping effort could dominate future R&D budgets if budgeted under development rather than production.


Figure 2-2—Nominal Decline in Future Spending forResearch, Development, Test, and Evaluation

Fiscal year 1992 $ billions50 r -—

40

30

204

10

o ’‘ “ ’ , I1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

SOURCE: Electronic Industries Association

EIA forecast is based on an assumption that RDT&E’sfraction of the budget will grow only very slightly,to 12.9 percent in 2001. Thus, their predicteddefense budget of $208 billion in 2001 implies adecline from $40 billion today in total RDT&Espending to $27 billion in 2001 (all in fiscal year1992 dollars). (See figure 2-2.)

The DoD’s own plans also anticipate reduction inR&D over the next few years. Air Force RDT&Ebudgets will fall most steeply, from $15 billion in1992 to $8 billion in 1997.9 Current plans call for theArmy’s RDT&E budget to decline slowly from $6billion in 1992 to $4 billion in 1997.10 These budgetprojections should be viewed cautiously becausechanges in development funding for just a very fewvery expensive projects can skew the entire budget.

Maintaining an advanced R&D capability mayberelatively more expensive for the DoD in the future,since, with less production, firms will have littleincentive to share in paying for R&D costs. Butjustifying a particular level of R&D spending isdifficult. For generic research, the problem is toshow a clear relationship between the effort and theresult.11 Each Service terms its research a ‘ ‘corpo-rate investment, ‘‘ i.e., a cost of maintaining exper-

tise. Research support requests for fiscal year 1993are $1.8 billion for the Air Force, $1.5 billion for theNavy, $1.1 billion for the Army, and $7.2 billion forDoD agencies.

12 Private Companies ties determine levels

of research spending on the basis of investment thatthey believe is needed to maintain a competitiveedge over rivals. The Nation’s military establish-ment should similarly monitor technology develop-ments of other countries to determine the researchneeded to maintain the desired relative advantage inweapon performance.

The criteria for deciding development fundinglevels are changing. In the past, the Nation coulddecide on the needed rate of introduction of newweapons to maintain qualitative superiority over theSoviet Union. But in the future, to respond to a moreambiguous array of threats, the Nation will need tomaintain a range of industrial, technical, and manu-facturing skills, possibly through a prototyping-plusstrategy, a big part of which would probably show upin the development budget. (See ch. 3.)

Allocation of Funds Among R&D Performers

Reduced defense R&D spending will change thedistribution of R&D effort among industry, univer-sity, nonprofit, and in-house service laboratories.The current distribution for reasearch is shown infigure 2-3. Unless offsetting actions are taken,reduction in defense research funding will cause arelative increase in research activity by Servicelaboratories and a decrease by private industry.There will be less industry incentive to supportresearch, while government laboratory managersmay try to keep a relatively large slice of a shrinkingpie in-house.

The trends for distribution of development fund-ing are less clear. Over two-thirds of developmentnow occurs in industry. Total developrnent fundingmay stay high if the Nation pursues a prototyping-plus strategy like that described in the next chapter.This activity would most likely remain in industry.Many companies argue, however, that current ap-

9 Congressional Budget Office, Staff MemorandW “The Costs of the AWstration’s Plan for the Air Force Througk the Year 2010,” December1991, p. 18. Some analysts argue that Air Force R&D figures are suspect beeause they may include huge seeret production programs.

10 CoWes~io~ Budget Office, StfiMmormdw ‘‘T’hecosts of the A dmin.istration’s Pkmfor the Army mOWh tie ~ ~2010.’ ~em~r 1991>p. 21.

11 See &nevieve J. ~ezO,DefenSeBaSiCReSearCh Priorities: Funding andPolicy Issues, Congressional Resea.mh Servi:e Report for Congress, Oct.24, 1990, for a discussion of the problems of determining funding levels and setting research goals.

~Z Defense Daily, Special Supple~nt, Details of 1993 DoDBudget Request, JMI, 31, 1992, pp. S-1 to S-3. Note tit tieres=chbudget for~ed~~agencies is dominated by the Strategic Defense Initiative Organization.

Chapter 2---Research and Development ● 37

Figure 2-3-Possible Distributions of Future Research Effort

CURRENT ALLOCATIONS

Universitynonprof

anit

In-house

F U T U R E O P T I O N S

In-house

~dustry

u niversity an o n profit

In-house

ndu st ry

Option 1: With emphasis on preserving militarily Option 2: With emphasis on dual-use andunique technology in government Iaborator ies commercial technology

SOURCE: National Sciene Foundation, Federal R&D Funding by Budget Function, and OTA.

preaches to prototyping are not commercially via-ble. Unless the DoD takes steps to make prototypingprofitable for industry, design and prototypingactivities might need to move into governmentlaboratories or arsenals.

OTA’s defense industry survey indicated thatmost companies, foreseeing reductions in produc-tion contracts, are planning to cut their own spendingfor R&D. “Independent research and develop-merit, ’ or IR&D, is a company’s R&D that is fundedoutside of explicit government R&D contracts.13

Over the long term, the IR&D that can be recoveredfrom production contracts as overhead will decline

as procurement declines. Action has already beentaken to counter some of these trends. Companies’allowed IR&D recovery rate was increased underlegislation passed last year, for example. But directDoD funding to industry may need to increase incritical R&D areas to maintain current levels ofeffort.

Any decline in government-funded R&D willexacerbate reductions in company -financed R&D.Most studies indicate a positive correlation betweenfederally-funded R&D in a company and the com-pany’s own R&D expenditures.14 This findingindicates a leveraging of Federal funding: a dollar of

13 ~me is some confusion in tie Iitemture about the defii[ion of ‘Hi&D. ’ The formal government definition is any noncontract-funded R&D. ~us,for example, all of the R&D of a company with no comection to the DoD at all is considered IR&D. (See Office of the Director of Defense Researchand Engineering, The Independent Research and Development Program, A Review of IR&D, June 1974.) Many writers commonly use the term to referto only that portion of a defense contractor’s R&D that is potentially recoverable as an allowable overhead expense on a government contract. This sectionwill refer to a company’s overall effort as IR&D and the recoverable portion as recoverable IR&D if there is an ambiguity.

14 For a Survey of results, see Frank R. Lichtenberg, “The Effect of Government Funding on Private Industrial Research and Development: AReassessment,” Journal of Industrial Economics, vol. 36, No. 1, September 1987, pp. 97-104.


Photo cwdit: Pratt and Whitney

New technologies are first demonstrated and proven in thiscore engine before the manufacturer applies thereto anewor existing engine design. Most of the Nation’s defense

technical and expertise resides in companies.

Federal funding creates more than a dollar of totalR&D in both defense and nondefense sectors.presumably therefore, as Federal defense R&Dsupport shrinks, overall R&D shrinks even more.

Service laboratories have built up important areasof expertise and are well tuned to Service militaryrequirements. But critics of reliance on Servicelaboratories for DoD R&D note that they work for asingle Service, and sometimes only one elementwithin that Service, therefore their view may be toonarrow and they may overlook technologies that donot promote current Service missions. In the ex-treme, this is essentially a legal restriction; forexample, the Army cannot own, hence does notsupport R&D in, fixed-wing combat aircraft. Fur-thermore, civil service regulations are said to stifleresearch creativity in government laboratories. Crit-ics of Service laboratories argue that private compa-nies, universities, and other outside research organiza-tions are likelier to think up a potential mission toillustrate a need for some new technology that theyhave just developed. Salesmanship usefully getsnew ideas into consideration,

Service R&D activities are coordinated throughthe Office of the Secretary of Defense (OSD), but theService laboratories also have their own group, theJoint Directors of Laboratories (JDL) under the

Ph( to credit: Wright Laboratories

Research on new materials is cmducted by the AirForce at Wright Laboratories. The Service laboratories areimportant centers of research aml pride themselves onbeing closely tuned to the needs >f the military users.

auspices of the Service Secretaries. The JDL is madeup of the directors of research or laboratories of eachof the Services. In addition to meeting as a group, theJDL sets up various subpanels c f Laboratory Techni-cal Directors or Chief Scientists, to discuss andcoordinate work in particular areas.15

Under the auspices of JDL, the Services areundertaking a major change in their approach toallocating research effort among themselves, undera directive from OSD to coordinate their technologysupport. The result is a program called ‘‘Tri-ServiceS&T Reliance” (previously called Reli-

ance). The objective of this program is to minimizeredundancy among Service laboratories. At the veryleast, similar efforts at different laboratories shouldbe coordinated. Where appropriate, efforts will bephysically consolidated at a single laboratory andone Service will be designated a lead Service. Forexample, the Navy recognizes the Army’s extensiveexpertise in large-caliber guns, so all Services’relevant gun technology development will takeplace at the Army’s Picatinny Arsenal. Similarly,fuel and lubricant research will take place at the AirForce’s Wright Laboratory, while work on space-based infrared sensors will beat the Naval ResearchLaboratory.16

15 Fr~ck R. fiddefl et al., Report of the Task Force for Improved Coordination of the DoD Science and Technolog~ program (Alexandri% VA:Institute for Defense Analyses, August 1988) vol. II, app. C.

lb Jo~t D~ctors of Laboratories, White Paper on Tri-Service Reliance in Science and Technology, Office of Naval Technology, JMNUUY 1992.

Chapter 2--Research and Development ● 39

Reliance is still in its early stages so it is too soonto evaluate results.17 If current plans are carriedthrough, however, it could bring a fundamentalchange in how the Services organize their technol-ogy research.

A robust civilian industial base is important tothe DTIB. If the defense R&D effort is given theadditional goal of helping civilian technology, R&Dfunded through the DoD could expand substantially.There is no consensus, however, on the degree towhich the Federal Government should supportcivilian industrial R&D, nor on whether suchsupport should come from the DoD.

Some advocates of direct government support ofcivilian industrial R&D argue that while suchsupport is essential, the regulatory barriers thatgovernment has erected between military and civil-ian enterprise are so great that channeling the moneythrough the DoD is extremely inefficient, Otheradvocates concede the inefficiency, but counter thatthe government has no current mechanism withadequate scope and experience other than DoD tomount such a program. Alternative programs sup-ported, say, through the Department of Commerce,might take years to build up. Further, they argue thatthe political realities are that cuts in DoD R&D arenot going to be transferred to some other researchagency, such as the National Science Foundation orthe Department of Commerce’s National Institute ofStandards and Technology (NIST). Thus, accordingto this argument, the alternative to supporting civilindustry inefficiently through the DoD is not to doit at all.18

In fact, the alternatives are not so stark. Othergovernment programs, while currently small, couldbe expanded. For example, the Advanced Technol-ogy Program (ATP) under NIST is growing, with a$50 million fiscal year 1992 budget and an adminis-tration request of $68 million for fiscal year 1993and much support in Congress. OTA’s assessment ofindustrial competitiveness, Making Things Better,argues through analogy with the Defense AdvancedResearch Projects Agency (DARPA) that the ATPcould use effectively over $1 billion per year.19

Photo credit: 3M Corp.

R&D in commercial laboratories is increasinglysophisticated and will be important for future

military technology.

Proponents of greater civil-military integrationargue that reducing bureaucratic barriers betweenmilitary and civil industry would greatly increase thenumber of sources of new technology. Using moreintegrated commercial firms, however, will compli-cate the issue of foreign dependence since many ofthe large and most innovative companies are multi-nationals. These companies also offer, of course,ready access to valuable technology abroad. Tomake best use of civilian technology, changes inDoD procurement and contracting practice arerequired, as discussed below.

The Nation’s universities have traditionally beenstrong in long-term basic research. Although basicresearch in universities is small in dollar terms whencompared to the DoD budget, it is the primary sourceof fundamental scientific advances and, just asimportantly, to the training of future scientists andengineers.

The Department of Energy operates the NationalLaboratories that are responsible for the develop-ment and testing of nuclear weapons. With the endof the cold war, further advances in nuclear weaponsare far less urgent but nuclear weapon designknow-how is something the Nation cannot afford tolose.

17 Irnplernerlting letters were signed only in September tiu@ Novembm of 1991.

la There is little a~e~ent on the extent or net benefit of military R&Don the civilian eeonomy. A recent report containing a review of the impo~ntexisting literature is, David Gold, The Impact of Defense Spending on Investment, Produch”vify, and Growth (Washington, DC: The Defense BudgetProject, 1990).

19 See U.S. con~~s, office of Technology Assessment, Making Things Belter: Competing in Manufacnm”ng, OTA-ITE443 (Washington, DC: U.S.Government Printing Office, February 1990), p. 76.


Photo credit: MIT Lincoln Laboratories

This university laboratory developed thin films ofsuperconducting materials. The Nation depends on

universities for much of its long-term basic research.

To Summ arize, industry holds most of the defensetechnology and almost all the knowledge aboutmanufacturing. Further, the increased importance ofdual-use technology could make industry a betterpotential provider in the future. At present, however,it seems likely that industry will lose much of itsincentive to maintain supporting defense technol-ogy. The DoD needs either to make the R&Dprofitable in its own right or become a trulyinnovative in-house technology developer. In thelatter case, government laboratories and arsenalswould have to take on more technology develop-ment, but they would need to be careful to maintaincommunication with potential manufacturers toensure that designs are producible. The governmentshould carefully consider maintaining current DoDsupport for university R&D and explore ways toutilize the civilian sector.

Setting R&D Technology Priorities in the NewSecurity Environment

The new security environment is changing therelative importance of many military missions.Sometimes the technology implications of new

mission emphases are fairly clear. For example, anyNavy shift of emphasis from open ocean to shallowwater operations will require more attention tocountering mines. Similarly, if the Army is lessconcerned with building heavy tanks for war incentral Europe and more with deploying armoredforces to unpredictable trouble spots, its R&Demphasis should shift to making weapons lighterand easier to maintain under diverse field conditions.

There is a requirement to allocate R&D fundsacross technology areas. Congress is, of course,concerned about whether the allocation is correct butis not well-suited for setting detailed R&D goalswith the current approach. Congress and the DoD setoverall military missions and review needed tech-nology developments but without complete coordi-nation between these two processes.20

In the absence of any published DoD technologyplan, Congress requested that the Office of theSecretary of Defense (OSD) prepare a “criticaltechnology plan. ”21 The resulting report continuesto be criticized as providing merely a list oftechnologies rather than an investment plan thatexplains how to apply these technologies to militarymissions. Some critics argue that the list is of limitedvalue in allocating resources because the technologyareas are so broadly defined that very little is notconsidered ‘critical. ’ They argue, furthermore, thatthis generality is a consequence of fears that the listwill be used in a simple-minded way for fundingdecisions: if work is not labeled “critical” it will getcut. Others argue that the critical technology planconcentrates only on weapon technology and over-looks training or logistics, which are just as critical.to military strength.

The individual Services co have technologyinvestment strategies that are coordinated throughOSD. The Army’s Technology Base Master Plan,22

for example, lays out an investment strategy forimplementing technology goals, an explanation ofhow to get from hereto there, and how much it willcost. The OSD has recently developed severalTechnology Thrust Areas that should make clearer

m See us. CoWess, Offlce of Technolo~ Assessment Background Paper, Evaluating Defense Department ReSeuT :k June lg~.

21 p.L. 101-189103 Stat. 1512 p~~aph 2508(a) ‘Annual Plan. — ( 1) The Secretary of Defense shall submit to the Co nrnittees on Armed Semicesof the Senate and House of Representatives an amual plan for developing the technologies considered by the Secretary f lf Defense and the Seeretaryof Energy to be the technologies most critical to ensuring the long-term qualitative superiority of United States weapons ysterns. The number of suchtechnologies identifkd in any plan may not exceed 20. Each such plan shall be developed in consultation with the Secre ary of Energy.’

22 ~pu~ Assis@t Secrew for Research and Technology, Army Technology Base Master Pian, VOIS. I-III wa.Shim@4 ~: Depart=nt of theArmy, November 1990).

Chapter 2--Research and Development . 41

-*h A

Photo credit: DoD

This tank is only lightly armored. It is more vulnerable thana heavy tank but easy to transport by air. As the militarythreats facing the Nation change, the technical goals of

defense R&D must be adjusted.

the route from the DoD’s overall technology invest-ment to its military missions. Currently, there areseven thrust areas-surveillance, precision strike,air superiority, antisubmarine warfare, land combatvehicles, readiness and training, and affordability23—but the areas could change in the future in responseto new security or technical developments.

With slower deployment of new major weaponplatforms, relatively more attention will be given tosubsystems and upgrades of the platforms and themunitions that they carry. The development budgetmay include prototypes to demonstrate new technol-ogy or designs for which there is no immediate planfor actual development for quantity production.With falling budgets, some Service R&D plannerssee greater research emphasis on reliability, durabil-ity, and efficiency as away to reduce operating costs.The increasing complexity and decreasing numberof weapon systems have led the DoD to emphasizedesigning for producibility and manufacturing proc-ess.

The changes in military requirements will haveless effect on priorities at the research end of theR&D spectrum. For example, no matter what the

threat, there is a strong consensus that R&D willcontinue or even increase its current emphasis on‘‘information technology, ’ including sensors, dataanalysis, and displays, along with communications,computers, software, and storage and manipulationof data for manufacturing. However, even with alarge shift in emphasis toward, for example, elec-tronics, the basic goals of electronics research willremain much the same: reduced size, lower powerrequirements, higher speed, lower cost, and greaterreliability, whether the end-result eventually appearsin a ballistic missile or a shoulder-fired rocket.Similar arguments will apply for a range of technol-ogies, from biotechnology to materials.

The general trend since the end of World War IIhas been for Congress and the Executive Branch torequire ever clearer justifications of military R&D,usually in terms of final military application. Thisgoal is most clearly stated in the Mansfield Amend-ment, P.L. 91-441 Title II Section 204:

None of the funds authorized to be appropriatedto the Department of Defense by this or any other Actmay be used to finance any research projector studyunless such project or study has, in the opinion of theSecretary of Defense, a potential relationship to amilitary function or operation.24

Although this requirement, if broadly defined,should be easy to meet, many R&D managers arguethat it has had the effect of biasing project selectiontoward those whose military connection is not just‘‘probable’ but most obvious, with the effect ofnarrowing the defense R&D base.

As the Nation broadens its definition of ‘nationalsecurity’ to include international economic compet-itiveness, the past emphasis on the narrow militaryjustifications for defense R&D will be challenged.Many observers are concerned about the Nation’sindustrial performance and view inadequate invest-ment in civilian R&D as part of the problem, Sincemilitary R&D is almost one-third of the Nation’stotal public and private R&D expenditure-a higherfraction than that of other western industrial coun-tries ~25one approach is to tap into military R&D tohelp civilian enterprise. (See figure 2-4.) This

~ Brief~ from the office of the Deputy Director, Research and Engineering (Plans and Resoumes), Feb. 9, 1992.

~ ~ls wording mperseded the even s~nger wording enacted the previous year that projects should have a ‘‘ . . . direct and apparent relatiomhipto a speeiflc military function. . . “ (P.L. 91-121). The wording was altered again slightly in P.L. 100-370 to allow the DoD to spend R&D funds, “forpuqmses related to research and development for which expenditures are specifically authorized in other appropriations of the Department of Defense. ’This recent change indicates a reversal in the trend toward narrow military justification toward a concern with a broader national security.

~ Natio~ Science FoMdation, [nternationd Science and Technology Data Update: 1991, NSF 91-309 (was.tington, DC: 1991), pp. l~ls.


Figure 2-4-Defense R&D as a Percentage of Total Government R&D Spending and as a Percentageof Total National R&D Spending

Percent of total government R&D spending100 ~

80 1

40

20

0France West Japan United United

Germany Kingdom States

100

80

60

40

20

0

Percent of total national R&D spending (1988).

France West Japan United UnitedGermany Kingdom States

approach may include adding civilian industrialcompetitiveness to the criteria by which militaryR&D proposals are judged. Congress frequently hasthe dual objectives of military and commercialbenefit in mind when it supports ostensibly militaryprojects directed at improving manufacturing, suchas the MANTECH and SEMATECH programsdescribed in Redesigning Defense .26

The DoD and the administration resist this ap-proach because of the difficulty of balancing civiland military objectives. Defense managers, whileaware of the importance of industrial competitive-ness, are hesitant to use it as a criterion for fundingmilitary R&D. Their general concern is that re-sources devoted to important military needs arealready limited, if not inadequate, and that additionalnonmilitary objectives would make fulfilling thoseneeds even more difficult. Changes in the bureau-cratic incentives for integration of civil and militaryR&D will have to be made at higher levels, i.e.,Congress or the President, before managers adoptsuch criteria.

Another approach would be to keep currentmilitary R&D priorities and improve the transfer ofmilitary technology to the private sector. Whethergovernment support for certain industrial technicaldevelopment projects is warranted has been asubject of much debate. Until that debate is resolved,however, the question remains whether industrial

SOURCE: National Science Foundation, International Science and Technology Data Update: 1991.

development funds should be funneled through theDoD. As described below, the substantial barriersbetween defense and commercial business sectorsresulting from the special legislative and regulatoryenvironments created by the federal Governmenthamper the transfer of technology.

A third approach would be to maintain currentdefense R&D priorities but reduce the overall levelof R&D funding funneled through the DoD. Re-leased funds could support commercial R&D di-rectly through some civilian government organiza-tion, or the funds could go to indirect support, forexample, tax incentives for R&D. This approachwould compel the DoD to obtain more of itstechnology from the civil sector and adapt itsdoctrine to suit available technology. R&D mightalso focus on strategic economic vulnerabilities thatpose a threat to national security. For example, if anextensive R&D program had produced energy inde-pendence for the West, Iraq’s invasion of Kuwaitwould have had a fraction of it; actual importance.

Organization of Governnment Support ofDefense R&D

The organization of R&D must balance the needsof the operational military community, the R&Dcommunity, and the Nation’s defense effort as awhole .27 How to maintain this balance will beimportant in the years ahead as the DTIB shrinks.

~ MANTECH is a program to support h4ANufacturing Technology and SEMATEC!Hagovernment-industry consortiw I to develop SErniconductorManufacturing Technology. See Redesigning Defense, pp. 52-54.

27 See U.S. CoWess, mfice of Technology Assessment, Holding rhe Edge: Maintaining die Defense Technology Base, ~ YIA-ISC-420 (WWhgtwDC: U.S. Government Printing Offkx, April 1989) for a fuller discussion of DoD R&D management and organization.

Chapter 2-Research and Development ● 43

This issue is of direct concern to Congress, sinceCongress has historically been involved in theorganization of DoD R&D.

If the primary objective is relevance of R&D tothe users’ perceived immediate needs, then R&Dshould be closely tied to the acquisition function,which in turn should be under the control of theServices. The danger with this arrangement is that itmight focus on short-term problems. If the objectiveis to emphasize long-term technological support, theearlier science and technology work could be givenmore visibility, perhaps by having the person incharge of R&D report to the secretary level in OSDor the Services, rather than through the person incharge of acquisition. Another issue of concern toCongress is that, in a declining budget environment,existing R&D groups may resist consolidation orredirection.

Present Structure and Consolidation Plan

Until 1986, the Director of Defense Research andEngineering reported directly to the Secretary ofDefense. In response to the widespread perceptionthat the acquisition process was not adequatelymanaged, the Goldwater-Nichols reorganization ofthat year created an Under Secretary for Acquisition,to whom the DDR&E reported. This reorganizationmay have increased the communication between theacquisition and the R&D communities, but it alsoreduced the visibility of the R&D issues to theSecretary.

Assistant Service Secretaries in charge of R&Dreport through their Service chains of command, butalso coordinate through OSD. Some critics contendthat coordination is insufficient and more central-ized control is needed. Advocates of increasedcentralized control argue that redundancy and ineffi-ciency are inevitable if each Service handles itsR&D separately. While R&D redundancy wasdesirable in an era of growing or level budgets,declining budgets should force greater coordination.

In contrast, Service R&D managers argue thatindependence from OSD is vital because the Serv-ices best understand the needs of the ultimate users

of the technology. Moreover, rivalry among theServices produces alternatives that might not havesurfaced if the research agenda were centrallycontrolled. A good example is the development ofthe Navy’s Polaris submarine at a time when thestrategic nuclear role was dominated by the AirForce. If there had been a central strategic nuclearR&D directorate at the time of Polaris’ proposal, itprobably would have been dominated by advocatesof ICBMs and bombers and the submarine-launchedballistic missile, which has become the cornerstoneof the U.S. nuclear deterrent, might never have beenpursued.28

Each of the Services is reorganizing or planningto consolidate its laboratories. Service laboratoriesand research centers perform in-house R&D andadminister projects contracted to private industry.There are 66 Service laboratories (76 if the laborato-ries making up the Air Force ‘‘superlabs’ arecounted individually). In 1990, the laboratoriesemployed 60,000 people of whom 26,000 were sci-entists and engineers. Total funding was $6.5billion, over half of which went to externallyperformed contract R&D with part of the remaindergoing to management of these outside contracts.29

The number of employees has shrunk somewhatsince.

The Army has the most extensive reorganizationplan, resulting from its ‘‘Lab 21 study. It plans toconsolidate most administrative control and manyactivities in a single Combat Materiel ResearchLaboratory in Maryland. Currently, similar technol-ogies often are explored in different Army centers ifthey have different end uses. Some of these centerswould be consolidated under the plan. For example,combat vehicle propulsion research is based inWarren, MI, the home of the Tank and AutomotiveCommand, while aviation propulsion research isbased in Cleveland, OH, on the site of NASA’sLewis Research Center. The Army believes that, atthe research level, these two applications are similarenough to warrant future consolidation of thelaboratories at Cleveland.30

2S Jme~ R. Schlcsingcr, D@en~e P/annlng ~~ B~g~fing: The Issue of Cenma/ized Conrro/ (Washington, DC: Industrial College Of the ArmedForces, 1968), p. 18.

29 F~d~ml Advl~ov Comission on cOm~Oli&tiOn ~~d c~nv~~sion of Defeme Research and Development Laboratories, Report tO the ~ecretq OfDtfense, September 1991, p. 1.

30 see GWrge Slngley, te~tlmony before the Sutiomlttee on Defe~~e ~dustry and Technology, Committee on Armed Services, U.S. Senate, May21.1991.


The Navy is consolidating its R&D activities intofour existing Research, Development, Test andEvaluation Engineering and Fleet Support Centers,and one Service-wide research laboratory. Unlikethe Army’s technology-center approach, the Navy’scenters are organized around war-fighting missions.For example, Navy R&D relating to air warfare willbe headquartered at the Naval Air Systems Com-mand, with a weapons division at Point Mugu and anaircraft division at Patuxent River. The other centersare the Naval Surface Warfare Center (which willinclude surface-based antisubmarine warfare), theNaval Undersea Systems Center, and the NavalCommand, Control, and Ocean Surveillance Sys-tems Center (which covers surveillance and commu-nications). The Naval Research Laboratory, whichexplores abroad range of research areas, will remainas a Navy-wide laboratory under the Office of NavalResearch,

The Air Force reorganization plan includes theconsolidation of 14 laboratories into 4 ‘‘super-labs. ’ ’31 However, no laboratories are planned toclose or move immediately, although managementand administrative functions will be concentrated inthe four central laboratories.

The Federal Advisory Commission on LaboratoryConsolidation endorsed the Service consolidationplans almost without exception. According to theCommission report:

The laboratories provide to the acquisition agents(i.e., the Services’ program managers), an in-house,technologically qualified agent to oversee or evalu-ate the performance of the industrial developer asrequired to ensure that the design is technicallysound, will satisfy performance requirements, and isproducible and affordable.32

The possibility of laboratory mission changes andtheir implications for organization and size are notdeveloped in the Commission’s report,

Medical laboratories are examples of cross-Service consolidation. There is no reason in princi-ple that other technologies in addition to medicinecould not be similarly coalesced, as the Federal

Advisory Commission suggests considering formicroelectronics.

A number of alternatives for further consolidationexist. OSD could, for example consolidate researchactivities while leaving development to the Services,or OSD could, in the extreme, assume control of allService R&D activities following the French R&Dand acquisition model. The Services argue againstconsolidation on the grounds that R&D will becomedisconnected from their direct needs. And they arguethat as long as the Services are responsible foracquisition, they should be responsible for thesupporting R&D. But in a future circumstance ofdeclining budgets and continuing need for techno-logical advance, consolidation across Services maybe as necessary as consolidation within each Service.There are also certain joint tasks that OSD mightbest oversee among the Services, such as communi-cation, data fusion and dissemination, and attackcoordination.

The OSD does not operate any laboratories,although it has two Federally funded Research andDevelopment Centers (FFRDCs): the Institute forDefense Analyses (with $96 million in fiscal year1990) and the Logistics Management Institute (with$21 million in fiscal year 199033). OSD alsosupports defense agencies like the Defense NuclearAgency, the Defense Advanced Research ProjectsAgency, and the Strategic Defense Initiative Organi-zation. While none of these are laboratories, theyhave resources to support R&D at Service laborato-ries or elsewhere. Total R&D funding of theorganizations funded through OSD was $6.9 billionin fiscal year 1991.34

Issues for the Future

Congress might consider changing the balancebetween Service autonomy and OSD coordination ofR&D. To reduce redundancy, it could funnel allR&D funds up to some level (perhaps 6.3a) throughOSD, perhaps by extending the model of inter-Service medical laboratories to other areas. Alterna-tively, Congress could encourage the Services tocontinue the approach begun with Reliance, that is,to assign responsibility for each important technol-

31 Report t. the secretary of Defense, op. cit., foo~ote 29$ P. 18.

32 Report t. the Secretay of Defense, op. cit., footnote 2% P. C-1.

33 ~UU fiWrm from ~c~el Davey, D#e~e Laboratories: Proposals for Closure and Consolidation, Congressional Research Service, 91-135SPR, Jan. 24, 1991, p. 9.

~ @p~rnent of Defense, RDT&E Programs (R-l), February 1991, p. D-H.

Chapter 2--Research and Development . 45

ogy area to a single Service, which would supportthe other Services in that area.

As the DTIB gets smaller, Congress will want tohave military R&D activities organized such that noimportant R&D mission is overlooked. For this,Congress will need abetter idea of how technologiesrelate to military missions and how the entiredefense R&D effort is coordinated. Ideally, thesystem should be designed to foster new ideas andavoid parochialism, so coordination does not be-come stifling overmanagement. Achieving this stateshould be a key goal of R&D reorganization.

OTHER CRITICAL ISSUESCongress will need to address a number of

specific critical issues relating to the organizationand function of the defense R&D base.

Defense R&D Personnel:Maintaining the Know-How

A critical objective of defense R&D policy in thenew era is to maintain the core skills and knowledgethat are key to the whole defense enterprise.Personnel reductions in defense R&D must becarried out carefully to retain key skills, and thosethat exist only in the defense base must be main-tained there. Some knowledge and capability existsin groups of people rather than individuals. Thesegroups may require special treatment if their skillsare not to be lost. For example, a prototyping-plusstrategy, discussed in the next chapter, can help’maintain critical pools of design and developmenttalent.

Many of the concerns about government labora-tory personnel long preceded the ongoing reductionin the size of the DTIB. Some problems may beexacerbated by future shrinkage, while others maybe made more manageable. For example, the ques-tion of salary seems to be permanent.35 Governmentpay for scientists and engineers lags behind that ofcomparable positions in industry. Measuring the lureof intangibles such as job security is, however, hardand thus predicting the exact effect of their loss isalso difficult.

Some argue that salaries for scientists and engi-neers in private-sector defense firms are inflated byup to 15 percent relative to comparable nondefensesectors and, moreover, that this difference hasdrained the Nation’s broader civilian industrial baseof its best technical talent.3b As international com-mercial competitiveness increases in importancerelative to defense, the Nation may have less interestin maintaining whatever defense salary bonus mightexist, and want to encourage good people to work inthe civil sector.

If the mission of the Service laboratories changes—for example, shifting emphasis from oversight ofcontract R&D toward more direct involvement inR&D work—then the personnel requirements alsochange. If the Service laboratories increase their roleas developers of technology, then the quality of theirpersonnel may also need to improve. This mayrequire further changes in pay scale. Just as import-ant are changes in ‘‘revolving door’ policies thatinhibit movement of personnel between governmentand industry. If the primary function of a govern-ment scientist is to be an adviser to a governmentbuyer, then there is a need to forestall conflict ofinterest by maintaining a clean separation betweenthe scientist and industry. If the role of governmentscientists is to develop new technology and promotetechnology transfer, then scientists should be posi-tively encouraged to move back and forth betweengovernment laboratories and leaders in industrialtechnology.

The DoD is an important source of support ofresearch in universities.37 In electrical engineering,for example, the DoD provides the majority ofuniversity research support. In some other fields(e.g., aeronautical and mechanical engineering), theDoD is the largest single source of funds. Fundsfrom the DoD support much research critical to theNation’s military capabilities, but another importantfunction of DoD research funding for universities isthe training of students who then enter the Nation’spool of scientific and engineering talent. A reductionin DoD funds for university research is possible asoverall defense budgets shrink. Congress or the OSDmay want to maintain funding of university research

35 Bureau of tie Budge~ Report tO the President on Government Contracting for Research and Development, May 1%2, ~ex 5, PP. 47-49.

36 JWI Yudken and Ann Markusen, Rutgers University, “?’he Labor Economics of Conversion: Prospects for Military-Dependent Engineers andScientists,” p. 15, a paper presented at the conference, “Engineers and Economic Conversions, ’ University of Arizom, ‘lYcso~ July 15-17, 1991.

37 fie~o, op, cit., footnote 14, p. 24.


to continue to have access to this important sourceof technological strength.

As the DTIB shrinks, the need for scientists,engineers, and technicians will also decline. Meet-ing the lesser personnel demand should, in the longterm at least, be an easier task than attractingadequate numbers was in the past. During thetransition to a smaller base, however, the majordanger is that past investment that has resulted in ahuge reservoir of experience and knowledge, both inindividuals and in groups, will be lost. Moreover, thesmaller year-to-year demands of the DTIB fortechnical talent will not reflect the Nation’s require-ments if a major new military threat arises. Thus, theNation should be mindful of where the DTIBtechnical talent goes as it leaves the base. There is adifference, both to national security and nationalprosperity, between moving scientific and technicaltalent between defense and civil work and not beingable to use it in the economy at all. Industry willcontinue to supply the great majority of R&Dpersonnel important to defense, which can increas-ingly include R&D talent outside of the traditionaldefense companies if civil-military barriers arereduced.

Independent Research and Development

Companies that have contracts with the U.S.Government negotiated on the basis of their costs,rather than market or bid prices, are allowed tocharge as an overhead expense the ‘‘normal’ costsof doing business. Since before the Second WorldWar, the government has considered limited R&Dand other engineering efforts as allowable overheadcosts.

In the past, the IR&D recovery scheme exacer-bated the separation of military and civilian technol-ogy. If military and commercial business, includingR&D, is mixed in one company division, then thatportion of R&D judged to have a potential interestto the DoD must be prorated between the govern-ment and commercial business. If the optimal R&Dinvestment in the government and commercial partsis not the same, then anomalies result. For example,if the military products warrant a higher rate of R&Dinvestment than the commercial products, and IR&Drecovery rules require prorating R&D costs, then the

company’s commercial products will be more ex-pensive than those of a competitor that does nomilitary R&D. Thus a company that does bothcommercial and military production and R&D hasyet another incentive to separate its two customerlines, creating yet another barrier between commerc-ial and military technology transfer.

Today the trend is toward encouraging civilapplication of recoverable IF.&D. To qualify forrecovery as an overhead cost on a defense contract,R&D must now be shown to be of “potentialinterest” to the DoD.38 The law states that IR&Dregulations should encourage contractors to pursueR&D activities that

1. strengthen the DTIB,2. enhance industrial competitiveness,3. promote critical military technologies,4. develop dual-use technology, and5. develop technology to benefit the

environment.

A broadening definition of what is of interest tothe DoD combined with higher - recovery rates doesnot give companies a blank check to charge R&D togovernment contracts. Contract officers must stillagree that the charges are reasonable.

Substantial additional changes in IR&D recoveryrules may be needed to change the way companiessupport R&D. Recovery of IR&D as an overheadexpense on procurement links R&D to production.This linkage will not be desirab e in the emerging eraof production cuts. For example, production of manytypes of weapons may fall sharply during thetransition to a smaller military, while the need forR&D will remain high. In these instances, contractR&D could make up for reduced overhead recoveryof IR&D expenses. In additicn, if the DoD buyscommercial technology incorporated into military-specific products, then companies will want somesimple mechanism for folding past R&D costs intothe price of the products.

Technical Data Rights

When the DoD acquires a product, it typicallyacquires some license right to the ‘‘technical data”related to that product.39 Technical data could be just“form, fit, and function’ information, that is, a

38 ~depend~tRese~h ~d DeVelOprn~t: CFR, Tide 48, Chap 2, sec. 231,205-18 ~d P.L. 101-510, SW. 824. P.L. 101-510 put “interest” inpkceof the earlier requirement for a ‘‘relationship’ and signitkantly broadened what is of ‘interest’ to the DoD to include intemationat competitiveness.

39 c- Tiue 48, ch. 1, WC. 52.227-14.

Chapter 2---Research and Development ● 47

description of what a device does and where theholes for bolting it in need to be drilled. At the otherextreme, the government sometimes demands theright to manufacturing data detailed enough thatanother firm can produce the item. The governmentargues that it has vital national security responsibili-ties that transcend normal market requirements andjust@ extensive data requirements. But many firmsare concerned that technical data rights rules causethem to lose commercially useful technology.

Current policies toward technical license rightsinhibit mixing of military and commercial R&D. Ifthe government wants to assure a second source forsome critical item, it may request only government-purpose license rights. This is technical data thatallows the government or another of its contractorsto build the item, but any contractor that does somust not use the data for any commercial purpose.No one can guarantee that such separation will beeffective in all cases. Thus, companies that havetechnology of commercial interest are reluctant tosell products to the government along with licenserights as they fear that the government will be aconduit to a competitor’s drawing board.

Current data license right regulations, and theresultant loss of exclusive control of data, alsodiscourage the commercialization of military tech-nology, A successful R&D program is only the firststep in getting a product to market. Successfulmarketing and sales can be even more difficult.w Acompany has little incentive to take the risk andmake the investment needed to establish, or evenexplore, a market niche if, when successful, a rivalalready has the same technology via the DoD and isready to compete.

Small subtier firms argue that they are harmedmore by data-rights regulations than are large primecontractors. Small companies often survive on oneor a few products. Sometimes their only commercialadvantage is a unique expertise in one particulartechnology, which, if compromised, could mean theend of the firm. The large primes have additionalspecial “products” that they can sell: systemsintegration and the ability to deal with the govern-ment. Neither kind of information is as easy to stealas is a manufacturing process. Thus, the primes haverelatively less worry about license rights. Moreover,

large primes often require that data license rightsclauses of their contracts are passed down tosubcontractors; thus small subcontractors often viewbig prime contractors as part of the problem, notfellow sufferers. Small firms charge that the govern-ment is worse than cavalier about protecting datarights, that indeed the government sees any exclu-sive control of technology as a challenge to be met.Unless there are changes in requirements, manysmall firms will continue to be reluctant to maketheir technology available to the government.

Data license-rights questions do not lend them-selves easily to compromise. Government and in-dustry agree on what the issues are, but see a clearconflict between their respective interests. Thegovernment will always want to negotiate for asmuch access as it can get, and industry will alwayswant to give up as little as possible. The optimalsolution will require a broader perspective includingthe long-term effects on industry’s incentives toprovide the DoD with the products of its besttechnology and the DoD’s long-term need to main-tain some technologies regardless of short-termfluctuations in need or rate of production. (See ch. 4for further discussion of technical data rights.)

Import and Export Restrictions

Import and export restrictions inhibit the entry ofsome companies into defense R&D in many indirectways. Interviews show that some commercial firmsare hesitant to take defense R&D contracts if theresulting technology is not readily exportable. TheUnited States, unlike most other countries, oftenexports military technology to allies with the provi-sion that further export to third countries will becontrolled. This reduces incentives for internationalR&D collaboration among multinational and for-eign firms.

Import restrictions affect U. S,-based firms that aretruly multinational (as opposed to domestic firmswith strong exports). Thus, a multinational corpora-tion will balk at a government-sponsored develop-ment project-or require higher prices-if the re-sulting product must be manufactured in NorthAmerica. A company like IBM makes products allover the world for a variety of economic reasons, andimport restrictions (that is, Buy American rules)

40 For many ~dus~es, get~g a tec~mlly successful product accepted by the market is harder than the technical resewch ana development i~e~.SeeEdwin Mansfield, “How Economists See R& D,” Hunwrd Business Review, vol. 59, November-December 1981, pp. 100-106.


would require a complete overhaul in the way it doesbusiness.

If the United States wishes to increase civil andmilitary technical integration, then it must reexam-ine its approach to the buying and selling abroad oftechnology for military applications. This is differ-ent from an arms export policy. Rather, the technicalmarketplace is becoming increasingly international;thus greater use of commercial technology inevita-bly leads to greater international interdependence.Indeed, as market barriers are reduced, tracking theorigin of particular parts and technologies becomesincreasingly difficult.

SUMMARYWithout offsetting action by the Federal Govern-

ment or Congress, the DoD R&D budget will shrinkin the fiture as the overall DoD budget declines. TheDoD RDT&E is expected to drop in real terms from$40 billion today to $27 billion by 2001.

Yet the new international security environmentstill requires that the Nation have what RedesigningDefense termed an “advanced” military R&Dcapability that can respond to warnings of evensophisticated threats by supporting weapons sys-tems that can meet the threat and be manufacturedand deployed in time.

OTA defines an ‘‘advanced” DoD R&D capabil-ity as having

●

●

●

●

●

●

a world-class manpower base (both individualsand teams);cutting-edge R&D able to guard against tech-nological surprise, not only by sophisticatedformer adversaries, but by powers havingaccess to the best weapons available on theinternational arms market;robust efforts in critical technologies;a balance between the near-term technologyneeds of each Service and the effort expendedto meet the long-term R&D needs of U.S.defense overall;strong links to manufacturing, so the weaponssystems proposed are producible and afforda-ble; andstrong links to civilian R&D, even in theabsence of a national consensus about higherlevels of Federal support for civilian technol-ogy programs.

Without offsetting actions, the likely shrinkage ofDoD R&D will produce disproportionate cuts inprivate industry activities. Direct military-sponsoredR&D in private companies will decline, as well asthe investment private defense contractors makewith their own funds.

Correspondingly, the fraction of military R&Deffort done by Service in-house laboratories andFFRDCs would increase. While these institutionshave a record of assisting the services’ direct needsthey would have to change to address either researchneeds or the technology development role currentlywell performed by private companies.

Current and proposed plans to consolidate theService’s structure of laboratories and centers, whileimportant, will not create the integrated manage-ment structure which the R&D component of thefuture DTIB will require.

The DoD may have to make a special effort tofilly fund development work performed by privatecontractors to assure that technology developmentgoes forward in private industry on profitable terms,even when there is unlikely to be a future productioncontract that would allow such companies to recoverR&D costs. This would include support for proto-typing, as discussed in chapter 3.

Without offsetting actions, performers of militaryR&D will not improve their links to civilian R&D.Present IR&D rules create barriers within companiesbetween their military and civilian R&D efforts.Current technical data license rights rules discour-age specialized subtier fins--which are a criticalsource of the Nation’s invectiveness in defensetechnology-from pursuing new technologies forboth civilian and military usc, Import and exportrestrictions inhibit interchange between defense andnondefense sectors and prevent the DoD fromdrawing on technology developed abroad, even byU.S.-based multinational firms.

Without offsetting actions, DoD support forresearch in colleges and universities could decline asthe overall defense budget shrinks. Thus, the DoDwill miss some of the benefit of basic universityresearch it has enjoyed for many years. The DoDwould also have less chance to train the nextgeneration of scientists and en enineers and familiari-ze them with the Nation’s defense needs.

INTRODUCITON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .THE PROTOTYPING SPECTRUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conceptual Prototypes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Technology Demonstrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Advanced-Development Prototypes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ASPECTS OF A PROTOTYPING-PLUS STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Systems v. Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Profitability of prototyping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .

IMPLEMENTING THE STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preserving Design Teams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Maintaining Manufacturing Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preserving -the Vendor Base . . . . . . .Time and Cost of Prototyping . . . . .Rethinking the Acquisition Process

POLICY IMPLICATIONS . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BoxesBox

515152546061636464656770717374

3-A. Traditional Functions of prototyping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-B. Computer Simulation as an Analytical Tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-C. Submarine Prototypes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-D. Rapid Prototyping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-E. Remotely Piloted Research Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-F. Quick-Reaction Prototyping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figures

525560667274

Figure Page3-1.The Prototyping Spectrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533-2. Prototyping-Plus Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623-3. Centralized Database Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

TablesTable Page

3-1. The X-Aircraft and Missiles, 1946-1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563-2. Technological Spinoffs of X-Aircraft Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Chapter 3

Prototyping-P1us

INTRODUCTIONA challenge facing the Nation in the aftermath of

the cold war is to reduce the size of the U.S. defensetechnology and industrial base (DTIB) while pre-serving key defense-related design and manufactur-ing teams, maintaining technological innovation,and giving the armed forces options from which tomake future weapon-system and force-structuredecisions. One approach to this problem, called“prototyping-plus,’ ) would involve the continu-ous development of prototypes and, in selectedcases, limited production for operational andfield testing. In the event of a need to replaceobsolete systems or the emergence of a new militaryrequirement, some of the prototype systems couldbe further developed for quantity production.

Prototyping refers to the development and testingof working models—from computer simulationsthrough operational hardware-to explore conceptsand demonstrate specific design and operationalobjectives, thereby reducing technological uncer-tainties and risks. (See box 3-A.) The currentweapons-acquisition process is based on the as-sumption that prototype development will lead inmost cases to a design produced in quantity for theoperational inventory. This assumption severelyconstrains the number of technological options thatcan be explored. A prototyping strategy, in contrast,would involve the exploration of a variety of system,subsystem, and component options without theassumption of proceeding to quantity production,

Greater reliance on prototyping at the expense ofquantity production, as recommended by the Depart-ment of Defense (DoD), would have both benefitsand costs. It would advance systems technology(e.g., systems design, not laboratory R&D), keepdesign teams intact, and support deployment of themost advanced equipment—assuming planners cansee far enough into the future to begin production ina timely way. But it would sacrifice active forces andhot production lines, including large manufacturing

teams. It is therefore necessary to define a newstrategy that overcomes these drawbacks.

Defenders of the status quo often overlook the factthat the current acquisition system neglects thedevelopment of new manufacturing technologies,and that without a fundamental restructuring of theprocess, reduced procurement will further erode theDTIB. The prototyping-plus approach wouldavoid simply putting new technologies “on theshelf and allowing the manufacturing base toatrophy. 1 Instead, design teams would hone theirskills and know-how by developing and testing aseries of prototypes, some of which could then bemanufactured in limited quantities for field testing.By working out the major bugs in the manufacturingprocess, limited production would make it easier tonegotiate the transition to quantity production—ifand when such a decision is made. This approachcould mitigate the effects of reduced procurement byreplacing the boom-and-bust development cycle ofthe cold-war era with a more deliberate process,structured to preserve the full range of criticaldesign, manufacturing, and support skills.

This chapter examines the feasibility of a proto-typing-plus strategy and suggests how it might beimplemented. The discussion addresses some fre-quent criticisms of this approach, such as thedifficulty of moving from prototyping to quantityproduction; the unprofitability of prototyping; theproblem of maintaining an adequate vendor base inthe absence of significant production; the cost ofprototyping; and the ability of a prototyping-plusstrategy to preserve critical elements of the DTIBand its effects on jobs, skills, and training. Thechapter also describes the larger restructuring of theDTIB that would be necessary for a prototyping-plusstrategy to serve the Nation’s future defense needsand to be profitable to all tiers of defense contractors.

THE PROTOTYPING SPECTRUMPrototypes are useful in different ways depending

on their role in the weapons-development process.z

Figure 3-1 shows the different categories of proto-

1 David Silverberg, “Acquisition Rule Irks Industry, ” Defense News, vol. 7, No. 6, Feb. 10, 1992, p. 10.2 I.C. Oelric~ Donald D. Weidhuner, and Frederick R. Ridden, Small ?Iwbine Technology Review, IDA Paper P-1843 (Alexandria, VA: Institute

for Defense Analyses, July 1985), p. 13.

-51–


Box 3-A—Traditional Functions of Prototyping

Prototyping has long served a number of functions in the weapons-acquisition process.Hardware prototypes can fine and reduce technological uncertainty in the development of a new system.~

If the technological risks of a design are large and cannot be reduced by alternative techniques such as computermodeling or scale-model testing, construction of a working prototype is necessary. For example, vertical-takeoff-and-landing (VTOL) aircraft have complex aerodynami“c and propulsion characteristics that are difficult to predictwith analysis alone, so a prototype is needed to test performance predictions.

Prototypes can identify design flaws before a system enters full-scale development, also known as engineeringand manufacturing development (EMD). A prototype nearly always reveals fictional flaws in a design so thatcorrective action can be taken early. It is therefore possible to avoid the high costs and delays caused by engineeringchanges late in the development process or after production has begun.2 During testing of the YA-10 prototype in1974, for example, Fairchild discovered that during maneuvers at high angles of attack the flow of air through theengine inlets was disturbed by turbulence from the fuselage-wing root area causing the engines to flame out. Thecontractor used the prototype to develop and test a correction. In the absence of a prototype, this defect might nothave been detected until the first production aircraft flew, when it could have caused a major crisis.3

Prototyping tests systems integration and exposes problems with electromagnetic interference andcompatibility (EMI/EMC) and software. General Dynamics first bench-tested the M1A2 tank’s digital mappingsystem and other electronic subsystems individuality. They were then integrated in a laboratory, tested in atechnology demonstrator, and finally put in a prototype tank Even so, it took months of testing to correct operationaldiscrepancies and to debug the software.4 It is not enough to test various subsystems in the laboratory; in many cases,they must be integrated in a prototype and tested under realistic conditions.

Prototyping can help define how to accomplish a given military mission before a production decision is made.Prototypes can test out different approaches to performing a given mission (e.g., ballistic-lnissile defense). Theexperience gained in prototyping can then lead to faster and lower cost completion of development and production.

Competitive prototyping can help to select a prime contractor, Competitive prototyping led the Army to selecta different contractor for the AH-64 attack helicopter than it would have chosen based on the original paperproposals. During the paper competition, many program personnel believed that Bell Helicopter had abetter design.But in the prototyping phase the Hughes Aviation prototype outperformed Bell’s, and conceptual differencesbetween the two designs were resolved in Hughes’ favor. As a result, the Army awarded Hughes the contact.5

Prototyping tests the soldier/system interface for the first time. The man in the loop remains the most essentialingredient of successful hardware/software development. In some cases, problems in the soldier/system interfacecannot be identified and corrected early without prototyping.

1 B.H. ~e@ ‘K. G- Jr., and GM. Shube@ The Role ofl%ototypes in Development, RM-M67/l-PR (S anta MOniUL CA: ~Corp., April 1971), p. 10.

2 Ro~fi PW, A ~~oto~pe Strategy for Az’rcr@ Development, RM-5597-1-PR (S~~ h’fod@ CA: m COT., JUIY 1972), P. 9.

3 G.K. smith et al., The use ofproto~pes in Weapon System Development, R-2345-M (S- Mh, CA: RAND project Air Force,March 1981), P. 58.

4 ~~m ~~ w- F. CMY, COPme director of bad systems, General Dynamics, Washington office, NOV. 13, 191.

s smith et al, op. cit., footnote 3, P. 166.

types, positioned along a spectrum from the concept- the computer’s memory. (See box 3-B.) Simulatorsdefinition phase to the engineering and manufactur-ing development (EMD) phase. Each kind of proto-type is discussed in detail in the following sections.

Conceptual Prototypes

Conceptual prototypes are computer simulationsof hypothetical systems. During exploratory devel-opment, simulation can emulate the capabilities andproperties of an aircraft or a tank that exists only in

generate dynamic visual environments that areimpressively realistic, enabling military users topractice aerial dogfights or tank engagements, com-plete with simulated terrain, smoke, and enemyvehicles. The Defense Advanced Research ProjectsAgency (DARPA) has developed a SimulationNetwork (SIMNET) consisting of 120 computer-controlled and networked simulators of MIA1tanks, Bradley infantry vehicles, helicopters, andfighter-bombers located at military bases throughout

Conceptual TechnologyPrototype(computer

demonstrator;breadboard

simulation)

Figure 3-l—The Prototyping Spectrum

Basic Exploratory Advanced technology Advanced Engineering and

research (6. 1 ) development (6.2) development (6.3A) development (6.3B) manufacturing develop- Proct ionment (EMD) (6.4)

l — 11 1./

Concept definition phase Demonstration and validation(Den/Val) phase

SOURCE: Office of Technology Assessment, 1992,


Photo credit: Rockwell International

Computational fluid dynamics (CFD) simulates theaerodynamics of reentry of a proposed single-stage-to-

orbit rocket.

the United States and Europe. These interlinkedsimulators can be used to fight imaginary wargames.

Interactive computer simulations can also informand focus the definition of new military systems inadvance of hardware development by evaluating theeffects on military performance of proposed designchanges. Such models can help planners sort throughvarious threat scenarios and assess which newtechnologies and capabilities would provide thegreatest payoff on the battlefield. For example,DARPA has sponsored the development of aninteractive simulation called Project Odin, whichreconstructs a pivotal tank battle during the GulfWar between the U.S. Army and the Iraqi Republi-can Guard. The simulation is highly detailed,including the characteristics of the weapon systemson both sides, as well as sight lines, damage, andcasualties. 3 Parameters of friendly and enemy weaponsystems can be altered interactively to assess theimpact on the outcome of the battle if, say, the Iraqitanks had been equipped with thermal sights, or U.S.tank guns had had 20 percent more range. (The lattersimulation might reveal, for example, that increas-ing the firing range of U.S. tank guns would offer no

Photo wedit: DoD

A iackheed technician modeis vari >US aircraft concepts ona computer-graphics generator.

operational benefit unless they had improved ther-mal sights that could acquire targets at greaterdistances.)

Conceptual prototyping his limitations. Sometypes of aerodynamic behavior are so complex thata physical prototype must be tested before a designconcept can be validated. Other tasks exceed thecapabilities of computer simulation, such as inte-grating multiple subsystems in:0 a platform or usingnew materials with unknown aging and fatiguecharacteristics. There are also unknown unknowns’—phenomena whose existence: is unsuspected untilthey emerge in testing. Further, interactive simula-tion often does not account for training, morale, orunexpected enemy tactics.4

Technology Demonstrators

A technology demonstrator is a functional vehicle(or test rig) that is built and tested to answer a fewimportant technical questions as cheaply as possible.It can provide the proof-of-principle of an enablingtechnology or design configuration, or explore in apreliminary way the characters tics of a new systems

3 F. Clifton Berry, Jr., “Re-creating History: The Battle of 73 Ea.sting,” National Defense, vol. 76, No. 472, pp. 6-9.4 After World War Il, Admiral Nimitz commented on war pi tig: ‘‘We had war-gamed every single possibility of how and wkat the Japanese would

do in the Pacific, and we were ready for it . . . . All except one: we never expected them to use the kamikaz e tactic. ’

Chapter 3--Prototyping-Plus ● 55

Box 3-B-Computer Simulation as an Analytical Tool

In earlier years, computers were used to speed analytical calculations during system design and to process dataderived from empirical studies. Today, however, computers also have begun to replace drawing boards and windtunnels for purposes of design and analysis. Most aerospace engineers use computer-aided design (CAD) fordrafting, and an increasing number rely on computer-aided engineering (CAE) for structural and physical analysis.

CAE uses computational models to simulate the behavior of hypothetical systems. For example, finite elementanalysis models the stresses in a complex structure, like an aircraft wing, by representing the object as a collectionof discrete elements with specified properties. Computational fluid dynamics (CFD) simulates the flow of air orwater over a body (e.g., a plane or submarine). It can greatly reduce the time devoted to costly wind-tunnel testing.Finally, computer simulations can integrate ‘human-factors engineering’ into the design, manufacture, operation,and maintenance of weapon systems to improve compatibility between people and machines.l

In a growing number of cases, computer simulation can dispense with the need for a complex test article toemulate real-world conditions. For example, CFD is more accurate than wind-tunnel testing for the simulation ofunsteady flow conditions within a jet engine or for a jet fighter flying at high angles of attack. Computers can alsosimulate velocities and environments of hypersonic flight vehicles that cannot be duplicated by traditionalwind-tunnel studies,z Yet computer-based simulation tools are far from perfect. While supercomputers can simulatethe aerodynamic behavior of a hypothetical aircraft, the simulations are only as good as the computational modelon which they are based. Further, computational complexity tends to increase costs as software models become moreelaborate.

The limitations of computer simulation often make hardware prototyping necessary. Such prototypes haveadvantages in testing an overall system and identifying manufacturing problems. They can also allow engineers toverify computational models like CFD by correlating them with red-world physical phenomena. Moreover, beforeengineers simulate an entirely new phenomenon such as stealth, a prototype can help build a database on how radarand detection technologies are affected by different shapes, textures, aspect angles, and electromagnetic properties.

One strategy for reducing total development costs in the future smaller DTIB would be to combine computersimulation with limited hardware prototyping. Cost constraints already require the use of computer simulationduring tactical-missile development. A software program first simulates the engagement between the missile andtarget, and tests the performance of the missile’s seeker and guidance computer. Then a limited number of hardwareprototypes are fired against a set of targets selected to verify the computer model.3 Once verified, the model canbe used with confidence to explore system performance throughout the engagement envelope. This approach couldbe applied to other systems in development, quite apart from any decision on production.

1 wflfi~ B. Scott, “COrnpUter simulations Place Models of Humans in Realistic !$CetiOS,” Aviation Week & Space Technology, vol.134, No. 25, June 24, 1991, pp. 64-65.

2 Dean R. Chap~ “A Perspective on AtXOSpa@ ~,’ Aerospace America, vol. 30, No. 1, January 1992, pp. 19,58.3 Te]qhone ~tmiew ~~ Dotid mm corporate director of Contracts and Technical AMlySiS, GeneA D@cs, Jan. 2211992.

concepts Technology demonstrators are also built table 3-1.) An X-plane is often little more than anfor subsystems, such as the thrust-vectoring engine airframe, engines, and flight controls, without thenozzle developed by Pratt & Whitney. A technology specialized electronics and integrated armamentsdemonstrator of an electronic subsystem, built and required for an operational weapon system. Thetested in a laboratory, is known as a breadboard. X-3 1 demonstrator, for example, was developed to

explore new technologies to enhance fighter maneu-The best-know technology demonstrators are the verability and does not include many subsystems

series of experimental ‘‘X’ vehicles, built intermit- required for a combat-capable aircraft. Technologytently by U.S. aerospace companies since the late demonstrators incorporate a few custom-built ele-1940s for the Air Force, NASA, or DARPA. (See ments essential to the concept or technology being

5 According to the DoD, advanced technology transition demonstrators (AITDs) are intended to test “integrated technologies in as realistic anoperational environment as possible to assess the performance payoff or cost-reduction potential of advanced technology before program-specificprototyping begins. ’ Under Secretary of Defense for Acquisition Deparrmenf of Defense Directive No. 5000.1, Feb. 23, 1991, p. 5-C-2.


Table 3-l—The X-Aircraft and Missiles, 1946-1991

X-plane Company Ist flight Mission

x-1 . . . . . . . . . . . . . . . . . . . . .

X-1A . . . . . . . . . . . . . . . . . . .

X-lE . . . . . . . . . . . . . . . . . . .

x-2 . . . . . . . . . . . . . . . . . . . . .

X-3 Stiletto . . . . . . . . . . . . . .

X-4 Bantam. . . . . . . . . . . . .

x-5 . . . . . . . . . . . . . . . . . . . . .

X-6 . . . . . . . . . . . . . . . . . . . . .

X-7A, B ... . . . . .

X-8 Aerobee . . . . . . . . . . . .

X-9 Strike . . . . . . . . . . . . . . .

x-lo . . . . . . . . . . . . . . . . . . . .

X-n . . . . . . . . . . . . . . . . . . . .

X-12 . . . . . . . . . . . . . . . . . . . .

X-13 Vertijet . . . . . . . . . . . .

X-14/A, B . . . . . . . . . . . . . . .

X-15/X-15A-2 . . . . . . . . . . .

X-16 . . . . . . . . . . . . . . . . . . . .

X-17 . . . . . . . . . . . . . . . . . . . .

X-18 . . . . . . . . . . . . . . . . . . . .

X-19 . . . . . . . . . . . . . . . . . . . .

X-20 Dyna-Soar . . . . . . . . .

X-21A . . . . . . . . . . . . . . . . . .

X-22A . . . . . . . . . . . . . . . . . .

X-23A Prime . . . . . . . . . . . .

Bell

Bell

Bell

Bell

Douglas

Northrop

Bell

Convair

Lockheed

Aerojet

Bell

North American

Convah

Convair

Ryan

Bell

North American

Bell

Lockheed

Hiller

Curtiss-Wright

Boeing

Northrop

01/25/46

02/14/53

12/12/55

06/27/52

10/20/52

08/18/50

06/20/51

canceled1953

04/26/51

11/24147

04/28/49

10/14/53

06/11/57

07/09/58

12/10/55

02/17/57

06/08/59

canceled1955

04/17/56

11/24/59

11/20/63

canceled12/10/6304/18/63

Bell Aerospace Textron 03/17/66

Martin Marietta 12/21/66

Identify dynamic fllght chalacteristics of supersonicaircraft.

Investigate aerodynamic phenomena at speedsgreater than Mach 2 and altitudes above 90,000feet.

Explore potential performance improvements to Mach2.5.

Build swept-wing version o: X-l to achieve higherspeeds and altitudes, investigate aerodynamicheating.

Explore high-speed flight with takeoff and landing underown power, and low-aspect-ratio wings.

Test aircraft deslgn wlthout horizontaltall attrans-sonicspeeds.

Investigate aerodynamics of variable-sweep-wingaircraft.

Investigate operational feasibility of nuclear propulsionsystems prior to commitment to prototype militarynuclear-powered aircraft.

Build testbed for supersonic: and hypersonic ram jetengine.

Develop inexpensive upper-a atmospheric research vehicle/sounding rocket with parachute recovery system.

Build simplified testbed for air-to-surface missile toobtain data on aerodynamics, stability, propulsion,and servo and guidance systems.

Build aerodynamic and systems testbed for the Navahocruise-missile program.

Develop single-stage ballistic rocket to obtain designdata for the planned Atlas intercontinental ballisticmissile.

Build high-performance one -and-a-half stage ballisticmissile to prove systems and hardwareconfiguration for production version of the At/asmissile.

Explore feasibility of building a pure jet vertical-takeoff-and-landing (VTOL) fighter.

Study experience of a pilot I lying a VTOL aircraft froma normal crew station using standard aircraft flightreferences.i

Investigate problems of atmospheric and space flight atvery high speeds and altitudes (Mach 6.6 and250,000 feet).

Build high-altitude, long-range reconnaissance aircraftcarrying various sensors. (Replaced by Lockheedu-2.)

Build multistage rocket to transport various reentry-vehicle configurations to very high altitudes fortesting.

Assess feasibility and practicality of large, tilt-wingVTOL aircraft.

Demonstrate tilt-propellor VTOL configuration fortransition from hover to f orward flight.

Provide a manned, maneuverabfe vehicle to collectdata on controlled reentr y from orbital flight.

Explore feasibility of full-scale boundary-layer controlon large, subsonic aircraft.

Evaluate dual-tandem ducted propellor configurationfor V/STOL aircraft.

Test configurations, control systems, and ablativematerials for hypersonic lifting-body type reentryvehicles.

(wntinued on next pagq)

Chapter 3-Prototyping-Plus ● 57

Table 3-l—The X-Aircraft and Missilesj 1946-1991--Continued

X-plane Company 1st flight Mission

X-241A-C . . . . . . . . . . . . . . . . Martin Marietta 04/1 7/69 Explore low-speed flight characteristics ofmaneuverable lifting-body design.

X-25/A,B . . . . . . . . . . . . . . . . Bensen 01/23/68 Build small, ultralight aircraft to provide emergencyegress capabilities beyond those of a conventionalparachute.

X-26B . . . . . . . . . . . . . . . . . . Lockheed 07/67 Develop quiet plane to carry dedicated sensors overenemy territory to obtain real-time intelligenceduring the Vietnam War.

X-27 Lancer . . . . . . . . . . . . . Lockheed canceled Build prototype of advanced, lightweight fighter to1971 replace F-1 04, with potential for both U.S. and

foreign sales.X-28A Osprey . . . . . . . . . . . Pereira 08/1 2170 Explore potential usefulness of a small, single-seat

seaplane for civil police patrol duty in SoutheastAsia.

X-29A . . . . . . . . . . . . . . . . . . Grumman 12/14/84 Assess benefits and costs of forward-swept wing,relaxed static stability, and related technologies.

X-30A NASP . . . . . . . . . . . . Rockwell 1999 (est.) Build hardware testbed for National Aerospace Plane(NASP) with single-stage-to-orbit capability.

X-31A . . . . . . . . . . . . . . . . . . Rockwell/MABB 1 0/11 /90 Break the so-called “stall barrier” to permit close-inaerial combat beyond normal stall angles-of-attack.

SOURCE: Jay Miller, The X-Planes: X-1 to X-31 (Arlington, TX: Aerofax, 1988),

demonstrated, but make extensive use of off-the-shelf hardware. Thus, more than 50 percent of theX-31 consists of government-furnished equipmentfrom other aircraft.G

The other Services have also built technologydemonstrators. The Army’s Advanced CompositeAirframe Program demonstrated that primary air-craft structures could be made of composite materi-als and led to the use of composites in the V-22Osprey aircraft. In the mid- 1980s, General Dynami-cs Land Systems Division developed the Tank TestBed, an experimental armored vehicle that featuredan unmanned gun turret operated by remote control.Currently, General Dynamics is developing theComposite Armored Vehicle, which will exploreradically new armors and manufacturing methods.7

Navy technology demonstrators have included aquiet torpedo-launching system and a stealthy war-ship design to reduce vulnerability to enemy radarsand guided missiles.8

There are two other kinds of technology demon-strators. A technology integration demonstratorassembles available, off-the-shelf subsystems to

perform a unique mission. For example, the Ad-vanced Fighter Technology Integration (AFTl) pro-gram in 1983-84 modified an F-16 to demonstratetechnologies that could improve fighter maneuvera-bility. A production retrofit demonstrator is anupgrade of an existing platform that incorporatessome new capability. For example, earlier models ofthe F-15 were used to test new subsystems that wereincorporated into the F-l SE.

The history of the X-aircraft shows that technol-ogy demonstrators can provide a leg up on next-generation systems, often in a serendipitous manner.Table 3-2 indicates technologies from six X-aircraftprograms that found their way into weapon systems,although many of the design concepts were sorevolutionary that they were not applied for decades.Similarly, Northrop developed a number of “flyingwing” technology demonstrators in the late 1940s.9

Although the flying-wing program was latercancelled, flight-testing of the prototypes gaveNorthrop an extensive database on the aerodynamiccoefficients, stability, and range/payload character-istics of these exotic designs. When Northrop

6 Off-the-shelf subsystems in the X-31 include the General Electric F404 engine, the canopy and windscreen from the F-18, the landing gear fromthe F-16, the wheels and brakes from the Cessna Citation III, and derivatives of existing Honeywell computers. Brian Wanstall and J.R. Wilsom “AirCombat Beyond the Stall, ” Interaviu Aerospace Review, No. 5, June 1990, p. 406,

T Telep~ne intemlew ~th o~o Renius, chief scientist, General Dynamics Land Systems Divisio% Sterling Heights, Michigw ~c. 10, 1991.8 Robert Holzer and Neil Munro, “Navy Invests Over $1 Billion in Stealth Ship, ” Defense News, vol. 7, No. 4, Jan. 27, 1992, p. 1.

g A pmwllor_~ven version ~~ tie XB-35 W&. first fIown in June 1946, and a jet-powered version called tie YB-49 was first flown in October1947. Christopher Chan~ Aircrafi Prototypes (Seacaucus, NJ: ChartWell Books, 1990), p. 8.


&

‘9 sPhoto credit: Pratt & Whitney

Technological evolution of a thrust-vectoring jet enginenozzle. A “boiler-plate” nozzle (left) provided basic

mechanical and thermal data, which were incorporated intoa durability demonstrator (top center). Initial flight testing

was performed with a techrtology demonstrator (right).Finally, lessons learned in manufacturing and flight testing

were applied in an advanced-development prototype(bottom center).

Ph( to credit: Linwln Laboratories

“Breadboard” version of a modulal Iaser-commnicationssystems was built for lab testing It can be developedfurther into an advanced-deveklprnent prototype, or

“brassboard,” for operational testing.

Table 3-2—Technological Spinoffs of X-Aircraft Programs

BeneficiaryX-aircraft 1st flight Program goal program/date

x-l . . . . . . . . . . . . . . . . . . . . , 01/25/46 Supersonic flight F-1OO (1953)

x-4 . . . . . . . . . . . . . . . . . . . . . 08/1 8/50 Tailless aircraft F-102 (1953)F-106 (1956)

x-5 . . . . . . . . . . . . . . . . . . . . . 06/20/51 Variable-sweep wings F-1 11 (1964)F-14 (1970)B-1 (1974)

X-15 . . . . . . . . . . . . . . . . . . . . 06/08/59 Hypersonic flight and spaceflight SR-71 (C. 1964)Space Shuttfe(1981 )

X-23124 . . . . . . . . . . . . . . . . . 12/21/66 Hypersonic lifting-body concept and materials Space Shuttfe(1981 )

X-29 . . . . . . . . . . . . . . . . . . . . 12114184 Relaxed stability, mmposite wings, forward-swept win{is ATF (mid-1990s)

SOURCE: Rockwell International, “X-Planes: Aeronautical Research Tools Have Paid Big Dividends in U.S. Aviation Leader: hip: A Perspective.”

decided in 1979 to use a flying-wing configuration Intelligence Agency. A more recent example is thefor the B-2 strategic bomber because of its superior Lockheed HAVE BLUE stealth-technology demon-stealth characteristics, the company turned to the strator, sponsored by DARPA. This $43 milliontechnical database collected some 30 years earlier.10 program demonstrated the use of a faceted airframe

design to minimize radar reflections, (The designA technology demonstrator sometimes achieves a was faceted rather than curved because of limits on

major breakthrough in performance that spurs a computing power at the time. ) The HAVE BLUEprocurement decision that would not otherwise have program built two small, nonmissionized technol-been made. Historical cases include the U-2 and the ogy demonstrators that weighed only 12,000 poundsSR-71 reconnaissance aircraft, developed secretly fully loaded and used many components fromby the Lockheed Skunk Works for the Central existing aircraft. The first of the two prototype

10 Te@hone ~teniew wl~ George J. Fri@~ vice president for Engineering ~d Imng-Range p~~g, NO*P COrP., DCX. 16S IW1.

Chapter 3--Prototyping-Plus ● 59

/.Photo credit: Northrop Corp.

“Flying wing” technology demonstrator, the YB-49 (/etI), was first flown by Northrop in 1947. Three decades later, thecompany applied flight-test data from the YB-49 to develop another flying wing, the B-2 bomber (right).

aircraft flew in early 1978, after 20 months ofdevelopment; both were flight-tested for 18months Lockheed demonstrated that the facetedconfiguration could fly and that the aircraft’s radarsignature was as low as predicted, although bothHAVE BLUE aircraft crashed during flight test-ing 12 In December 1978, the Air Force moved the.program directly into the engineering and manufac-turing development (EMD) phase. Lockheed thenimplemented the stealth technologies developed forHAVE BLUE in an operational fighter-attack air-craft, the F-1 17.

Although the initial 28 aircraft in the X-series hadtheir first flights between 1946 and 1970, there wasa hiatus of 14 years, from 1970 to 1984, between theX-28 and the X-29. (The HAVE BLUE was notofficially an X-aircraft, although it met the samecriteria.) In 1986, the President’s Blue RibbonCommission on Defense Management (the PackardCommission) expressed concern about the drop inthe number of demonstrator programs. The Commiss-

ion recommended “a high priority on building andtesting prototype systems to demonstrate that newtechnology can substantially improve military capa-bility, and to provide a basis for realistic costestimates prior to a full-scale development deci-sion. 13

Since the early 1980s, there has been a modestresurgence of interest in experimental aircraft. TheGrumman X-29 demonstrator, which first flew inDecember 1984, sought to enhance fighter maneu-verability by integrating forward-swept wings, ca-nards, composite structures, and flight-control soft-ware for inherently unstable aircraft. The Rockwell-MBB X-31, which first flew in October 1990, alsotried to improve fighter maneuverability through theuse of integrated control systems and a thrust-vectoring engine.

Since technology demonstrators are designedprimarily to provide information, they are of mostvalue if they give clear positive or negative answers

11 Bill Sweetman, “Lifting the Curtain: Stealth Techniques Detailed, ” lrrfernational Defense Review, vol. 25, No. 2, February 1992, p. 159.12 while ~elther ~mh was tie ~~ult of the ]Ow- Obscmablc technology, ah~~dous designflaw WaS detwted and removed. Jack S. Gordon Imckheed

Advanced Development Co., personal communication.13 me ~esident>s B]ue Ribbon comml~sion on Defense ~nag~ent, A Ques(for E.~cel/ence: Fi~/ Report fO the President, June 1986. RWfitd

in U.S. Congress, House Committee on Armed Serviees, Defense Acquisition.” Major U.S. Cornrnission Reports (1949-1988), Volume I (WashingtonDC: U.S. Government Printing Office, Nov. 1, 1988), p. 937.

326-447 - 92 - 3 : QL 3


Photo credit: DoD

X-29 technology dernonstrator explored the use of forward-swept wings, canards, and an inherentfy unstableconfiguration to enhance fighter rnaneuverability.

to functional, operational, or manufacturing ques-tions. Nevertheless, many useful defense technolo-gies were not developed for specific applications orwere applied in ways that the original inventors didnot imagine. A good example is laser-based guid-ance, which was initially developed by the U.S.Army Missile Command for antitank missiles. TheArmy became disenchanted with the technology andtransferred it to the Air Force, which applied it to thedevelopment of the laser-guided bomb in the 1960s.14

Future demonstrator programs might therefore seeka balance between “technology push,” or thepursuit of technological innovation for its own sake,and “technology pull, ’ or more focused develop-ment efforts disciplined by a clear mission applica-tion and schedule requirement.

Advanced-Development Prototypes

During the demonstration and validation (dem/val) phase, advanced-development prototypes areoften built to determine whether the chosen configu-ration can meet program objectives in terms ofperformance, cost, or operational suitability. Evennegative answers are useful, since they can help toavoid technological dead-ends.15 Advanced-devel-opment prototypes of electronic subsystems, calledbrassboards, are designed to be tested in an opera-tional environment. Large weapon systems havesometimes been prototype as single units, which

Box 3-C—Submarine Prototypes

The 1950s saw rapid inovation in submarinedesign and construction. Submarines changed frombeing primarily surface boats that submerged occa-sionally to being capable of nearly unlimitedendurance under water. Prototyping played a majorrole in this evolution. The USS Albacore (commis-sioned in 1953) was a technology demonstrator thattested a streamlined hull shape and novel steeringdevices. The first two nuclear-powered submarineswere advanced development prototypes built foroperational deployment. The Nautilus (commiss-ioned in 1954) had a reactor cooled with water,whereas the original Seawolf (commissioned in1957) had a reactor cooled with liquid sodium. Thewatercooled reactor was eventually judged supe-rior; all U.S. naval reactors since then have beenwater-cooled

Technological innovations were integrated into 7different submarine prototypes built between 1956and 1%0, all of which entered the operational fleet.Most U.S. submarines, however, were produced inmultiple copies, including 4 Skate class, 6 Skipjackclass, 14 ThresherlPermit class, 37 Sturgeon class,and 55 Los Angeles class. Since the new SSN 21Seawolf will be canceled after production of onlyone, or possibly two or three units, this submarinewill effectively be a prototype. It will join theoperational fleet and serve as an R&D test bed TheNavy’s proposed Centurion a candidate next-generation attack submarine, is envisioned as alow-cost, modular system.l

1 B- sw, ~~~ne s~wolf t~~ join USN fl=~” June’sDefence Weekly, Feb. 29, 1992, p. 33).

were later deployed as operational combatants.During the 1950s, for example, the U.S. Navydeveloped several one-of-a-kind prototypes of sub-marines (box 3-C), as well as nuclear-poweredcruisers and aircraft carriers.

Whereas a technology demonstrator seeks toanswer a basic technical question, an advanced-development prototype is the first physical represen-tation of a potential operational system. There aretwo reasons for building an advanced-developmentprototype: to demonstrate through testing that theproduct has the required capabilities, and to estimatethe time and cost of producing the system, along

14 peter de~o~ The hser-Guided Bo~: Case Histo~ ofa Development, R-1312 -1-PR (Santa MOII@ CA: ~) COW., June 1974), pp. 6-10.IS men W. ~50Q et al., .4CqUiring ikfajor system: Cost and Schedule Trends and Acquisition Initiative Eflel tiveness, IDA Paper p-2201

(Alexandria, VA: Institute for Defense Analyses, Ma.mh 1989), p. VIII-l.


with its manufacturability and maintainability.lc

The validation of manufacturing processes and costmay require extrapolating from the prototypingexperience into the actual production environment,using factory personnel and equipment. A novelapproach to this problem is to develop computersimulations of manufacturing.

In sum, the information generated by a software orhardware prototype depends on its role in thedevelopment process. A computer simulation ortechnology demonstrator usually evaluates somelimited design parameters, whereas an advanced-development prototype offers greater fidelity to thefinal production system but costs much more. Thecloser a prototype corresponds to the productionmodel, the more it is locked into assumptions aboutthe nature of military threats-assumptions that maybe called into question in the future. Thus, the choiceof which class of prototype to build is determined bysuch factors as the maturity of product and manufac-turing-process technologies, the degree of uncer-tainty in the security environment, and the need topreserve technical competence and to maintainproduction capacity.

ASPECTS OF A PROTOTYPING-PLUS STRATEGY

A prototyping-plus strategy would involve thefollowing elements, as illustrated in figure 3-2.

Increased development of prototypes. Prototypingwould maintain the U.S. edge in defense technologyfor major systems (ships, aircraft, tanks, etc.) despitecuts in production and new program starts, Analysesof emerging military threats and computer simula-tions would identify new capabilities that mightprovide a clear performance advantage at an accept-able cost. A technology-demonstrator program couldthen be launched without a formal military require-ment or the assumption of an eventual procurement.

Building a technology demonstrator might in-volve only one design team, or might involvecompetition between two or more industrial teams.In competitive prototyping, at least two technologi-cally distinct systems would be built for testing, andone would then be chosen for further development or

Photo credit: DoD

Two advanced-development prototypes of the F-22Advanced Tactical Fighter during flight testing.

production. Competition in selected areas mightmake each firm or industrial team more productiveand hence improve quality and contain costs;competitive prototyping that considers dissimilardesigns might also hedge against new technologiesand threats. Nevertheless, funding constraints mayrestrict the use of competition to relatively inexpen-sive demonstrators rather than advanced-develop-ment prototypes.

Production of operational prototypes. Firms mightmanufacture a limited number of operational proto-types of one design to validate performance, manu-facturing processes and controls, and projectedcosts. These systems would be designed for produc-ibility and would include enough armaments, fire-control, and other subsystems to give them someoperational capability. Military users would then putthe prototypes through trials, since a new militarycapability cannot be realized until servicemen test itout under realistic field conditions.

Enough operational prototypes would be pro-duced to enable military customers to

1.2.

3.

develop tactics and doctrines;perform reliability, maintenance, and live-firetesting; andprovide feedback to the development team on im-provements needed to free-tune the system andcompensate for operational shortcomings.17

lb Defe~e system Mamgement College, Department of Defense Manufactun”ng Management Handbook for Program Ma~gers, 2~ ~. (FoflBelvoir, VA: Defense Systems Management College, July 1984), p. 3-5.

[T Gordon R. England, ‘‘Statement Before the House Armed Services Committee Structure of U.S. Defense Industrial Base Panel’ Oklahoma CityField Hearin g, NOV. 1, 1991, pp. 7-8.


Figure 3-2—Prototyping-Plus Strategy

I

y —

yes, only new

I II ~Technology demonstrators

I L–I

~ > Advanced developmentprototypes

. . 1—

n o- A

- J +

1 4 yesI .— -I – — 1

I

v

I

6

yes

? ‘- - — ‘ 0 - - - - -

Issystem cost-

effective?

➤ ✎ � ✍ ✎ � 4 yes

L — — — — — — +4 Engineering and, manufacturing development

[ ...—*- -- ,

—

L —– –— ——–r— —. I

I 1

y3s

noretroft m ;t-

effective ?

,-

-1 Concurrent engineering

I



For these purposes, it might be sufficient to build aplatoon of tanks or a squadron of aircraft.18

Limited production of prototypes would alsoprovide some preliminary manufacturing data, in-creasing industry’s ability to produce the systemwhen needed, in sufficient quality, and at a targetcost. Since long production runs would not beavailable to improve poor designs, a prototyping-plus strategy would emphasize designing for pro-ducibility, moving forward production issues thatcurrently are not addressed until much later in thedevelopment process, Thus, a prototyping-plusstrategy would achieve a marriage of R&D andmanufacturing, with the goal of supporting both.

Limited production of prototypes raises the issueof how a small number of unique systems would besupported logistically in the field. In the past, theServices have provided logistical support for smallnumbers of complex systems, including the U-2 andSR-71 aircraft and various “testbed’ vehiclesfielded by the Army’s Ninth Infantry Division.Logistical support could be contracted to the samefirm that produced the prototype, rather than break-ing out spare-parts production for competitive bid.This approach would minimize the impact of limitedproduction on the DoD’s logistical system. But itwould require modifying the current procurementregulations mandating ‘ ‘free and open compe-tition, ’ as discussed in chapter 4.

Selective replacement of major systems. Proto-types would preserve the potential to move intoquantity production when needed, although only afraction of all prototypes would enter the engineer-ing and manufacturing development (EMD) phase.Quantity production could be ordered when

1. a radically new technology is developed (e.g.,stealth) that cannot be retrofitted into a currentplatform;

2. a new or emerging threat warrants a newdeployment; or

3. the current system has aged to the point wherereplacement is more cost-effective than anupgrade. 19

Togo to full production, the Services would need todemonstrate a real requirement. The productioncontract could either be awarded to the same firmthat designed the prototype, or opened up forcompetitive bid.

Systems v. Components

A prototyping-plus strategy could consist of twoparallel but interlined tracks, one focused oncomponents and subsystems and the other aimed atnew platforms. Although the discussion of prototyp-ing has concentrated largely on platforms, it wouldbe more cost-effective to emphasize the develop-ment of improved subsystems (such as cockpitdisplays, mission computers, night-vision sights,and airborne radars), which could be retrofitted atregular intervals into fielded platforms to achieveimprovements in performance. Component or sub-system development could be accompanied bydevelopment and validation of the manufacturingprocesses needed to produce them.20

In considering a prototyping-plus strategy, theDoD should strive for an optimal balance be-tween upgrading fielded weapons and developingnew systems for the next century. There is a needto change the mentality in the R&D community tomake product improvement the first priority. At thesame time, the new platform prototypes could makemaximum use of the improved components andsubsystems being developed on a second track. Forexample, several new components and subsystemscould be integrated into a new system prototype,setting the stage for force modernization if and whena requirement for the new item emerges. To this end,the Services might jointly develop modular subsys-tems to be inserted into different weapon systems.An example of this approach is the Joint IntegratedAvionics Working Group (JIAWG), a tri-Serviceoffice created to develop common avionics modulesfor the Air Force’s Advanced Tactical Fighter, the

IS A U.S. Army platoon has 5 tanks. A U.S. Air Force wing typically consists of 3 squadrons, each containing between 18 and 24 ficraft (depndingon type).

1P For e~ple, in the case of the F-15 fighter, one could argue that neither the age of the aircraft nor the theat warrants near-term replacement witha more modern fighter. Stealth technology might justify a wholesale replacement, but only if it were a critical factor in the execution of F- 15 missions.Thus, the cunent absence of a significant threat and the reduced wear on the F-15 force in the post-cold-war era may provide a sufficient basis nor toproduce a follow-on weapon system for several years.

m John D. Morrocco, ‘ ‘Dangers Cited in Implementing New Pentagon Acquisition Strategy, “ Aviation Week& Space Technology, vol. 136, No. 10,March 9, 1992, p. 21.


Navy’s A-12 strike aircraft, and the Army’s Coman-che helicopter.21

A prototyping-plus strategy would be compati-ble with either an evolutionary or revolutionaryapproach to weapons development. The lack of alarge-scale military threat to U.S. security gives theNation the freedom to emphasize either the acquisi-tion of knowledge and technology for future ad-vances in military performance, reliability, andmaintainability, or the evolutionary upgrading offielded systems. Thus, a frost-generation prototypeaircraft might focus on demonstrating incrementalimprovements in maneuverability or target acquisi-tion, while the next-generation system could aim atentirely new capabilities such as stealth. Whenprototypes do not go into full production, thetechnology they embody could be recycled intoother systems.

Profitability of Prototyping

A prototyping-plus strategy would require asignificant change in attitude from both governmentand industry. When procurement budgets werelarge, companies were generally willing to breakeven or even lose money on R&D in the expectationof making profits on a follow-on production con-tract. As a result, the DoD could get private firms toprovide a large share of the development funding.The result was to understate the true cost of designand development.

At present, defense firms are unable or unwilling to invest their own money and engineeringresources in prototypes that may not enterquantity production for years, if ever. The case ofthe Army’s proposed Mobile Protected WeaponSystem, a light tank to be deployed by parachutefrom a transport aircraft, indicates why. In 1980, theArmy announced it would buy 300 of these tanksand invited industry to propose systems that met itsspecifications. Three U.S. producers of armoredcombat vehicles—FMC Corp., Teledyne’s Conti-nental Motors Division, and Cadillac Gage—responded by each building prototypes at their own

expense, at a cost of $20 to 25 million per prototype.Subsequently, the Army cancelled the program.22

Although Cadillac Gage sold a modified version ofits prototype to Thailand, the ether two firms had towrite off their investments.23

Since private-sector firms lack economic incen-tives to finance prototypes on their own, thegovernment will have to bear most if not all thecosts of prototyping. Prototyping-plus would becompatible with a U.S. defense: industry made up offewer companies. These firms would have to down-size significantly while maintaining their core R&Dand manufacturing capabilities, including designteams. Nevertheless, prototyping-plus would not besufficient to preserve the defense production base.Since prototyping involves relatively little manufac-turing, other measures would have to be taken topreserve manufacturing know-how. Moreover, man-ufacturing firms cannot be expected to surviveentirely on prototyping contracts done. A prototyping-plus strategy would only be viable in conjunctionwith an integrated restructuring of the DTIB,including low-rate production, retrofits, and greaterintegration with the civil sector.

IMPLEMENTING THE STRATEGY

A

1.

2.

3.

4.

prototyping-plus strategy should

keep design teams intact and technologicallycompetitive by continually updating theirskills;help preserve essential manufacturing know-how;facilitate the transition from prototyping toquantity production when a procurement deci-sion is made, given sufficient lead-time andadequate funding;help preserve the subtier subcontractors andsuppliers that are an essential element of theDTIB; andkeep costs under control.5.

Each of these issues is examined below.

ZI Mickel I. KeUer, COnSUItanL personat communication, MM. 16. 1992.

22 Telephone ~temiew with Geno fifip L. Bolte ~.s$ &IIIy, ret.), former program rn~ger, Bradley Fighting vehicle Systm, NOV. 19, 1991.

u The requirement for this type of vehicle re mained, however, and over a decade later the Army changed the name of the I jrogram and again requestedbids for an Armored Gun System. The three companies invested additional funds and offered their prototypes in response tc a new Request for Proposal@FP). One company and its suppliers maybe selected to produce this vehicle and recoup part of the prototype costs. If none of the three are selected,however, all will have lost not only their original prototype investment but the additional costs of upgrading and bidding again on the Army’s RFP.


Preserving Design Teams

Design teams are important because the develop-ment of major weapon systems is as much an art asa science. Data alone cannot create a manufacturingcapability; the other essential ingredients are people,infrastructure, knowledgeable management, and shoppractices. As production budgets shrink, it will beessential to preserve the right design and manufac-turing people to retain diverse approaches to defensesystems work. Moreover, in order for design teamsto be effective, they must work on real systems thatmay be actually built and tested.24

Preserving design teams means keeping themsupplied with interesting and challenging work,Given the new financial constraints, however, thenumber and size of design teams involved inprototyping will have to be reduced from thecurrent level. Over the past few decades, theincreasing complexity of defense systems has led tothe rapid expansion of design teams. At GeneralDynamics Convair Division, for example, the Toma-hawk cruise-missile program started out with 8 to 10people working on a small conceptual study andpeaked at 300 to 400 engineers and other profession-als at the start of EMD. At the Lockheed SkunkWorks, the F-117 stealth fighter program involved acore team of about 300 throughout the developmenteffort, but doubled in size to about 600 during thedemonstration and validation phase. The EMDphase for a combat aircraft typically involves a staffof 3,000 to 7,000 people. On average, a fighterdesign team numbers about 1,000 people and costsabout $100 million a year to maintain.

The current array of design teams will have tobe consolidated into fewer, high-quality teamsthrough streamlining, mergers, or strategic alli-ances. One approach is the ‘‘agile manufacturing’concept developed by the Iacocca Institute, whichfocuses on teaming arrangements. Companies formtemporary consortia to bring together a critical massof skills or resources for responding to a particularmarket opportunity, and then disband to restructurefor the next demand.

25 There is no reason why

Service laboratories could not participate in suchteaming arrangements. National laboratories such asLawrence Livermore and Los Alamos might alsoplay an engineering support and training role.

In addition to cutting back the number of designteams, the size of the teams will need to be reduced.Two current trends should facilitate this process.First, modern management systems, supportedby advances in computer-aided design (CAD)and computer-aided manufacturing (CAM) tech-nologies, can reduce the size of design teams byincreasing the efficiency of the developmentprocess. One example has been the development ofnew techniques for converting CAD models directlyinto three-dimensional hardware mockups (box3-D). Another important advance has been the use ofa single, integrated computer database to store all ofthe information needed to design, build, and supporta weapon system. It might contain, for example, ageometric model of the more than 100,000 engi-neered parts that go into a combat aircraft, includingcable runs, wiring harnesses, and hydraulic systems,Such models reduce the need to build expensivefull-scale physical mockups to obtain insights into asystem’s appearance and internal layout.2G

A centralized computer-integrated manufactur-ing (CIM) database can link together the functionaldepartments of a company and its subcontractors andsuppliers (figure 3-3). Since these different groupscan work from the samne information, it is possibleto carry out a complex project with a smaller, moredispersed staff. Another advantage of an integrateddatabase is that engineers can update the digitalblueprints continually so that the latest versionof the design is available to all users of thesystem. Moreover, design changes made at anengineer’s desk can be communicated to a host ofsubcontractors in a matter of hours, rather than thedays or weeks formerly required to print and mailthem.

Although many integrated databases are stillexperimental, they have been used successfully forthe development of the B-2 bomber, the YF-22fighter, and the Boeing 777 commercial airliner.27 It

~ Paul H. Richanbach et al., The Future cfMilitaq R&D: To~’ards a Flexible Acqliisition Strategy, IDA Paper P-2444 (Alexandria, VA: Institutefor Defense Analyses, July 1990), p. 16.

25 Roger Nagcl and Rick Dove, 21s[ Centuq Munufacturirrg Enterprise Strategy (Bethlehem, PA: Iacocca Institute, Lehigh University, 1991).

26 In some cases, however, mockups still provide an economic way to determine hydraulic line runs, engine fit to fuselage, and maintenancerequirements.

‘7 “Computer Sys[cm Design Reflects B-2’s Complexity, “ A\’iatzon Week & Space Techno[og), Nov. 28, 1988, pp. 26-27.


Box 3-D—Rapid Prototyping

Computer-driven tools are increasing the ability to move rapidly from designs to prototypes and thence toproduction. For example, a new technique known as stereolithography uses computer-aided design (CAD) data toproduce three-dimensional solid models from a vat of photosensitive chemicals, which Polymerize and solidify intoplastic as they are irradiated with a laser beam. As a result, a design engineer can complete a design and producean accurate physical model of a complex component in a single day, for technical and presentat on mockups as wellas prototypes. Quickly produced models of components can check fit against adjacent parts before expensivemachining.

Stereolithography cuts the time needed to produce a mockup of a part by more than 90 Percent.l For example,the Air Force Manufacturing Technology (MANTECH) Program used the technique to redesign the brake pedal onthe B-52 bomber. A CAD representation of the redesigned pedal was converted by stereolithography into a plasticmodel, which was test-fitted into a B-52 cockpit. The pedal’s dimensions were found to be incorrect, so the CADdesign was modified and used to generate a second prototype, which fitted correctly. Turnaround time betweendiscovery of the original design flaw to creation of the second prototype was about 7 days, a time savings of 6 to8 weeks over conventional machining methods. According to the Air Force, the fact that the problem was identifiedand corrected early, before manufacturing began, yielded a substantial cost savings.2

The National Science Foundation and a group of private companies are currently supporting research to makerapid prototypes from CAD models using a full range of materials, from steel to ceramics. One approach involvesusing a printer nozzle to squirt a binder chemical onto a bed of powdered ceramic or metal, after which the part issolidified by firing in a furnace. This method can be used to produce solid parts, dies, or ceramic molds for metalcasting. While technical obstacles remain to be overcome, this approach may eventually enable manufacturersto produce small lots of customized metal or ceramic parts directly from CAD models, without casting ormachining. 3

1 ~ S. BmM “l@id Prototyping: parts Without TwIs,” Aerospace America, vol. 29, No. 8, August 1991, PP. 18-23.2 “Rapid Prototyping Program Supports B-52 Brake Pedal Redesi-” USAF Manujactun”ng Technology %ogratn Status Report

(Wright-Patterson Ah Force Base, OH: Wright Laboratory MAN1’EcH Progrw D@xmber 1990), p. 5.3 ~s~ IC~~op ~u,$s Scienfz&American, vol. 266, No. 4, April 1992, Pp. 141-2.

might be possible in the future to use computerized Specialists are brought together at the beginning ofdatabases to develop a new design, upgrade it atregular intervals as new technologies become avail-able, and build it when the need arises. Preliminarydesigns and manufacturing plans for such “mobili-zation prototypes” could be developed for rarecontingencies such as Arctic warfare, special-operations needs, or future mobilization require-ments. 28

A second trend should also make it easier torationalize the prototyping process. Design teamsare increasingly being restructured into multidis-ciplinary development teams that develop prod-ucts and manufacturing processes simultane-ously, an approach known as “concurrent engi-neering” or “integrated product development.”29

the design process to exchange and define theinformation needed to manufacture and support thedesired product. During development, this multidis-ciplinary team flows through multiple programassignments and is backed up with needed specialistsupport. 30 In the automobile industry, multidiscipli-

nary development teams generally break up at theend of each development program. A prototyping-plus strategy, however, would seek to keep teamstogether between projects—an objective requiring acontinuous flow of new prototyping projects. Oneapproach would be to stagger prototyping efforts intime, so that some systems are in the conceptualdesign phase while others are in technology demon-stration or limited production.

X Uoud S~liV~ System Planning Corp., personal commti~tio~ JZUI. 22, 1992.

29 Al~ou@ conc~ent en@@* is the more common terq it is a misnomer because the process involves more tbaxl engineering.

w RokI-I I. Winner et al., The Role of Concurrent Engineering in Weapons System Acquisition, IDA Report R-338 (i.rlingtom VA: Institute forDefense Analyses, December 1988), pp. 91-92.


Figure 3-3—Centralized Database Concept

,————

Program + Sub-

management [ ‘-Manufacturing contractors, ~

I p r o c e s s - k e’ -s ut ! ! !e r s“ J[- planning I


Maintaining Manufacturing Technology

Prototyping is a manufacturing activity—albeitone that differs from quantity production .31 Technol-ogy demonstrators or advanced-development proto-types are usually built in special facilities, with littleemphasis on durability, reproducibility, maintainability,or the suitability of the design for quantity produc-tion. Prototype construction is small-scale, flexible,and usually involves a small number of engineers ortechnicians working in stationary assembly boothsor short, slow assembly lines. In contrast, anoperational weapon system should be designed forefficient production on an assembly line and a longlifetime in the field. Quantity production is highlyorganized, requires a larger and more specializedworkforce, and may entail the participation ofseveral firms.

Given the different characteristics of prototypeconstruction and quantity production, the transi -

tion from an advanced-development prototype tothe final production item has traditionally beendifficult and costly. In particular, it has beennecessary to work out major bugs in the manufactur-ing process before production begins to run smoothly.For example, it took Martin Marietta 14 months toeliminate problems in the fabrication of its LAN-TIRN night-vision and targeting system. In the casesof the AMRAAM missile and the B-2 bomber, thetransition from development to production has takenyears. Industry officials argue that if they merelyhand build a prototype or perform a limited produc-tion run, they will encounter serious problems in thetransition to quantity production.

A possible solution to these problems lies withconcurrent engineering, in which the design of aproduct and its manufacturing process are devel-oped in parallel. By integrating manufacturingissues into the design process, concurrent engineer-ing lowers the number of costly engineering changesneeded after a system has entered production,significantly lowering total acquisition costs .32 Boe-ing, for example, expects that concurrent engineer-ing will reduce the development costs of its 777passenger aircraft by as much as 20 percent.33 Forconcurrent engineering to work, however, designand manufacturing engineers must share the sameinformation. Organizational barriers must be brokendown to permit the early release of preliminarydesign information to production staff and thefeedback of manufacturing information to designers.Concurrent engineering is said to be ‘‘a people andcommunications issue, not an engineering technol-ogy one. ’ ’34

The defense industry can learn from advancedcivilian manufacturing in this area. Toyota andHonda, for example, make extensive use of proto-types to identify and solve design and manufacturingproblems at an early stage of product development .35Some U.S. automobile companies have also imple-mented concurrent engineering on specifilc projects.

SI ~e t- ‘ ‘quantit y production ‘‘ is relative. Most defense products are built in small volumes compared with most mass-produced products.3Z ~c ~adltlonal ~~uential approach t. development results in the need to make many costly design changes before a sYstem ‘n be ‘anufactumd

efficiently. During the full-scale development of the Bradley fighting vehicle, for example, FMC Corp. made a total of 60,000 engineering change orderscosting an average of $2,000 each. Sec John A. Alic, ‘‘Computer-Assisted Everything? Techniques and Tools for Design and Production, ’ manuscript,p. 20.

33 Dori Jones Yang, ‘‘Boeing Knocks Down the Wall Between the Dreamers and the Doers, ’ Business Week, Oct. 28, 1991, p. 120.~ Joseph T. Vcsey, ‘‘Speed-to-Market Distinguishes the Ncw Competitors, ’ Research-Techno/ogy Management, vol. 34, No, 6, Novcmber-Decem-

ber 1991, p. 36.35 Klm B. clw~ and T&~lro FuJ1moto, product DeJ,e[~pment pe@rnlanC-e, stra~e~-y, or~ani~atic]n, and Management in the World Auto Industry

(Boston, MA: Harvard Business School Press, 1991), pp. 179-180.


Chrysler developed its new $55,000 Viper sportscarwith an 85-person multidisciplinary developmentteam, about a tenth the size of most U.S. automotivedesign teams. The team included 6 technicians whobuilt all of the Viper prototypes. To transfer themanufacturing lessons learned from prototyping toproduction, the same 6 technicians were put incharge of assembly teams at the manufacturingplant, where 120 skilled production workers buildthe cars.3G Since the Viper is a low-volume, high-value product that is largely hand assembled, it hasmuch in common with defense systems like fighteraircraft.

Some defense contractors are beginnin g to ad-dress manufacturing and producibility issues duringthe demonstration and validation phase. In develop-ing the X-3 1 demonstrator, for example, RockwellInternational fielded a core multidisciplinary teamof 50 to 60 design, manufacturing, and qualityengineers who were retained throughout the variousphases of the program. This approach resulted inbetter continuity of knowledge and institutionalmemory. Similarly, in developing the M1A2 tankprototype, the management of General Dynamics’Land Systems Division decided to have the proto-type hardware built by workers in a productionfacility rather than by engineers in a specializedproject shop. Although this approach initiallysparked resistance, it promoted greater manufactura-bility by forcing designers and manufacturing engi-neers to work together.

The higher up-front costs associated with concur-rent engineering are generally recouped during theproduction phase through a greatly reduced numberof design changes and lower life-cycle costs, Never-theless, the DoD has been reluctant to invest inmanufacturing process development without a highprobability of quantity production, even thoughsome level of investment is warranted simply tomaintain skills and improve manufacturing technol-ogies. The dilemma is that whether a prototypingprogram will culminate in production is not usuallyknown at the outset, because the decision depends onthe outcome of the prototyping process itself. DoDand Service leaders must therefore weigh the earlycosts of concurrent engineering against its benefitsin easing the potential transition to quantity produc-tion. Nevertheless, even if only a small fraction of

Photo credit: U.S. Army

Operational prototype of a Ml A2 At rams main battle tankundergoes field trials. An upgrade o: the Ml Al tank, it hasabetter cannon, armor, electronics, and communications.

prototypes lead to a design that is produced inquantity, the savings achieved through concur-rent engineering—and the concomitant benefitsto the manufacturing technology base—may begreat enough to warrant using this approach formost prototyping programs.

Alternatively, OSD and Service leaders couldexamine a prototype at multiple decision pointsduring the development process and assess theprobability that it will lead to a design that isproduced in quantity. In this way, the extent ofinvestment in manufacturing process develop-ment and preproduction planning during proto-type development could be calibrated to theprobability that the system will enter quantityproduction. Other factors that may influence theextent of investment in concurrent engineeringduring a prototyping effort include program goals,changes in the military threat, foreign technologicaladvances, available funding, performance require-ments, and acceptable levels of technological andfinancial uncertainty.

Some critics contend that a prototyping strategywould be incompatible with concurrent engineering.Ongoing advances in manufacturing, they argue,would render a finished but shelved design eitherobsolete or incompatible with new manufacturingprocesses by the time it entered production yearslater. 37 One way of addressing this problem would

~ David Woodruff, “The Racy Viper is Already a Winner for Chrysler, ” Business Week, Nov. 4, 1991, p. 36.37 Dodd Christianse~ “Desi~ Don’t Build?” ZEEE Spectrum, vol. 29, No. 3, March 1992, p. 23.

Chapter 3-Prototyping-Plus . 69

be for multidisciplinary design teams to update aprototype design periodically to keep up withsignificant improvements in product and processtechnologies. Limited production of selected proto-types would also make it possible to work out themajor bugs in the manufacturing process.

Tooling is another important element of prototypeconstruction. Fabrication and assembly tooling canbe either “hard” or “soft,” depending on itsdurability and the extent to which it is amenable tochange. Hard tooling refers to metal dies and jigsthat are sufficiently specialized, resistant, precise,and efficient to permit quantity production.38 Softtooling, in contrast, is designed for low-rate manu-facturing and includes standard tools, improvisedrigging and clamping, dies made of malleablematerials such as zinc alloys, manual forming andwelding processes, and the use of machined partsrather than precision forgings. In the automobileindustry, for example, prototype body panels areformed slowly on soft dies, whereas productionpanels are stamped on high-speed, high-power pressmachines fitted with hard-metal dies.39 Soft toolingis easier, faster, and cheaper to manufacture, but it issuitable only for short or low-rate production runsand results in greater variability in production.

With smaller U.S. forces and a reduced require-ment for new weapons, it should be possible to relymore on soft tooling, which would be sufficient forlow-volume production. For example, althoughNorthrop and McDonnell Douglas built only twoprototypes of the YF-23 fighter with soft tooling,they claim that they could have used the sametooling to manufacture 50 of these aircraft, or morethan enough for field testing.

Soft tooling also provides the flexibility to modifya design from time to time, In future weaponsystems, subsystems will be upgraded at regularintervals and structures may be modified; for exam-ple, the F-1 17 airframe was refined repeatedly toreduce its radar signature. As a result, more flexibletooling and frequent design changes may becomethe rule, not the exception. Given the expecteddeclines in production over the next decade, industrycould use prototype construction on soft tooling tosolve manufacturing problems at an early stage, and

to produce operational prototypes in limited quanti-ties for field testing. The challenge will be to buildprototypes with soft tooling because of its flexibil-ity and low cost, while simultaneously maintain-ing the capability to make a successful transitionto hard tooling for quantity production.

In the event of crisis or war, prototype productioncould continue on soft tooling while manufacturingengineers prepared the hard tooling required forquantity production. This approach is not new:between the World Wars, the United States devel-oped 37 prototype tanks but produced none inquantity. After the outbreak of World War II, it tookindustry about 2 years to begin turning out largevolumes of tanks. Although the more sophisticatedweapon systems in today’s arsenals would require alonger lead-time to reach high rates of production,the length of time required for a major new threatto emerge would still provide enough warning togear up production of major weapon platformssuch as tanks and bombers. Deputy DefenseSecretary Donald Atwood has said, “We talk now ofa warning time of a major land war in Europe ofsomething like 1 to 3 years. That’s plenty of time toreconstitute an entire new [industrial] plant, an entirenew supplier base. ’40 While short-warning regionalconflicts would require a surge production capacityfor munitions and other battlefield consumables,such wars would be fought mainly with forces-in-being. (See ch. 4.)

In the future, the definition of soft tooling maychange as manufacturing systems become moreversatile. Indeed, the long-term goal may be toincrease the flexibility of manufacturing systemsto the point where hard tooling becomes obsolete.It is already possible to download some types ofCAD data to computer numerically controlled ma-chine tools, so that a part can be designed andmanufactured electronically without creating a paperdrawing. Using this technique, it is possible tomachine complex parts in 5 days, compared with the40 days previously required. As computer-aidedmanufacturing technology matures, it should be-come possible to fabricate prototype componentswith the same machine took as quantity production,to build prototypes on assembly lines designed formultiple products, and to achieve a rapid transition

38 ~ tie elec~ofics indus~, however, hard tooling refers primarily to specialized test equipment.

39 Clink and Fujimoto, Product Development Performance, op. cit., fOO~Ote 35, p. 180.

@ Atwood, quoted in ‘New DoD Weapon-Buying Approach Has Industry Cwing ‘Uncle ‘,’’ Armed Forces Journal International, March 1992, p. 12.

70 Building Future Security

from prototyping to quantity production. To date,however, neither military nor civil manufacturershave absorbed the most advanced production tech-nology.

Limited production of prototypes would meanforegoing many of the cost-efficiencies that resultfrom moving down a production learning curve.Nevertheless, some analysts argue that the largestgains in efficiency result from production of theearly units, when the major bugs are worked out ofthe manufacturing process.

41 If this assumption istrue, then even the limited production of proto-types designed for manufacturability would signifi-cantly reduce the risks involved in the transitionto quantity production. In sum, greater use ofconcurrent engineering in prototyping and limited,intermittent production of prototypes for operationaltesting would help preserve key manufacturingskills while facilitating the transition to quantityproduction when necessary.

Preserving the Vendor Base

Even if prime contractors agree to prototype newsystems, where will the necessary parts and compo-nents come from? Without full production lines, thenumber of subcontractors and component suppliersat the lower tiers of the DTIB may continue to erode,and skilled machinists and other manufacturingtradesmen may be lost. Thus, for a prototyping-plusstrategy to work, the survival of the vendor basemust be assured.

Given some ongoing production, there is noreason to expect that lower-tier suppliers will bereluctant to supply prime contractors developingsystem prototypes. Indeed, vendors often seek outsuch programs because it helps them to pursuetheir own advanced-technology development ef-forts. The United States will continue to have someproduction programs under way in most defenseareas for the forseeable future, including low-rateproduction of current systems, overhauls, and retro-fits. Throughout the 1990s, for example, productionlines for three major combat aircraft may be activeat any given time. While some industrial sectorssuch as tanks might be without production for a time,they are the exception rather than the rule.

To attract vendor participation, however, itwill be necessary to reform the acquisition proc-

ess. First, the government may have to providesubstantial amounts of R&D funding and probablysome guarantee of future military orders. Morever,vendors may refuse to accept R&D contracts be-cause of the government’s insistance on ownershipof all technical data developed with public funding.(See ch. 2.) It will therefore be necessary to resolvethe data-rights issue. Further, since many of thelarger vendors sell primarily to commercial markets,convincing them to stay in the (defense business mayrequire modification of procurement regulations andmilitary specifications.

In addition to these general approaches, there aresome other options:

1.

2.

3.

The DoD could fund programs to retrofitand upgrade current platforms, orderingthe improved componens in sufficient quan-tities to make their development and manu-facture profitable for subtier suppliers. Thegovernment might also support, on a cost-plusbasis, development of the tooling needed tomanufacture essential components. Further,the DoD might pay prime contractors tointegrate several new subsystems and compo-nents into technology demonstrators or advanced-development prototypes.The subtier base will need to be consoli-dated. Prime contractor! could protect theirown workforce from layoffs by moving theproduction of key subsystems and componentsin-house. Alternatively, subtier Firms might beconsolidated into a smaller number of diversi-fied companies, which would be linked toprime contractors through strategic alliances.Indeed, Total Quality management (TQM)precepts call for the use of fewer, but high-quality and efficient, suppliers. Although mar-ket forces will result in consolidation, FederalAcquisition Regulations mandating “free andopen competition’ may need to be changed topermit long-term supply relationships betweenprimes and subtiers.Subcontractors and suppliers might play amore active role in cooperating with primecontractors on prototype development andengineering. For example, representatives ofkey suppliers and subcontractors might partic-ipate in concurrent engineering teams. Thisapproach would broaden the training base and

41 Linda Argote and Demis Epple, ‘‘Learning Curves in Manufacturing, ’ Science, vol. 247, No. 4945, Feb. 23, 1990 pp. 920-924.


4.

improve timely response to emerging militaryrequirements.The role of foreign suppliers should beconsidered. Foreign sources often have a lockon subcomponent technologies (such as ma-terials, semiconductors, and optics) that willbe critical to any future systems. To ensureaccess to these technologies, the DoD mayhave to make defense contracts available toforeign vendors on more or less the same termsit offers domestic producers. Alternatively, theDoD could invest more money to develop orexpand an onshore (North American) pro-duction capability, using Title III of theDefense Production Act.

Time and Cost of Prototyping

On average, an advanced-development aircraftprototype can be built for 25 to 30 percent of the totaldevelopment cost of the system. But the actual costof a prototyping-plus strategy would depend onseveral factors:

1.

2.

3.

4.

5. .

6.

the type of system, desired military perform-ance; - and extent to which it is a radicaldeparture from current systems;the number of contractors (and developmentteams) building prototypes;the number and category of prototypes to bebuilt (e.g., breadboard, brassboard, or fieldableoperational prototype);the amount of time a contractor is allowed forearly development models;the extent to which prototype design andmanufacturing data must be documented forstorage or recycling; andthe producibility of the design and its fidelityto the final production model, including t h eextent of systems integration.

Because of these numerous factors, the cost andtime involved in prototyping can vary enormously.Whereas the 10 prototypes of the M1A2 tank (anupgrade of the current Ml A 1 ) are said to have costabout $15 million apiece, a radically new tankdesign (based on novel composite materials) couldcost as much as $200 million. Similarly, while anaustere technology demonstrator like the X-3 1 wasdeveloped under a cost-plus contract totaling about

Photo credit: DoD

X-31 technology demonstrator was unveiled in March1990. Two of the aircraft were developed and built jointly by

Rockwell and the German firm MBB.

$200 million (of which the U.S. share was $135million),

42 four advanced development Prototypes

of the Advanced Tactical Fighter (ATF) cost a totalof about $5 billion to develop.

The cost of developing a prototype was not amajor issue when it was just one step in a processculminating in quantity production. For tacticalaircraft programs, for example, prototyping repre-sented only a small percentage of total acquisitioncosts: the YF- 16 prototype cost about $100 millionout of a $30 billion program; the A-10 prototype costabout $100 million in a $5 billion program; and theAV-8B prototype cost $150 million out of a $10billion program.43 But the economics are verydifferent when prototyping is no longer an integralstep in a sequence leading to quantity production.Without production to spread R&D and over-head costs over time, all equipment and associ-ated costs must be borne during the developmentphase. The result will be an apparent rise indefense R&D) costs.

There are, however, some options for reducingprototyping costs. For technology demonstrators,one approach is to build unmanned, remotelyoperated systems that are easily reconfigurable.Whereas the safety requirements for human opera-tors drive up costs, unmanned vehicles can provide

42 Michael A. Dornheim, “X-31 Flight Tests to Explore Combat Agility to 70 Deg. AOA, ” A\iation Week & Space Technology, vol. 134, No. 10,Mar. 11, 1991, p. 38 The $200 million figure includes the design and construction of two prototypes and initial flight testing.

Al Karen W. Tyson et al., kquiring Major Sys/erns, Op. Cit., fOOtnOte 15, p. VIH-2.


useful information at no risk to human life. (See box3-E.) In the case of advanced-development proto-types, costs can be reduced by building subscalemodels when the effects of scale are understood.During the development of the Avro Vulcan strate-gic bomber, for example, the British saved money bybuilding two full-scale prototypes to evaluate flightcharacteristics, and four subscale prototypes to testother aspects of the aircraft such as power-controlsystems and electronics.~ Another approach is toprototype only the critical components of a weaponsystem. In prototyping an aircraft carrier, it might besufficient to build a control tower on a barge to testthe command-and-control, threat-assessment, andother systems.

Finally, the United States might consider engag-ing in more collaborative prototyping programs withthe NATO allies, the industrialized countries of thePacific Rim, and possibly Russia. The advantage ofinternational collaboration is that it permits sharingof development costs and enables U.S. firms to gainaccess to foreign technologies. Collaboration islikely to become a more attractive option a sdefense budgets are reduced and U.S. forcesengage in multinational military operations, suchas the Gulf War, reinforcing the need for interop-erability. A drawback is that collaboration canincrease U.S. dependence on offshore sources; italso inevitably entails compromises on programobjectives, specifications, schedules, and workshar-ing. Further, transfers of U.S. technology mightenable some foreign firms to become more formida-ble competitors in the future. Collaborative pro-grams must therefore provide for a two-way flowof important technologies, so that the U.S. indus-try gains at least as much as it gives.

Although West European firms have engaged injoint development programs since the mid-1950s,this approach is relatively new for the United States.A recent example is the X-31 technology demonstra-tor, jointly developed by Rockwell Internationaland the German firm Messerschmitt-Bolkow-Blohm(MBB). Launched in 1986, this program was fundedunder the 1985 Num-Quayle Amendment. Accord-ing to a Memorandum of Understanding between theU.S. and German governments, the X-31 program ismanaged jointly by DARPA as overall programmanager and the German Ministry of Defense asdeputy program manager. The development and

Box 3-E—Remotely PilotedResearch Vehicles

To explore the limits of fighter maneuverabilityachievable with current structural and propulsiontechnologies, NASA and the Air Force contractedRockwell International to develop a remotely pi-loted research vehicle called Highly ManeuverableAircraft Technology (HiMAT’). The HiMAT con-tained a TV control system, telemetry~, and a suiteof research instruments. Because of its modulardesign and construction, the basic components ofthe aircraft could be altered to evaluate designchanges, such as new relationships among controlsurfaces, modified airfoils, and various types ofthrust-vectoring engine nozzles.l Other advantagesof the HiMAT vehicle were its reduced size, whichmade it inexpensive to build and operate, and thefact that it could withstand accelerations that wouldkill human pilots. The chief dr wback of the systemwas the need to develop a parallel command-and-control structure on the groumd to operate it.

DARPA has developed a related concept knownas Advanced Configuration Remotely OperatedBasic Agility Technologies (ACROBAT), a familyof subscale demonstrator aircraft that would beflown remotely from a computer terminal on theground whose configuration could be easily. .

1 ~top~ -g A~rcrafi IVcto~Pes (Seacaucus, NJ:Chartwell Books, 1990), p. 118.

2 ~~ew wi~ LL CO1. Michtu 1 S. -is, AdvtUKdSystems Technology Off@ DARF!& Sept. 1991.

production work has been divided between the twofirms in proportion to each country’s financialcontribution to the program (about 72 percentAmerican and 28 percent German), and a jointworking group resolves all interface problems.

The collaboration has worked well because Rock-well and MBB have complementary technologicalstrengths. Whereas MBB developed the basic enhanced-maneuverability concept, Rockwell offered its system-integration skills. Both firms benefitted from sharingresources, people, and ideas. Based on their positiveexperience with the X-31, MBB and Rockwell planto collaborate on other projects In addition, the U.S.and German governments are (considering a 5-yearjoint research program aimed at making fighter

44 c~q AirCr@ Prototypes, op. cit., footnote 9, P. 32.


Photo credit: DoD

Remotely operated experimental aircraft called Hi MAT wasdesigned to test new technologies for future

fighters. Less expensive than a manned aircraft,it can do high-G maneuvers without risking

pilots’ lives.

aircraft more maneuverable, building on the resultsof the X-31 demonstrator.45

Rethinking the Acquisition Process

Throughout the cold war, the defense industrywas oriented toward the need to counter a large andimmediate Soviet threat. But the waning of thatthreat has given the United States the opportunity toshift its emphasis from short-term military capabili-ties to long-term military potential. In the newsecurity environment, developing multiple proto-types makes more sense than committing scarceresources to the production of current-generationweapons, of which there is already an abundance. Aprototyping-plus strategy would provide an opportu-nity to continue technological innovation, maintainthe defense technology base, and prepare for thefuture. It would also keep design teams together and,through the judicious use of concurrent engineeringand limited production, help to maintain manufac-turing skills.

To hedge against uncertainties in both technol-ogy and the security environment, the number ofprototyping programs should be large relative tothe number of systems that enter quantity pro-duction. Even though most prototyping programswould not lead to a design that is produced inquantity, they would still yield useful informationand technologies that could be recycled into the next

generation of systems or transferred to other pro-grams. Since prototyping is a form of experimentat-ion, it would not be redundant to build multipleprototypes with dissimilar designs in response to agiven military requirement.

Shifting to a prototyping-plus strategy wouldentail a fundamental “cultural” change in boththe defense industry and the government weapons-acquisition community. First, it would require arestructuring of the weapons-acquisition processaway from the linear pipeline process culminating inproduction. The current model would be replacedwith a new paradigm in which prototypes aredeveloped to acquire new technical knowledge andto enhance the Nation’s long-term readiness againsta spectrum of possible threats. Selected prototypeswould be manufactured in limited numbers on softtooling for operational testing; when a militaryrequirement arose, prototypes could be moved intoquantity production.

Although greater use of concurrent engineer-ing would reduce development time and totalprocurement costs, the DoD must give defensecontractors incentives to develop more manu-facturable systems. One approach would be for theDoD to award prototyping contracts based on theperformance, manufacturability, and maintainabilityof proposed designs. The winning firm might alsoreceive the added bonus of a contract for limitedproduction of the prototype, without second-sourcecompetition, At the same time, it will be necessaryto discipline the development process with cost andschedule targets; otherwise, designers will neverstop tinkering, and no one at the user or procurementlevel will abandon the quest for the ideal solution. Astreamlined approach to development, known asquick-reaction prototyping, was used successfullyduring the Gulf War. (See box 3-F.)

A prototyping-plus strategy would also requirerestructuring the defense industry to reducecapacity and create more flexible manufacturingpractices, such as multiproduct assembly lines.To this end, the DoD would need to support thedevelopment of innovative manufacturing processesand novel materials, such as the radar-absorbingcomposites used in stealth aircraft. This investmentwould be critical because the very nature of mostdefense production—uncertainty over orders, the

45 Barbara Opall, “U. S., Germans Plan Research on Fighter Jets, ’ Defense News, vol. 7, No. 4, Jan. 27, 1992, p, 4.


Box 3-F-Quick-Reaction Prototyping

During the Persian Gulf War, personnel from Texas Instruments, Lockheed Missiles and Space, and Eglin AirForce Base took only 37 days to develop the GBU-28 penetrator bomb, which was then used to destroy an Iraqicommand bunker that had survived direct hits from 2,000-pound bombs. Development of the new weapon requiredgreat speed and secrecy, use of existing industrial capacity and parts, and cooperation among private firms, Armyarsenals, and an Air Force base.

Development of the GBU-28 began on January 21, 1991, in the midst of the air campaign against Iraq. TheAir Force gave industry and its own designated project staff a free hand to get the job done as quickly as possible,with a minimum of red tape. As a first step, Eglin personnel requested the use of old 8-inch howitzer barrels storedat Letterkenny Arsenal in Pennsylvania. The gun barrels were shipped to Watervliet Arsenal in New York wherethey were machined into the bodies of the new bombs. Lockheed then developed the warhead, while TexasInstruments developed the guidance units. Designers at Texas Instruments took only 4 days to craft a quarter-scalealuminum model of the bomb for wind-tunnel testing of the body and tail-fin configuration.

Meanwhile, otherTI engineers used computer simulation to develop guidance software for - delivering the bombwith pinpoint accuracy. The TI team compressed the software development and testing-normally an 18-month to2-year process-into less than 2 weeks. After field-testing at ranges in Nevada and New Mexico, twoGBU-28 s-each more than 18 feet long and weighing 4,700 pounds-were flown to Saudi Arabia. They were thenfitted to the undercarriages of a pair of F-ills and used successfully on February 27, 1991 to destroy the Iraqicommand bunker at Al Taji Air Base north of Baghdad.1

1 Gregg Jones, “Genesis of a Bomb: ‘f’I’s Role Critical in Quick Development of Weapom ” Dallas Morning News, June 30, 1991.

small size of production runs, excess capacity andthe consequent difficulty in recovering the invest-ment in tooling-makes defense firms reluctant toinvest their own money to develop new manufactur-ing technologies.

Finally, a prototyping-plus strategy wouldrequire new approaches to program manage-ment. Specific changes might include new systemsfor monitoring costs, schedule, and performance;improved liaison with system users; new arrange-ments for managing subcontracts; and enhancedlogistics planning to maintain the currency ofprototypes. Other options for managing prototypingprograms follow:

1. Use performance criteria rather than specifi-cations. Giving prototype designers greaterflexibility would enable them to trade offperformance against cost. Cost discipline couldbe maintained through competition betweenprototype designs, government auditing, andpositive fee or profit incentives for completingprototype development on time and underbudget. In this way, contractors would have thefreedom to be creative without having to giveur) proprietary information to ‘‘level the play-ing field. ’

2. Reconsider the role of (competition. It wouldnot make sense for every new prototype toundergo the 2-4 year source-selection processnow used for most full-cycle procurementprograms. Thus, competition may have to beachieved in more flexible ways.

POLICY IMPLICATIONSCongress must decide whether it wishes to invest

in maintaining innovatation, preserving the defensetechnology base, and hedging against future techno-logical breakthroughs by potential adversaries. If so,then a prototyping-plus strategy should be part of theanswer. Since private industry’ will be unable andunwilling to invest its own money in prototypedevelopment without the immediate prospect of alucrative production contract, the DoD will have tobear the full cost of prototyping. Thus, for aprototyping-plus strategy to be viable, it wouldrequire a long-term funding commitment fromCongress. Even so, the total cost would beconsiderably less than the alternative of main-taining a warm production base for most militaryitems, which is simply not feasible in the currentbudgetary or strategic environment.

There are several options for carrying outprototyping programs, including competition amongprivate fins; sole-source development in public or


private ‘ ‘arsenals; and the use of specializedengineering firms (’ ‘design houses’ ‘). industry offi-cials contend that prototyping in public arsenalswould not be effective because the government doesnot have a good track record as a systems integratorand would not face the same cost discipline as firmscompeting in the marketplace. The aerospace andarmored vehicle industries also oppose the use ofspecialized design houses, although the Navy makesextensive use of them. Since design houses are lesscapable of concurrent engineering, they would resultin higher downstream production and life-cyclecosts. Moreover, without manufacturing experience,the transition from prototyping to production wouldbe very difficult.

Alternatively, the DoD could award prototypingcontrasts to full-service firms that do both R&D andmanufacturing. Such firms might build prototypeson flexible production lines. (See ch. 4.) Anotheroption would be to consolidate development andmanufacturing in several Skunk Works-like organi-zations, which would build competing prototypesduring the concept-definition phase. Advocates ofthis approach argue that it would promote freshtechnological approaches and force efficienciesthrough competition.

Other questions about a prototyping-plus strategy

tracts be made sufficiently interesting and profitableto motivate companies, scientists, and engineers tofocus on state-of-the-art developments unique tomilitary systems? With reduced defense budgets,how many prototyping-plus programs could befinanced at any one time? How much wouldcompanies learn about manufacturing by using softtooling? And should government laboratories as-sume the role of developing enabling technologies inthose areas where the specialized nature of theapplication limits private-sector incentives? Theseunanswered questions suggest that while prototyping-plus is a promising approach, it will need morerefinement before it is ready for implementation.

Finally, while a prototyping-plus strategy wouldpreserve essential design and manufacturingcapabilities and foster technological innovation,it could not by itself maintain the defense manu-facturing base over time. Firms might rely onprototyping to preserve their core competencies, butthey could only survive financially by: eliminatingexcess capacity; drawing on other businesses, suchas supporting and upgrading fielded weapon sys-tems; and diversifying into civilian markets. proto-typing-plus must therefore be seen in the context of

remain to be answered. How can prototyping con- a broad restructuring of the DTIB,

Chapter 4

Efficient, Responsive,Mobilizable Production

ContentsPage

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79THE CURRENT PRODUCTION BASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Tiers of the Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Public and Private Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82Representative Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83When Preserving the Current Base Is Not Critical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

EFFICIENT PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90Streamline and Consolidate Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90Reduce Production Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Shift Business Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98Reduce Barriers to Civil-Military Integration ....., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99Cooperate With Foreign Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103Promote Manufacturing Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105Increase Commonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

RESPONSIVE PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111PREPARATION FOR MOBILIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112CONGRESS AND THE PRODUCTION BASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Funding Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115Base Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Business Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Acquisition Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116International Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

BoxesBox Page

4-A. Competing Goals of Defense Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 904-B. Teaming Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924-C. Low-Rate Production is Not Always the Best Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964-D. Restructuring for the Future: BMY-Combat Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984-E. Worker Skills in the Defense Production Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

FiguresFigure Page

4-1. Production Tiers for the Navy’s Arleigh Burke Guided Missile Destroyer . . . . . . . . . . . . . . 814-2. Projected Defense Electronics Procurement Budget through 2001 . . . . . . . . . . . . . . . . . . . . . . 844-3. Impact of Comanche Procurement on Military Helicopter Funding and production. . . . . . 954-4. Navy and Commercial Ships Under Construction, 1980-90 . . . . . . . . . . . . . . . . . . . . . . . . . . . 874-5. Hypothetical Shift in a Defense Manufacturer’s Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 994-6. Decisions Concerning Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1084-7. Theoretical Comparisons of Concurrent v. Traditional Development

and Production Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1094-8. Tradeoffs Between Production Efficiency and Surge and Mobilization Preparation . . . . . 110

TablesTable Page4-1. Sample Products of the Armored Vehicle Production Tiers . . . . . . . . . . . . . . . . . . . . . . . . . . 864-2. Endangered Navy Shipbuilding Support Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 874-3. Impact of Low-Rate production on the Abrams Tank’s Subcontractor Base . . . . . . . . . . . . 974-4. Examples of Surge and Mobilization Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1114-5. Comparison of Production Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Chapter 4

Efficient, Responsive, Mobilizable Production

INTRODUCTIONBy dollar expenditure, production is the single

largest component of the defense technology andindustrial base (DTIB). Production will probablysuffer the largest defense budget cut in absolute andrelative terms. Historically, this component has hadthree principal functions:

1. manufacturing high-quality military equip-ment in peacetime,

2. responding quickly but selectively to increasedmilitary requirements in crisis or war, and

3. mobilizing the national economy for large-scale hostilities. 1

Redesigning Defense suggested that these func-tions remain desirable characteristics for the futuresmaller production base. This chapter discussesoptions the Administration and Congress mightemploy to arrive at a future production base that isefficient, responsive, and mobilizable under theconditions of significantly reduced procurement.

BACKGROUNDDefense procurement is projected to fall over 50

percent in real terms between fiscal years 1985 and1997, Between 1990 and 1993, budget authority foraviation is projected to decline by 40 percent,shipbuilding by 59 percent, and Army trackedvehicles and weapons (excluding missiles) by 77percent. z While production of some munitions andother consumables may increase temporarily toreplenish stocks consumed during the Persian GulfWar, procurement of major weapon platforms willdecline sharply over the next decade.

Procurement reductions of this magnitude willradically change the way defense manufacturing isconducted. These reductions might severely weakenthe defense production base if they are handledwithout sufficient foresight. The Nation may be hardpressed to maintain future shipbuilding, aircraftmanufacturing, and armored vehicle production

capabilities, for example. Small companies thatproduce critical components for major defensesystems may become economically unviable andleave the defense business or cease operationsentirely. And basic material and subcomponentsuppliers may decide that the defense market hasgrown too small and unpredictable to be worth thetrouble of dealing with procurement laws andregulations, (See ch. 6.) In order to survive thecutbacks and remain competitive, businesses mayjettison important capabilities (e.g., R&D facilitiesand staffs) and put off new productivity investments.The end result might be the unnecessary loss ofskilled workers and an inadequate DTIB.

As procurement authorizations declined in thewake of the Carter-Reagan military build-up, theproduction base was left with significant overcapac-ity in most industrial sectors. Reduced production,large overhead, and sunk costs caused weaponsystems to grow more expensive even as thecontractor and supplier base shrank. The decreasingglobal competitiveness of the U.S. economy madethe military more dependent on foreign suppliers insuch market segments as advanced materials, elec-tronics, and display technologies. The projectedfuture decline in defense procurement is expected toaggravate all of these trends.

In Redesigning Defense, OTA outlined threedesirable characteristics for the future defenseproduction base:

1.

2.

3.

limited, efficient peacetime production capa-bilities for high-quality materiel;responsive production of ammunition, spares,and consumables for theater conflict; andhealthy, mobilizable civilian production ca-pacity.

Managing the transition to such a production basewhile avoiding the pitfalls of recent trends willrequire leadership from both the Administration andCongress. If any meaningful resolution of thedilemma in defense production is to be found, it will

1 U.S. Congress, Office of Technology Assessment, Redesi<qning Defense, Pl~nning the Transition IO the Future U.S. Defense Industri~l Base,OTA-ISC-50() (Washington, DC: U.S. Government Printing Office, July 1991), p, 3, Much of the introductory comments for this chapter arc taken fromthis report,

2 Steven Kosi,ak and Paul Taibl, Anal~sis of the Fiscal Year 1993 Defense Budge( Re;ucst (Washington, DC: Defense Budget Project, Mar. 11,1992), tables 8 and 9,

–79–


be necessary to focus on the end goal-a restruc-tured defense industry.

THE CURRENTPRODUCTION BASE

The production base is not a monolithic structureamenable to generic remedies. It is a complexconglomeration of separate ventures on multipletiers in many industrial sectors, with varying degreesof private and public ownership, operating in anenvironment of increasing global economic interde-pendence. The defense downturn will affect individ-ual businesses differently, and effective solutions tothe problems of the future production base willdepend on understanding these differences. Thecurrent production base was described in some detailin Redesigning Defense and is only s ummarizedhere.

Tiers of the Base

The DTIB can be divided into a series of levels ortiers. Occupying the top tier of the defense industrialbase are the prime contractors,3 often large corpora-tions (e.g., General Dynamics) whose main task is tobring together all the necessary components for asystem and integrate them into a whole (e.g., anaircraft).

The vast majority of production base companies,however, are in the subtiers.4 The subcontractor tierof the defense production base is the most diverse interms of size and product, and includes bothindustrial giants and small machine shops. A sub-contractor manufactures specialized parts, compo-nents, or subsystems that are integrated into a largersubsystem or final system. In a major weaponsystem, several layers of subcontractors mightproduce hundreds or thousands of individual items.

The supplier tier provides the prime contractor andsubcontractors with basic pars, hardware, subcom-ponents, capital equipment, and materials. This tieris generally more integrated into the civilian marketthan the prime or subcontractor tiers, although casesof suppliers totally dedicated to defense work are notuncommon. Figure 4-1 illustrates this multilayeredarrangement for the DDG-51 Arleigh Burke de-stroyer.

Each tier of the base is already being adverselyaffected by the downsizing of the defense productionbase. Prime contractors are heavily dependent onlarge weapon system contracts, which are increas-ingly scarce. Many still have sufficient workingcapital from production contracts that began in the1980s, since money appropriated is only now beingspent. 5 This capital will allow w some of them toreorient their business horizontally, to other markets(e.g., through acquisitions of defense and nonde-fense firms),G or vertically, by taking over thebusiness of their subcontractors and suppliers. Ascurrent production contracts are completed, how-ever, money will become increasingly scarce. Manyprime contractors hope to expand sales of systems,repairs, spare parts, or upgrades abroad.

Larger, more diversified subcontractors shouldnot be devastated by the termination of any singleprogram. Most have substantial commercial deal-ings to help them weather defenese cutbacks or allowthem to leave defense work for the civil sector whiletheir less diversified defense competition fails. Forexample, Allied Signal manufactures a wide varietyof aerospace power systems, guidance systems,torpedo propulsion systems, sonars, and other elec-tronics for the Department of Defense (DoD). It alsodoes extensive work in commercial aerospace, aswell as in the automotive and material sectors.7 Likesome of the primes, larger subcontractors are often

3 The breakdown of the base into tiers (primes, subcontractors, and suppliers) is an filcial construct used widely to shnplify discussion of the base.The actual base is more complex. For example, a major corporation may serve as prime contractor on one contract while acting as subcontractor onanother, or a small company that functions as a prime contractor on a small item (e.g., shoes) may have character jtics more in common withsubcontractors thana major prime contractor. These distinctions will be addressed in the text where important. For a fiu-ther d iscussionon the tier structuresee Redesigning Defense, op. cit., footnote 1, pp. 4044.

4 Over 70 percent according to the DoD, Defense Systems Management College, Dqfense Manufacturing Mana~ ‘ement: Guide for ProgramManagers, 3d ed. (Washington, DC: U.S. Government Printing Office, April 1989), ch. 2, p. 5.

s Major systems take years to build. In some cases, multiple buys, authorized and contracted for in one year, will be st uted over a period of severalyears.

6 These companies prefer to acquire businesses that have large back orders or good commercial prospects. (’ ‘Casualtits of Peace, ’ Business Week,Jan. 13, 1992, p. 64.) For example, Hughes Aircraft plans to increase its proportion of commercial sales ffom 25 percent in 1988 to 50 percent by thelate 1990s through investments in areas such as satellites, head-up displays, and electric drives for cars. (Caleb R&r, “F Ughes Braves skeptics wi~Commercial Market Drive, ” Defense News, vol. 6, No. 46, Nov. 25, 1991, p. 24.)

T ‘{Top 20 Gove~ent Contractors, ’ Government Executive, vol. 23, No. 8, August 1991, p. 119; and Dialog Infom[ation Services, Inc.

Chapter 4-Efficient, Responsive, Mobilizable Production ● 81

. “ .

(u(%

$2 ● Building Future Security —

able to acquire the necessary resources to expandvertically or horizontally into other markets.

Smaller subcontractors involved in only a fewprograms are more immediately at risk from reduceddefense procurement. The elimination, delay, orstretch-out of programs could force them out of thedefense business and into either the commercialworld or bankruptcy. Many of these companies havemade their living through the ability to meet uniquemilitary specifications and operate according tomilitary auditing practices. The transition to com-mercial markets, standards, and practices will bedifficult. Some subcontractors (e.g., electronic equip-ment manufacturers), both small and large, see acontinuing need for their products, whether they areused as components in new systems or as upgradesin older military equipment, and thus are somewhatoptimistic about their future.

The future health of many defense suppliersdepends on their strength in the civil sector ratherthan on the future course of defense procurement,because their defense market is relatively smallcompared to their civil market. For example, themilitary’s share of the domestic market for DRAM(dynamic random access memory) chips, which areused in a wide array of electronic devices, is only afew percent.g As defense cutbacks make this portionof the market even smaller, suppliers may find thestringent specification, handling, and accountingrules of government procurement increasingly bur-densome. The result may be to force the DoD towardhigher unit costs, commercial standards, or thecreation of dedicated government suppliers. Suppli-ers that are more dependent on defense spending andregulations will face a fate similar to that of the lessdiversified subcontractors.

Outside the domestic defense production base, butintertwined with it, is the global DTIB. The DoDand its contractors routinely purchase materials,parts, components, and finished goods from foreignmanufacturers, just as other nations do from theUnited States. Foreign militaries are a significantmarket for U.S. defense products. Through foreignsales, the United States is able to reduce unit costs onweapons and equipment and keep production lineswarm when domestic requirements wane. There is,however, public concern over such sales.

Foreign defense production also supplements theU.S. defense base by sharing technology and proc-esses through cooperative ventures, thereby reduc-ing duplication of R&D, production, and mainte-nance. Foreign firms also sell components andmaterials that are either not available on the U.S.market or are less expensive. Such trade carriesrisks: shared technology could undermine domesticindustry and foreign supplies could be cut off. Butwithout this cooperation, the United States mightnot have access to some state-of-the-art militarilyunique and dual-use technologies and would have topay the cost of pursuing them independently or nothaving access to them at all.

Public and Private Sectors

The current production base is divided betweenthe private and public sectors. The United Statesrelies primarily on private industry to providedefense materiel. Most defense work is done atprivately owned facilities. However, when the initialcapital investment costs of a defense program areprohibitively high or when tile government wantsthe option of shifting contract:; among firms withouthaving to reinvest in new infrastructure, the govern-ment may establish a government-owned, contractor-operated (GOCO) facility. The DoD owns a numberof GOCOs, including aircraft assembly facilities,propellant and explosive plant;, and tank productionlines, which are run by private fins. The govern-ment also retains a few government-owned, government-operated (GOGO) facilities for assured access or tomeet a requirement that the private sector is notfulfilling at a reasonable cost (e.g., large-bore guntube production at the Watervliet U.S. Army Arse-nal). Government ownership and operation providesthe most direct government control over facilitiesand resources. Critics of GOC0s argue that privatemanagement is more efficient and innovative. Re-cent government policy has been to divest govern-ment holdings.

As defense procurement shrinks, it is likely thatsome unique subcontractors or suppliers of itemscritical to a weapon system will face businessfailure, threatening a shutdown in system produc-tion. The DoD will then have the choice of assistingthe failing firm through higher prices, subsidies, orthe purchase of facilities (making them GOCOs);

s Interview with Marlin Libicki, National Defense University; ~nd Benjamin Zycher, Kemeth A. Solomow and L oren Yager, ‘‘An ‘AdequateInsurance’ Approach to Critical Dependencies of the Department of Defense, ’ R-388@ DARPA, The Rand Corp., 1991, p. 23.


stimulating other sources (foreign or domestic) ofproduction; redesigning the relevant weapon tobypass the missing component; or establishing apublic production capability (i.e., a GOGO).

Representative Industries

The current defense production base is a heteroge-neous collection of industrial sectors, which will beaffected by procurement reductions in differentways. The following are examples of importantindustrial sectors.

Defense Electronics

Defense electronics appears to be the industrysegment best positioned for the restructuring of thedefense industrial base that lies ahead. Defenseelectronics firms are generally subcontractors onmajor system projects, although in some areas, suchas command, control, and communications, theelectronics firms assume the role of prime contrac-tor. The larger firms tend to have several defensecontracts under way at any onetime. Although manyelectronics suppliers participate in the larger com-mercial electronics sector, strict military specifica-tions and accounting procedures compel most firmsto segregate civil from military production. Therapidly growing commercial electronics industrymay provide companies fertile ground for horizontalexpansion. 9 However, prospective commercial part-ners might shy away from long-term relationshipswith defense electronics firms for fear of beingabandoned at the first upturn in defense procure-ment.

Defense electronic fins, while bracing them-selves for cutbacks, see future opportunities as well.Even without the acquisition of major weaponsystems—the bread and butter for the large primecontractors---electronic firms see upgrades of theirproducts as inevitable because of the fast-paceddevelopment cycles in the world electronics market.Moreover, they foresee a continuing opportunity tosupply electronic upgrades to foreign countries thathave purchased American weapon systems in thepast. In fact, new weapon system production willcontinue, albeit at a greatly reduced rate. Whencombined with upgrade and other programs, thisproduction will eventually halt the downward trendand may even provide for moderate growth of

—-

Photo credit: Lockheed Electronics Co.

kckheed technician tests microelectronic componentsto ensure they meet military quality standards.

defense spending in this sector. (See figure 4-2.)Spares and repairs are seen as less viable options forfuture business because of increased product relia-bility.

Satellites

The satellite industry is closely related to, andoften intertwined with, defense electronics, espe-cially at subtier levels. There are only a few majorprime contractors. Like defense electronics fins,these firms tend to work on several projects at once,making them less dependent on a particular project.The main difference between the sectors is thatsatellites are generally built in small, high-value lotsof one or a few at a time. This might make the primecontractors vulnerable should funding for satellitesdiminish. The satellite sector is hoping for increasedcommercial business and NASA construction aswell as continued work on Strategic Defense Initia-tive projects such as the “Brilliant Pebbles’ anti-

9 For example, while the DoD demand for semiconductors is likely to grow at 2 to 3 percent annually, the commercial market is expected to expandat a rate of 13 to 15 pereent. (Debra Polsky, ‘‘Chip Producers ‘Ibrn Attention From Military to Boost Revenues, ’ Defense News, June 10, 1991, p. 55.)


Figure 4-2—Projected Defense ElectronicsProcurement Budget Through 2001

1992 dollars in billions801

60 I

40“

30

20-

SOURCE: Electronic Industries Association, 1991.

missile system or on the development of less capablebut more numerous military satellites dubbed ‘‘lightsats’ or ‘cheap sats. ’ But there is growing concernover foreign competition.

Fixed-Wing Aircraft

The military aircraft industry anticipates programcancellations, delays, and stretch-outs. Too manycompanies are chasing too few contracts. Industryanalysts believe that the military cannot support thecurrent number of aircraft prime contractors and thatconsolidation will be unavoidable. A Rand Corp.official, for example, predicted that the number ofmilitary aircraft divisions of major U.S. airframemanufacturers will shrink from 10 to 5 or fewer inthe next 3 to 5 years through mergers, changes inorganizational status, or leaving the business.10

Companies are laying off or not replacing employ-ees, closing or selling off excess facilities, andentering into teaming arrangements with their com-petitors to share both the risks and rewards of newcontracts. Global competition in the military andcommercial aviation business is intensifying withmany foreign competitors buoyed by governmentsubsidies, and foreign sales are increasingly subjectto offset agreements that transfer technology tofuture competitors. The Air Force’s F-22 Superstarinterceptor and the Navy’s AX attack plane appear

—. —

. . .

Photo credit: The DoD

Trmps prepare to board a UH 60 Blackhawk duringOperation Deserl Shield.

on track for development and production. Continuedproduction of some current models is also sched-uled.

Helicopters

The U.S. military helicopter industry includesfour major prime contractors all of them divisionsof major corporations. Military sales dominate U.S.production (more than 85 percent between fiscalyears 1987 and 1990), but sales in the commercialsector are significant. In addition to extensivedefense procurement cutbacks, the U.S. helicopterindustry faces the possibility that the Army willtransfer 3,000 aging helicopters into the commercialsector during the next decade.11 Such surplushelicopters may further depress the demand for newcommercial helicopters.

12 On the other hand, theymay increase the demand for spare parts, upgrades,and overhauls.

In the 1960s, U.S. Firms dominated world heli-copter sales, only to be challanged in the 1980s bythe emergence of aggressive foreign competitors,most of which are partially government owned orsubsidized. Government support may give foreigncompanies an advantage over U.S. firms weakenedby the reduction of military contracts, which havetraditionally driven U.S. helicopter innovation. The

10 J3~ce D. Smi@ “~e Building Capability Loss Looms for Full-Semice Defense Contractors, ’ Aviation Wec k and Space Technology, vol.136, No. 11, Mar. 16, 1992, p. 41.

11 ~owd M. Hor~er, tes~ony before tie Hou~ bed Semices Committee panel on tie s~cture of tie U.S. Dt fense Industrial Base, NOV. 1,1991.

Z ~ey my ~so ~del-mine foreign military StdeS if r.hey me Pas~ on ‘0 ‘fies.


Figure 4-3-impact of Comanche Procurement onMilitary Helicopter Funding and Production

Fiscal year

Budget with Comanche Budget without Comanche

Number of helicopters Number of helicopterswith Comanche without Comanche

NOTE: Figure does not include V-22 Osprey.

SOURCE: DoD FY 1992-97 Program Objective Memorandum.

future commercial helicopter market will likely bedominated by a competition to capture market sharein other countries.

Projections of military helicopter production varysubstantially depending on the systems built. Forexample, figure 4-3 illustrates the effect a decisionto purchase the RAH-66 Comanche helicopterwould have on procurement levels.13 Because of thegeneral wear and tear on helicopters, the need forrepairs, upgrades, and spare parts should keep a coreof subtier firms in business.

Armored Combat Vehicles

The Army is currently reviewing its plans formanufacturing armored combat vehicles. The di-minished threat of large-scale conventional hostili-ties in Europe, the signing of the ConventionalArmed Forces in Europe Treaty, the impressiveperformance of current armored vehicles in thePersian Gulf War, and projected budget reductionshave left the Army with a large supply of advancedarmored vehicles and an overcapacity for produc-tion. The Army had planned to phase out productionof current combat vehicles and begin the develop-

ment of a new family of six armored vehicles underthe Armored Systems Modernization program. Itnow appears, however, that this family will berestructured around three vehicles, with the otherthree deferred indefinitely.

Reductions in Army procurement will have asubstantial but varying impact on companies in-volved in producing armored vehicles. The two mainarmored vehicle systems, the Abrams tank and theBradley fighting vehicle, have respectively over1,000 and 200 subcontractors and suppliers, withrelatively little overlap between the programs at thehigher tiers. (See table 4-1.) The prime contractorsfor these systems-General Dynamics Land Sys-tems for the Abram and FMC for the Bradley—argue that unit costs may become unaffordableunless specific levels of production are main-tained.1 4 The DoD has stated that procurement ofthese systems will cease, leaving export sales, spareparts, and R&D on follow-on systems as the maintasks for the armored vehicle sector in the 1990s.Mothballing some facilities is seen as more costeffective than continued production.15 While thecurrent primes have considerable expertise in devel-

13 me Resident’s fisc~ yew 1993 budget r~uest for the DoD emphasizes continued Comanche development and prototypfig Over Prtiuction.Upgraded Apache and other helicopters and unmanned aerial vehicles are intended to fulfill the Comanche’s role in the near term. See U.S. Congress,House Armed Services Committee, “Statement of the Secretary of Defense Dick Cheney in Comection with the FY 1993 Budget for the Departmentof Defense,” Feb. 6, 1992.

14 me ml~u ecomrnic production rate for a particular plant is dete rmined by a number of physical and orga.ni=tional factors, as well by themeasures taken at the plant to reduce overcapacity. Both General Dynamics Land Systems Division and FMC have taken significant steps in recent yearsto reduce their overcapacity and establish lower economical production rates. Government actions, discussed later, can further lower these rates.

15 Department of Defense, Report to Congress on the Defense [ndus(ria/ Base, November 1991, p. ES-5.


Table 4-l-Sample Products of the Armored Vehicle Production Tiers

Subcontractors

Prime Contractors Subsystems Components Suppliers

Abrams tank Electro-optical systems Optical lens and mirrors HardwareBradley fighting vehicle Gas turbine engine Gun mounts Aluminum

Transmission Cannon Steel dateRadio Roadwheels Machine toolsNavigation unit Aluminum castings Deple ed uranium

Turret ring castingThermal imager & laser

range finderDisplays

a There are over 100 suppliers for the thermal imager and laser range finder in the Abrams tank alone.


oping and constructing armored vehicles, they couldbe replaced should the need arise, although atpotentially high startup costs.

Similarly, reduced production will affect somesubcontractors and suppliers more adversely thanothers. For example, the electronics and opticsmanufacturers for the Abrams tank and Bradleyfighting vehicle support a number of other weaponsystems and should be able to maintain at least someof their capabilities if these other programs are notcut excessively. But other subcontractors and suppli-ers might be forced out of business should theproduction of the Abrams and the Bradley bereduced too far. The failure of these firms wouldhave serious consequences for the production ofweapon systems. Like the prime contractors, how-ever, many of these subcontractors and supplierscould be replaced by others in related lines of work,especially if the government is willing to buy fromforeign manufacturers.

16 In the case of truly uniquemanufacturers, the government will need to takesome action, such as subsidies, stockpiling, transferof technology and government-owned equipment, orredesign 17 As the production base Shrinks, policy -makers will face this issue again and again, in sectorafter sector.

Shipbuilding

The national shipbuilding industry is currently ina severe-some say terminal-slump. The bottomfell out of the commercial shipbuilding market in the1980s. At the beginning of the decade, 69 commer-cial ships were either on order or under construction.By 1988 this number had fallen to zero. The orderbook remained blank until a single new ship wasordered in 1990.18 If it were not for the U.S. Navy’spursuit of a 600-ship Navy, the U.S. shipbuildingindustry might have completely collapsed from thelack of commercial work. (See figure 4-4.) Now,some analysts are projecting a reduction in navalforces to 400 ships or fewer, which will result in afurther consolidation of the industry.

In shipbuilding, as in many other areas of defensecontracting, there are significant differences in thestructure and focus of an organization responding tothe defense market as opposed to the commercialmarketplace. Not only are the ‘e obvious differencesin naval and commercial hips related to theinstallation of complex modern weapons, but thehull structure and machinery of warships are built tomuch more demanding specifications to provideresilience against blast damage, flooding, fire, andother hazards of combat. These differences demanda larger and more technologically advancedworkforce at yards doing naval work.

lb For example, the ~urninum roadwheels on the Abrams tanks are ftished by Urdan Industries in Israel.17 me ~sident is authol-ized by p.L. 85-804 to grant extraordinary contractual relief to failing fm judged ‘Wf31Niii to the MtiOIEd defense. ’ mS

law was recently applied in the case of the Action Manufacturing Co. The slowing defense economy of the late 1980s :nd increased competition dueto new laws requiring increased competition (CICA, to be discussed below) eventually forced this company to cease o]lerations in 1989. This loss tothe production base threatened to shut down or interrupt manufacturing at five Army ammunition plants and arsenals, m d two contractors. Action wasawarded relief on the grounds that the company was essential to the national defense because of its impact on mobilization { ther producers, and readiness.(U.S. Congress, General Accounting OffIce, ‘‘Army Contract Adjustment Board: Decision to Grant Contract Relief to Actif m Manufacturing Company,’GAO/NSIAD-91-230, July 1991, pp. 1-2 and 8-11.)

IS U.S. Navy, Naval Sea Systems comma nd, Corporate Operations Directorate, “U.S. Shipbuilding Industrial Base, 19!30-1990,” briefing book, July1990.

Chapter Eff icient , Responsible, Mobil izable Production . 8 7

Figure 4-4-Navy and Commercial Ships Under Construction, 1980-90

Number of ships

200-

150

1 0 0

50

01980 81

153— —138

82 83 84

_ C a r r i e r s a n d ~ . ~

85 86 87 88Calendar year

Surface ~ ] A u x i l i a r y a n d =combatant amphibiousCoast C o m m e r c i a lGuard

117————

I I

8 9 9 0

SurveiIlance

SOURCE: Naval Sea Systems Command, July 1990

Table 4-2—Endangered Navy Shipbuilding Support Industries

Domestic manufacturers

Products 1980 1985 1990 2000Boilers. . . . . . . . . . . . . . . . . . . . . . . . . 3Air circuit breakers . . . . . . . . . . . . . . 1Condensers . . . . . . . . . . . . . . . . . . . . 8Large diesel engines . . . . . . . . . . . . . 3Periscopes . . . . . . . . . . . . . . . . . . . . . 2Propellers . . . . . . . . . . . . . . . . . . . . . . 9Reduction gears . . . . . . . . . . . . . . . . 9Large shafting . . . . . . . . . . . . . . . . . . 6Steam turbines. . . . . . . . . . . . . . . . . . 3Power distribution switchboards . . . 11

318229953

10

2161279439

1140252326

Shipyard

SOURCE: Naval Sea Systems Command, July 1990.

subcontractors and suppliers, which can involved in nuclear ship propulsion. The Bushnumber in the thousands for a complex naval vessel,also face a difficult future. The number of primarysubcontractors is expected to fall by the year 2000 toless than 75 percent of 1990 levels.19 Moreover,many critical subtier vendors are dependent on asingle class of vessel for their continued existence.Table 4-2 lists some of the more threatened capabil-ities, most of which are older technologies. Analystsare also concerned about the future of companies

Administration’s revised 5-year shipbuilding planfor fiscal years 1993 to 1997 includes only onenuclear-powered ship, an aircraft carrier, and nonuclear-powered submarines. The supporting nu-clear propulsion companies have no civilian marketto fall back on in a period of decreased shipbuilding.Nuclear-qualified shipyards may find some work inoverhauls and decommissioning nuclear-poweredvessels being taken out of the active fleet.

19 Ibid


,


The Aegis guided-missile cruiser Antietam (left) preparesto be launched from the Ingalls shipyard, while work

continues on the L@e Gu/f (right).

As with the other sectors discussed, the govern-ment can adopt measures to maintain domesticcapabilities or, in some cases, fill gaps in productionthrough foreign sourcing. For example, the U.S.Navy already depends on foreign purchases of largediesel power plants, periscope lens glass, and largeseamless pipe.

20 Subcontractors and suppliers inadvanced technology will, however, have substan-tial markets abroad.

Some analysts project a resurgence of the interna-tional shipbuilding market in the second half of the1990s because of the growing obsolescence of theworld merchant fleet. For the United States to takeadvantage of this trend, commercial yards will haveto survive until the upturn begins and then buildships that are cost-competitive both in unit price andfinancing arrangements. Competition will be tough,particularly in the construction of technologically

unsophisticated ships (e.g., single-hull tankers).U.S. shipbuilders might be advised to concentrate onthose ship types that require more expertise (e.g.,double-hull tankers, refrigerator ships, liquid-chemical container ships, and self-unloaders). Theycould also profit from increased foreign sales orsubcontract work on naval wessels. If any of this isto occur, however, industry armlysts argue that somegovernmental action will be required to break downforeign shipbuilding subside!:, primarily in WesternEurope, and to promote foreign military sales.21

Conventional Munitions

The conventiontil munitions sector differs fromthe other industrial sectors cited above in that itproduces in large quantities, often in the millions peryear. In 1985 the U.S. ammunition budget was about$5 billion; in 1991 it had fallen to $2.3 billion withfurther reduction expected.22 As in other sectors,there is considerable overcapacity in munitionsproduction, including some mothballed plants. Themilitary requirement for munitions is the sum ofpeacetime replacement needs (from training andtesting) and war reserve requirements. This require-ment has generally not been fully funded in the pastand, with ever tighter procurement budgets, isunlikely to be fully funded in the future.23 Moreover,surge efforts in preparation for the Persian Gulf Warfilled inventories with ammunition that went largelyunused. Angelo Catani, President of Olin Ordnance,described this situation as ‘‘ac{;eleratirtg our way outof the business. ”24 The Persian Gulf War alsovalidated ‘‘smart munitions’ at the expense oftraditional “dumb munitions. ‘ These smart muni-tions are produced in smaller quantities and havehigher unit costs, with most of the cost going forguidance systems and not explosives.

Olin Ordnance, as one of the three domesticmanufacturers of medium- and large-caliber ammu-nition, plans to survive the changes in defenseproduction by restructuring and downsizing, andexploring new markets, such as ordnance disposaland environmental cleanup.25 However, the oppor-

m Ibid.z] shipbuilders co~cil of Arneric~ ‘‘Update on World Shipbuilding Subsidies,’ S~Cial ~POfi, March 1991.22 ‘ ‘From the Boardroom: Angelo A. Catani, President, Olin Ordnance, ’ Armed Forces Journal International, Octo xx 1991, p. 73.n Kemeth Girardini, “The Army’s Conventional Munitions Acquisition Process,” Rand Note N-2864-P&L, The Rimd Corp., July 1989, p. v.U “One on One, ” an interview of Angelo Catani, Defense News, July 1, 1991, p. 23.X “From@ cBOar&oom,’ op. ck, fOOtnOte22, p. 74. As thisreportwent topublicatio~ Alfiant Techsystems, another domestic ammfitionl)roducti,

had tentatively agreed to purchase the defense operations of Olin Corp.


Photo credit: DoD

The three man crew of the Multiple Launch Rocket Systemcan fire 12 rockets over 30 km. in less than a minute.

tunities for saving the production facilities them-selves are severely limited by the specialized natureof the manufacturing equipment and the lack ofcommercial markets for large ammunition.

When Preserving the Current BaseIs Not Critical

Maintaining all parts of the current produc-tion base for a given weapon system might notalways be necessary, particularly if the Adminis-tration and Congress adopt a long-term, mission-oriented approach to defense procurement. Inmany areas, reduced U.S. forces can be equippedfrom the current stockpile of weaponry for years.The technological edge of these systems could beassured through periodic upgrades, as described inchapters 3 and 5.

Meanwhile, design, development, manufacturing,and maintenance engineers could build and testexperimental weapon prototypes that emphasizeaffordability, producibility, usability, and maintain-ability, in addition to performance (see ch. 3 for adiscussion of prototyping). These prototypes maybedirect descendants of current systems (e.g., a proto-type follow-on to the Abrams tank) or they mayachieve the mission of the current system in a new

Photo credit: TRH, London

The soldier of the future will live in an world vastly differentfrom our own.

way (e.g., the Multiple Launch Rocket System v.traditional artillery).

When a prototype has been sufficiently tested anda requirement appears, the new weapon systemcould enter production and replace aging equipment.Since the new system could be truly revolution-ary in design, its production base might besubstantially different from the current base.26

(For example, the ability to cast large steel turretrings would not be needed to manufacture a ceramic,turretless tank.) New systems could be designedwith common components, thereby simplifying andconcentrating the production base and making lowerproduction rates economical. Many firms workingon current systems will recognize these shifts in

~ In the Pwt, few new weawn systems have been so revolutionary that the old production base was bypassed entirely. fioducti hve tended to bemore evolutionary as producers of old components have moved on to new components. This will probably be true in the future as well, although a seriesof prototypes may advance to the point where their basic hardware differs from the last produced model. Moreover, the new system may have little incommon physically with systems preeeding it (e.g., atomic weapoms and guided missiles),


Box 4-A Competing Goals of Defense Production

Efficiency is not the only grounds on which to judge the defense production base. Other public interest goalshave been important factors in the structure of the current production base. These goals include:

. Maintaining employment levels and geographic distribution.

. Providing workers with education and skills.

. Fiscal accountability and safeguarding the taxpayers’ money.● Supporting small and disadvantaged businesses.. Stimulating the national economy.. Competition to ensure fairness and access.. Buying American products to protect American jobs.

In a period of much reduced defense spending, policymakers might choose to adopt efficiency as the primegoal for the future defense production base to ensure that limited defense funding provides the maximum defensecapability. Political realities, however, make it unlikely that the influence of public interest goals on defenseprocurement will disappear completely. As defense resources become increasingly stretched, policymakers maychoose to elevate the relative importance of efficiency in restructuring the base. At a minimum, it might be necessaryto make efficiency paramount in critical sectors where the future production base is especially threatenexi. Congressmight review DoD efforts to identify vulnerable portions of the base where alternative sources are not readilyavailable or are politically unacceptable (e.g., sole foreign suppliers) and request further studies if these efforts arefound deficient. Then, Congress might exempt critical firms or the defense industry as a whole from public interestlaws and regulations.

This report leaves the judgment of the appropriateness of various public interest goals to policymakers andfocuses solely on options for producing “the most bang for the buck. ”SOURCE: OffIce of Technology Assessmen4 1992.

production opportunities and redirect themselves of sometimes in conflict with other interests that havetheir own accord.

EFFICIENT PRODUCTIONAn efficient peacetime production base is defined

as one that manufactures materiel that is affordable,manufacturable, usable, maintainable, and of goodquality. (Two other desirable characteristics of thefuture production base——responsiveness and mobil-izability in crisis or war-are addressed in subse-quent sections). Congress, the Administration, andprivate industry can adopt several measures—separately or in combination-to create an efficientproduction base for the 21st century. The measuresinclude: streamlining production and consolidatingindustries; operating at lower production rates;shifting away from the manufacture of end itemstoward prototypes, upgrades, spare parts, and main-tenance; reducing barriers to civil-military integra-tion; cooperating with allies; stimulating innova-tion; and increasing procurement and equipmentcommonality. The goal of efficient production is

shaped the production base in important ways in thepast. This conflict is discussed in box 4-A.

Streamline and Consolidate Industry

Streamlining g and consolidating the current baseare essential for efficient production. Defense manu-facturers across the board are streamlining theiroperations. They are trying to sell off excessfacilities, laying off or retiring workers, and diversi-fying into other businesses. Some companies haveabandoned defense work; resulting in a consolida-tion of their industrial sector.27

Attrition will eventually reduce the size of theproduction base to a level (consistent with de-creased defense spending, but a lack of long-termplanning will leave the base weaker and poten-tially crippled in key sectors f important manu-facturers fail. The DoD did not regard this as amajor concern until recently. In a report to Congresslast November, the DoD wrote: “In a broad context,

~ The ~dus~, Technolo~, and Empbyment Program at OTA is engaged in a companion study on how to smooth the transition of businesses andpersonnel into the private sector. Their first report is U.S. Congress, OffIce of Technology Assessment Ajler the Cold War b“ving With Lower D#enseSpending, OTA- ITE-524 (Washington DC: U.S. Government Printing OffIce, February 1992).

~ 1‘Repofi to Congress on the Defense Industrial Base, ’ op. cit., fOOtnOte 15, p. ES-7

Chapter Efficient, Responsive, Mobilizable Production ● 91

free market forces will guide the industrial base oftomorrow. ’28 The DoD argued that active govern-ment intervention in the defense market would onlybe required in areas where technological or manu-facturing capabilities critical for national securitywere threatened. The guiding principle at the DoDhad been that the government is not ‘‘wise enough’to pick winners and losers and that, for the most part,market forces should make these determinations.29

In recent months, however, DoD officials havebegun to discuss more active options for preservingportions of the DTIB, including a prototypingstrategy of sorts. 30 However, outside analysts roguethat the coming budget reductions will be larger thanthe Bush administration is planning for and thatunless decisive action is taken to protect the futurebase, it will be severely undermined.

Internal Streamlining

The government can influence the internal streaml-ining of individual firms in several ways. It canstabilize the business environment by making morereliable force projections and by predictable multi-year program funding. It can reduce administrativebarriers that block the integration of commercial andmilitary production. And it can support the transferof relevant manufacturing technology. (Each ofthese actions is discussed below.) Most internalstreamlining, however, must be company-initiatedto enable firms to compete for fewer and smallerdefense contracts.

Consolidation of Industrial Sectors

The government can have a more direct impact onthe degree of consolidation of defense industrialsectors. In industries where future procurement willbe much smaller than present production levels, the

government might decide to pursue policies thatensure only that the best manufacturers survive,even if this means that others do not. For example,the fighter aircraft industry now consists of sevenprime contractors. 31 Reductions in the number o fU.S. Air Force and Navy fighter wings in the futurewill probably force one or more of these companiesto leave this business.

Defense firms are unlikely to leave the defensebusiness readily (as box 4-B suggests). Governmentaction might either prop up these companies (e.g., bydistributing contracts to maintain their survival or bywaiving competition requirements)-perhaps weak-ening all of them-or help encourage consolidationamong the firms to a number more commensuratewith demand.32 Facilitating mergers among sectorparticipants would foster consolidation and avoidthe loss of unique capabilities and talents.33

Changing Competition Rules

Government rules and regulations could also bechanged to emphasize maintaining the health ofinnovative manufacturers in critical sectors.34 (Lesscritical sectors might also benefit from these changes,but the need for them might be outweighed by socialconsiderations, as was discussed in box 4-A).Redesigning Defense reported that industrialistspointed to the Competition in Contracting Act(CICA) of 1984 (Public Law 98-369) as a majorsource of problems in the DTIB.35 In their view, thefocus of CICA on full and open competition basedon low-price bidding instead of quality or pastperformance has allowed some unqualfiled andinexperienced companies to get into the defensebusiness at the expense of established and reputableproducers. Without the discipline of past perform-ance evaluation, new competitors may submit bids

29 1‘Atwo~: Pure]y ‘Industrial Base’ Contracts on the Horizow’ Aerospace Daily, June 3, 1991, p. 370.~ ( ‘Statement of tie Semew of Defense Dick Cheney, ’ op. cit., footnote 13.

31 Boeing, Gene~ t@~cs, Grummam Lockheed, McDomell Douglas, Noi_thIup, and Rockwell.32 me Amy Mmitiom ~d Chemlal Command is using existing regu]a(ions and s~tutes, including tie 1861 Arsenal Act, tO COnSOh&ite ltS

ammunition mobilization base.33 -rhe geoWaphiM] dis~bution of he ~maining manufacturers is an important factm in consolitition PI arming. Concentrating them in one area

allows workers to flow from one company to another according to production schedules,34 A DOD AdvisoV panel on s~eml~g and codifying Acquisition Laws, composed of senior government and indusv representatives, hm been

established by Congress to review all acquisition laws and offer recommendations for change where appropriate. This panel is subdivided into 6 workinggroups covering socioeconomic, contract formation, contract administration intellectual property, standards of conduct, and other acquisition statutes.Fiml recommendations are expected in January 1993. (56 FederuZRegisrer 215, pp. 56635 -56637.) This panel will not address how the DoD implementslegislation. For example, single-source contracts are legal under specified conditions, however, procurement officers avoid such exemptions from usualpractice because they raise the possibility of legal challenges by other producers.

35 For a more de~l~ discussion of ~f’A see ‘tBox 4- >~ob]ems wi~ tie competition in Corlwacting Ac~ Redesigning Defense, Op. Cit.,footnote 1, p. 70.

326–447 – 92 - 4 : Q[, 3


Box 4-B—Teaming Arrangements

A few of the larger defense prime contractors have sought to avoid betting their future on all-or-nothingcontracts by joining forces in teaming arrangements where several companies share the risk and rewards ofcompeting for large contracts. A prominent example of industrial teaming occurred in the Advanced Tactical Fighter(ATF) competition, where virtually the entire fighter aircraft industry signed up to support one or the other (or both)ATF prototypes. The two teams together are estimated to have invested between $1.2 and $2 billion in thecompetition, with the winning team getting the chance to build perhaps the only new fighter this century. In late1991, the Navy ran a similar competition for the AX attack plane and awarded concept exploration and definitioncontracts to the following teams of prime contractors (shaded) and major subcontractors: -

Major partners of AX Team Proposals

Team A ‘ Grumman ~ Boeing] [ Lockheed

Team B Boeing I Lockheed

Team C

Team D

Team E Lockheed

General Dynamics II

General Dynamics ]

Rock wel I ~

McDonneii Douglas Northr;p ]

‘ c D O n n e” D @ ’ : [ L + v = “ 1

+ As t his re por t went to p reas, the ownership of LT V C or p o rat 10 n‘s Aerospace Di v Is io nwaa being deter mined by bankruptcy proceed lnga.

SOURCE: Washhgton Post, 1991; Defense News, 1992; U.S. Navy, 1992.

Teaming arrangements can be good for industry and the DoD if companies with complimentary skills worktogether to produce a system that no single company could build alone. Indeed, almost all major weapons are builtby teams. In the AX competition, for example, Grumman, McDonnell Douglas, and LTV have past experience withthe special demands of naval aviation; Lockheed and LTV have expertise in stealth technology; and Boeing is strongin avionics.l But teams may also be founded less on unique qualifications than on a desire to carve out a piece ofa diminishing market and to share financial risks.2 In such a case, the combined resources of the partners are lessof an advantage and more of a burden: the extended collection of prime and subcontractors seines as a source ofincreased bureaucratic overhead, conflict between corporate cultures, and miscommunication (see figure below).This is particularly true in competitions like the AX where a single firm may compete on more than one team,requiring internal barriers to the transfer of information. Moreover, there is a possibility that partners competitivein other programs may withhold their best ideas and personnel from the team. In the end, however, no amount oftearning to win a piece of what will be a smaller contract pie will support the current-sized base. Governmentpolicymakers, understanding this, should be wary of awarding contracts to teams that do not have complementarytechnological strengths.

Interlining Teamsr Prime A ~ { Prime B I

SOURCE: office of T~no@y Asseasrnent, 1992.

1 s~ven PW~te@ “smWe B~e~O~~~c to Chase A-X Bid,” The Washington Post, July 21, 1991, P. 111 ~dH12; d AnthonyL. Velocci Jr., “AX COm@don ~ticd to ?vby Team hk!mbtXS,’ ‘ Aviation Week and Space Technology, July 22, 1991, pp. 18-19.

2 ~ tie A~comWti~m each major player had a 5050 c~nceof winning a share of the contract instead of a 1-in-7 chance if the aircraftprimes had gone it alone.SOURCE: CXllce of Technology Assessment 1992.

Chapter 4---Efficient, Responsive, Mobilizable Production . 93

that they cannot fulfill without more funds later ortransferring the contract to another manufac-turer-all at added cost to the DoD.

Low-price bidding often favors companies that“build-to-print’ (i.e., they produce off someoneelse’s drawings), because these companies do notcarry the high overhead cost of maintaining an R&Dcapability. 36 Build-to_print companies are an impor-

tant segment of the current defense production base,often producing products of highest quality. How-ever, as industrial sectors consolidate, policy makerswill need to decide whether it is better to supportfirms that develop new systems rather thanbuild-to-print companies.

One option for placing defense bidding onfirmer ground lies in further efforts to change thecriterion for contract award from lowest bid to ‘‘bestva lue , based on the past record of a company inmeeting price, schedule, and quality goals, thecapability to do the job, and, in a few sectors, theimportance of an individual company to the mainte-nance of the base.37 New competitors could still beinvited to submit bids, but they would need to beparticularly innovative to overcome the handicap ofno past performance record. Another option is thepreelection of qualified bidders. The U.S. Navyapplies a combination of best value and preelectionin certain procurements. Rather than bidding foreach contract as it comes due, firms are interviewedonce and put on a list in order of their assessed abilityto complete a job successfully. If the first companyon the list refuses the contract, the next company iscalled in for negotiations. The list is then reused forsimilar procurements.

The U.S. Army is currently experimenting withalternative approaches to contract awards. Oneinitiative has separated the risky development phaseof procurement from the more predictable produc-tion phase. The uncertainties of development, com-bined with the pressure to submit the lowest bids, led

to repeated cost overruns in the development phasein all Services during the 1980s. Cost overruns oftenhurt both the Services and the contractors, especiallyif the latter were working under a fixed-pricearrangement with cost overruns charged againstfirms. The Army covered all development costs onits new light helicopter, the RAH-66 Comanche, andthen looked for production bids that were realisticand demonstrated an understanding of the program.According to the Army, fully funding developmentreduces the likelihood of costly surprises and delaysin production.38 Although a team comprised ofBoeing and Sikorsky was awarded the contract,recent budget cutbacks have left the future of theComanche in doubt.

Public and Private Arsenals

In some cases, procurement might be so lowthat, even after extensive restructuring, there isonly enough work for one manufacturer. Theresult would be what is known as a “naturalmonopoly. ’39 For easily produced items, a naturalmonopoly would still allow competition, since othercompanies could bid to take over the contract whenit expired. But for items requiring special machineryand skills, competition would have to be inducedartifcially and the government would have to absorbthe costs of helping a new contractor develop thecapability to produce these items whenever thecontract changed hands. Moreover, the changeovermight leave gaps in production capability. As thedominant buyer of defense equipment, the govern-ment would retain significant leverage for modify-ing the behavior and prices of a monopolist vendor.

In Redesigning Defense, OTA suggested thatprivate or public arsenals might be established insectors where natural monopolies exist. Privatearsenals could be either GOCOs or companies thatreceive noncompeted contracts. Examples of impor-tant defense industrial sectors that might be forcedinto arsenal production are armored vehicles and

36 lf ~~ ~llcw~cr~ took a radical app~ach t. rcs~ctting the DTIB and located all development responsibildies in R&D centers, hen tiedistinction between build-to-print houses and other manufacturers would disappear (see ch. 3). Quality of production, however, would remain as alegitimate standard for consolidating the production base.

37 me Comerclal s~engrh of a company might ~50 & an a~vantagc in abest value Competition. A diversified company might be better able to weatherlulls in defense production than a less diversiticd company and maintain its defense capabilities without DoD support. In any case, best value criteriawould need to be made explicit to limit subjcctivit y and deter legal challenges.

38 Caleb Baker, ‘ ‘Army Calls for Changes in COnba~t ~OCCSs, Defense Newt, vol. 6, No, 11, Mar. 18, 1991, pp. 4,44.JP A natural monopoly ‘‘is a monopoly that occurs bccausc it is economically impractical to have competition, as when the position of consumers

would not bc improved by having 30 water companies offering their services to every household in a certain city. The extra cost of installing 30 setsof pipe would more than offset any possible pncc reduction brought about by competition, so in the U.S. most natural monopolies are reguhrredmonopolies. ” In Donald W. Moffat, Economics Dictionary (New York, NY: American Elsevier Publishing Co., 1976), p. 198.


ships. Designating one source for armored vehicles(e.g., tanks, personnel carriers, and self-propelledartillery) and funding it specifically to maintain itscapabilities might be necessary to preserve manufac-turing skills and guarantee a mobilization capability.In shipbuilding, rather than let the shipyards go outof business one by one, it might be in the nationalinterest to select the most modern and efficientyards, or those with unique capabilities, as ship-building arsenals. These arsenals would likely beprivately operated, possibly GOCOS.Q The Navy isreportedly planning to streamline shipyards on bothcoasts and create administrative hubs that willreduce overhead at individual shipyards.

Closing or Mothballing Facilities

In instances where the current supply of aweapon system is sufficient for the foreseeablefuture, the government might shut down allcurrent production facilities—perhaps mothball-ing them—and accept the substantial costs anddelays of reestablishing production if the needever arose 41 The existence of an experiencedworkforce to revive a facility would depend onrelated work being conducted elsewhere.

Second-Source Contracts

The past emphasis on second-source contractsmust also be reextied in light of a perceived needto strengthen quality manufacturers. Second sour-cing was intended to protect the military from theunanticipated loss of a manufacturing capability andto reduce unit costs by injecting competition into theprocurement process. But unless carefully handled,second sourcing may be unfair to the originalproducer, may lower incentives for firms to invest inR&D, and may not result in lower real costs.42

The original developer of an item carries overheadcosts (e.g., R&D and design teams) that a second-

source producer, particularly a build-to-print firm,may not have. Moreover, just when the originalproducer is lowering its cost through greater manu-facturing experience and higher volurnes,43 thesecond source must build or maintain facilities, trainpersonnel, and often repeat the mistakes alreadymade by the primary source, perhaps resultinginitially in lower quality. If the policy makers) goalis to forge a stronger future production base, thegovernment could support fully those companiesthat develop new systems, rather than weakenthem by giving second-source work to inexperi-enced firms or those without R&D capability onthe grounds of furthering competition. If secondsourcing is still deemed important, then the second-source field could be limited to those producers thathave a development capability. Another option forthe DoD is to fully fund development, making itprofitable in its own right, or tO separate productionfrom R&D through the establishment of independ-ent design houses. (See ch. 3.)

Technical Data Rights

DoD procurement officers often demand alltechnical data as part of a production contract inorder to establish second sources. (See ch. 2.)Companies report they have to release technical datarights to win a contract even when providing it is notlegally required. Prime contractors are largelyunaffected by the technica1 data rights issue,since their major task is systems integration,which is a difficult capability to transfer. Incontrast, subcontractors see their proprietaryinformation in products and processes, many ofwhich have commercial applications, as the pri-mary feature that distinguishes them from theircompetition. Build-to-print defense firms can usethis data to undercut R&D-intensive companies indefense contract competitions based strictly on

40 AI&ou@ tie U.S. Navy in the past constructed its own ships in naval shipyards, it has not done so since the 1960s. hently, tie WWal shipy~dsspecialize in overhaul and repair, while all new construction is done in private yards. Because it would be difficult and exl ensive for the naval shipyardsto relemn how to build ships, any shipyard arsenals would most likely be established at private shipyards currently eng,lged in shipbuilding.

41 For ex~ple, Gener~ Dynamics estimates that if its tank facilities were completely shut dow~ it would take a m inimm of 4 1/4 ye~ after areopening decision to produce the fust tank and 5 years to achieve a rate of 60 tanks/month. The components that determ ne this delay, however, couldbe identified (i.e., gas turbine engines and depleted uranium armor) and stockpiled to cut down the time to fust-unit production.

42 me extent of direct cost savings gained through second sourcing is very difficult to measure. A Rand Corp. study )f second sourcing noted, “insome cases (especially in the procurement of major systems) it may be actually less costly for the government to forgo competition and rely on a singlesupplier. ’ This is primarily due to the need to facilitize the second source and transfer manufacturing procedures. In orde r to achieve true cost savings,the planned production quantity must be sufficient to allow both firms to achieve maximat productivity and offset the ,tdditionat costs of the secondsource. (See J.L. Birkler, E. Dews, and J,P. Large, ‘‘Issues Associated With Second-Source procurement Decisions, ” IL-3996-RC, ‘1’he -d coq.,December 1990, pp. v, ix, and 26.)

43 me cost ofpr~uctionformost items dmreasm over time as experience is acquired and past mistakes are avoided. The se MVingS are found in shorterproduction cycle times, fewer manufacturing defects and design changes, and less waste. This decrease in cost can occur I egardless of second sourcing.

Chapter 4--Efficient, Responsive, Mobilizable Production ● 95

lowest price and to gain advantages in commercialmarkets.

In the future, innovative firms will have a greaterstake in holding on to technical data rights to helptheir commercial work. They may therefore refuse tobid for defense work if the DoD enforces technicaldata rights rules as it does today. Useful alternativeswould be for the DoD to:

1.

2.

3.

4.

5.

put the burden of proof on the government todemonstrate an explicit need for access toproprietary data;limit the requirement for proprietary data tocertain vital components;keep collected data confidential until needed,perhaps in escrow, with government accesscontingent on specific conditions;let businesses withhold this information for aperiod of time (similar to a patent) that willallow them to develop more advanced capabil-ities (a relatively short period in the electronicsfield) 44 o rcompensate firms financially or with advan-tages in procurement for the full value of theirproprietary data,

Strategic Partnerships

In the future, fostering a quality, integratedsubcontractor and supplier base will be at least asimportant as supporting the best prime contractors.Yet consolidation among subtier firms is inhibitedby many constraints. Although the primes are notalways legally bound to compete their subcontracts,many do compete subcontractor awards in the beliefthat otherwise they will lose the contract. The primesargue that competing subcontracts is often expen-sive and sometimes results in poor quality work bythe low bidders, causing the primes to be blamed forschedule delays and cost overruns.

Spokesman for the primes argue that the subcon-tractor and supplier tiers should be rationalizedthrough strategic partnerships. This is currently

occurring in the civil sector, where commercialenterprises are shedding their past practice ofcompeting for lowest-priced components in favor oflong-term relationships with subcontractors andsuppliers of proven quality and dependability. Spokes-men for commercial industry argue that thesepartnerships result in lowest real cost (e.g., theyavoid costly mistakes, redesigns, and the cost ofreworking defective incoming parts). The FederalGovernment could ensure fair pricing through com-petitive bidding at the prime level and periodicaudits .45

Reduce Production Rates

Policy makers should plan for future defenseproduction that will be much lower than presentlevels. Funding cuts and equipment surpluses gener-ated by force reductions will continue to lowerproduction. This is not to suggest that all productionwill cease. Even with the largest cuts now fore-cast, the military will continue to purchase tens ofbillions of dollars worth of equipment annually.Future forces will still need to be outfitted; agingstocks will need to be replaced periodically.

One way of maintaining manufacturing capabilityin the future DTIB would be to set low productionrates in lieu of traditional rapid rates.46 The declineof a major Soviet-size conventional threat has madeit less important to produce systems rapidly .47Low-rate production would allow the DoD, with alower procurement budget, to maintain core manu-facturing personnel, equipment, and facilities. Thesewould serve as the base for fulfilling surge, mobili-zation, or increased peacetime requirements. (Seebox 4-C.)

Whether or not low-rate production increases unitcosts depends to some degree on when and how theproduction decision is made. If a decision is madeduring the design phase of a product, then the designcan be optimized for existing low-rate manufactur-ing equipment and processes. Manufacturing facili-

44 In fac[, businesses often delay handing over technical data until they have developed a more advanced capability.

M Commercial business~~ that are now organized in strategic partnerships feel they can avoid price g~ugkg by their restricted su~on~actor andsupplier base without the extensive oversight common in defense procurement by negotiating a long-term relationship in exchange for a reasonable price.

46 ~W,-rate Production in his repo~ differs from fie concept of‘‘low.mte initial production’ ‘ (LRP). LRF is often intended as a trial period duringwhich the manufacturing processes and equipment are validated and tlnal design changes are made before shifting to a higher rate. In this report, low-rateproduction remains constant and does not assume higher future rates, Thus, the best manufacturing processes, facilities, and equipment for LRIP maydiffer significantly from what is needed for low- rate production, Sec Dqfense Manufacturing Management, op. cit., footnote 4, ch. 11, pp. 12-13.

47 In the Commercia] sector, tie sp~d with which new products can be brought to market is becoming increasingly impofl~t. ~w-mte pr~uction,designed to maintain a critical production capability over an extended period of time, necessarily contradicts this trend. Joseph T, Vesey,‘ ‘Speed-tmMarket Distinguishes the New Competitors, ’ Reseurch-Technology Management, vol. 34, No. 6, November- December 1991,


Box 4-C—Low-Rate Production is Not Always the Best Option

During the transition to a smaller, more efficient future production base, not all manufacturing skills,equipment, and facilities will need to be actively protected by the DoD. Many capabilities may t e relatively commonin the defense or broader commercial base. As long as workers and equipment can be assemble din a timely mannerwhen production is needed, the DoD need not take extraordinary action to preserve a continuous capability in thedefense production base. (Policies addressed in this chapter for fostering efficiency and preserving capabilities,however, may still be beneficial in these noncritical areas as a means of lowering procurement costs and raisingquality.)

Stretching out production is particularly problematic for the wide variety of defense items that are procuredin small quantities of less than 100 (e.g., special aircraft, ships, and satellites). In such caseS, the indiscriminateadoption of low-rate production could result in unrealistic work schedules and therefore needlessly expensive costs.Instead, these products should be procured in economic batches as long as their associated manufacturingcapabilities can survive between orders through related work or because the manufacturing processes involved arerelatively simple. The use of economic production rates applies to subtier firms as well as to prime contractors. Forexample, even if it was decided to manufacture attack helicopters at a slow, steady rate to maintain workerfamiliarity with the process, many basic subcomponents and hardware could be procured up front to lower costs.(Of course, savings for bulk purchases would have to be balanced against storage costs and the requirement forearlier spending.)SOURCE: Offkx of Technology Assessmen4 1992.

ties and staffs can be sized appropriately, thus The key to the success of low-rate production is tominimizing unit costs.48 But transformin g an activehigh-rate production facility to a lower rate will ingeneral be difficult, less efficient, and expensive,and will require an arduous transition period whenexcess capacity and workers are reduced.

Predictable funding through multiyear procure-ments would enhance low-rate production, Suchfunding would facilitate long-range planning andlessen firms’ fears of failure; thus it would permitmore aggressive restructuring. This should in turnresult in lower unit costs than would occur other-wise.49 The disadvantage of multiyear procurementis that it reduces government budget flexibility,front-loads costs, carries significant penalties to thegovernment for contract cancellation, and may makeit more difficult to institute late design changes.50

Adoption of multiyear procurement would require aconsistency of defense planning and funding that isnot evident today.

establish an acceptable minimum production rate.This rate will allow the prime contractor to remainprofitable and obtain all necessary subcomponentsand supplies. The rate will depend on the size ofoperations, the flexibility of the factory, and thenature of other products produced. Rates will also beaffected by the adoption of measures discussed laterin this chapter.

Detailed information will not only be neededabout the lowest sustainable production rate of theprime, but that of suppliers and subcontractors aswell. In some cases, the lowest rate may bedetermined by the need to keep production linesopen for a critical subassembly. Alternatively, ratherthan produce more of the final integrated system, thegovernment might find it cheaper to subsidize themanufacturer of this subassembly, find anothercompany willing to produce it or a redesignedreplacement at lower rates, move production into a

4S The cwi~ ~va~ent in facfities and equipxnerlt for a new product can be a substantial proportion of the total program cost. A company that afyeedto low-rate production for a new product might limit itself to one production line, because that is all it needs to manufac ure the item. Moreover, thecompany might choose to rely on flexible and existing equipment, rather than investing in specialized equ.ipmen~ to ‘ower costs and leave openopportunities for altering production processes over the duration of the extended production run. Under traditional procureme n4 the same company wouldmore likely run several production lines using specialized equipment in order to receive the quickest return on its investme ~t. Cutbacks in procurementto this company after it had made this investment would result in higher unit costs,

@ ConvmWIy unpr~lc~ble fund~ and production rates will raise unit costs, kuse Of an kefflCient uSe Of ~nt.d ~ct~ r~OmeS.,m K~en W. Tyson et al., ‘ ‘Acquiring Major Systems: Costs and Schedule Trends and Acquisition Initiative Effective ness, ’ IDA Paper P- 2201,

Institute for Defense Analyses, March 1989, ch. 6, pp. 1-11.


Table 4-3 lmpact of Low-Rate Production on t he Abrams Tank’s Subcontractor Base

Number of tanks produced per month

Component subcontractor 10 30Electronics/Optics

Sterling Heights, GDLSCadillac Gage, MlCadillac Gage, OHTexas InstrumentsSmith IndustriesKollmorganPrecision SensorsGEJ-Tech AssociatesHughes AircraftComputing DevicesKearrfott

Some problemsSome problemsSignificant riskSome problemsSome problemsSome problemsSome problemsNASome problemsSome problemsNANA

Acceptable riskAcceptable riskSome problemsAcceptable riskAcceptable riskAcceptable riskAcceptable riskNAAcceptable riskAcceptable riskNANA

Complex machiningScranton, PA, GDLS Significant risk Some problemsDetroit, Ml, GDLS a a

Lima, OH, GDLS Some problems Some problems

Basic materialsAtchison Casting Some problems Some problemsLukens Steel Some problems Some problemsIdaho, U.S. DOE b b

WeaponsRIA Some problems Acceptable riskWatervliet Arsenal Some problems Acceptable risk

PropulsionTextron Lycoming Some problems Some problemsAllison Some problems Some problemsStanley NA NAUrdan NA NAFMC NA NA

KEY: Companies that are least affected by lower production rates are listed as having “some problems.” Companieslisted as being at “significant risk” will be most negatively affected, with a potential for facillt y shutdown. NA meansnot available.

a Ml assembly line closed in 1991.b .schedu[ed to begin closing in December 1992.

SOURCE: General Dynamics Land Systems (GDLS) Division, 1991.

government-owned arsenal, or stockpile all that willever be needed in a one-time ‘‘life-of-type’ buy.

A company might implement its low-rate pro-duction in different ways: spread even] y through-out the year, in odd-sized batches as orders comein, or all at once in a short period to allow a shiftto other products for the remainder of the year.The sole mandatory requirement would be thatcritical capabilities and skills are maintainedfrom one year to the next. OTA asked GeneralDynamics Land Systems to estimate the impact oflow-rate production on the Abrams tank contractorbase. The results are shown in table 4-3.

Firms that emphasize flexibility in manufacturingorganization, processes, and equipment will be wellpositioned for a transition to low-rate production, aswell as to the production of new products. (See box4-D.) Flexible manufacturing systems enablebusinesses to build several different productssimultaneously on the same line (or at the samestall) and to shift from one project to another witha minimum of expense and effort. In the extreme,each item on a flexible line might be unique. Whileflexible manufacturing can be capital intensive,requiring new flexible machines, this is not true forall products. For example, the most flexible andcost-effective manufacturing method for one-of-a-kind satellites might be to build them by hand.51

51 Sandwich shops ,Uc often USC(I as an CX.mpIC of a complc(cly flexible assembly line with no automation at d+ustomers have a wide YiUiety ofsandwiches and ingredients to choose from.


Box 4-D—Restructuring for the Future: BMY-Combat Systems

One company that has already successfully navigated the transition to low-rate production is BMY-CombatSystems. In an interview in Armed Forces Journal International, the president of BMY revealed that the companyreduced the production rate of the M-88 tank recovery vehicle from 20 per month to 3 to 4 per month and remainedprofitable. This rate reduction was one aspect of a company-wide strategic restructuring.l The success of this effortdepended on a total restructuring of the production process so that six fairly similar products that use many commonparts and processes could be produced on the same line. It also required the infusion of $80 million for plantmodernization from BMY’s parent corporation, Harsco; the replacement of most government tooling with thecompany’s own, more flexible tooling;2 a consolidation and rationalization of facilities; a 50 percent reduction inworkforce; and a relative increase in foreign sales of its products from about 40 percent in 1986 to about 65 percentin 1991. The company can take small orders (5 to 6 vehicles) and integrate them with orders for other vehicles tomaintain the production line. With the restructuring almost complete and a couple of years’ orders on its books,BMY-Combat Systems’ employment is now rising again. The firm’s main concern about future production is howto ensure continued supply of key parts from subcontractors and suppliers. Commonality of products has allowedBMY to award multiyear contracts to its subtiervendors, but some of them are on the verge of going out of business.

I Joti G. RMs, “FrOrn the BO~droorn: Barret W. Taussig, President BMY-Combat systems,” ArmedForcesJo Arnulhternationui, My1991, p. 27; and an OTA interview with BMY-Combat Systems offlciala on Nov. 14, 1991.

2 ~~ tit is pWC- as part of a government contract remains government property and cm not be used for otherentalorcommercial-without compensation. Companies will often purchase their own tooling and forgo government equipmentWork-govemm

to avoid the inflexibility of having tools that can only be used for one purpose without more paperwork and negotiations, This tooling is addedto overhead charges

SOURCE: Gfflce of Technology Assessmen~ 1992.

Shift Business Focus contracts that would have been competed in the pastmight be directed to a particular manufacturer, or

A company can lower its minimum viable competition might be limited to quality producers toproduction rate for a specific product by expand- help alleviate losses in production. Spare parts anding its range of activity to include prototyping, upgrades can be a significant fraction of an indus-upgrades, spare parts, and maintenance, and bymanufacturing multiple products. Chapter 3 dis-cussed the implementation of a prototyping-plusstrategy that would provide certain manufacturerswith the opportunity to build technology demonstra-tors or even an entire operational unit of prototypesprior to force modernization as a means of bothfostering innovation and supplementing or tempo-rarily replacing limited production.

In addition, a reexamination is in order of theDoD’s practice of awarding spare-part productioncontracts to firms other than the original manufac-turer. Although intended to increase the number ofsources of supply and lower costs, this practice alsohas the effect of supporting build-to-print shops withlittle or no design capabilities, at the expense of theoriginal manufacturer. In the commercial world,spare-part sales are often an important source ofincome to the original producer. Similarly, upgrade

try's business. For example, the commercial marketfor spare parts for large aircraft engines is about halfas large as the market for engines.52

Another important shift in business focus is forthe DoD to transfer some depot-level maintenancework from the public sector to the private, asdiscussed in chapter 5. One reason to do this is toaugment the dwindling world bad of the originalequipment manufacturer. As systems become moresophisticated, and perhaps modular, they could bereturned to their originating factory for maintenancerather than duplicating this capability at governmentdepots and shipyards.

Companies might also adtapt to procurementshortfalls by diversifying their product lines. Insome industrial sectors, market attrition or govern-ment policy might result in a consolidation ofmanufacturers such that products previously spread

52 ~att & ~~ey predic~ hat & re~tive size of this market will grow well into the 21st century. projections of the mill ~ market for large enginespare parts are clouded by procurement decisions, but they range from about 35-100 percent of the military engine market “or the same period. Pratt &Whitney briefii, West Palm Beack FL, Sept. 10, 1991.

Chapter 4- Efficient, Responsive, Mobilizable Production . 99

Figure 4-5--Hypothetical Shift in a Defense Manufacturer’s Activities

I . . - . . . . - -— . — —. ,’ —> . . I l v

I I

Future

I < ~

NOTE: Proportion of activities varies by individual sector and individual firm.


over several companies (e. g., ships and ammunition)become the domain of a few companies. A companymight also seek to expand into other government orcommercial activities (described below). Compa-nies that are flexible in their manufacturing proc-esses and that utilize similar equipment and skillswill avoid many of the costs associated with startingnew production.

Figure 4-5 depicts how a company might shift itsbusiness focus. Caution must be used, however, inany attempt to substitute other activities for produc-tion. For some industrial sectors (e.g., defenseelectronics) and types of companies (e. g., subcon-tractors) such activities are reported to be a viableway to survive lulls in production. Yet, for compa-nies that produce complex integrated systems orproducts that require little maintenance, this optionmay not be a feasible way of preserving their fullrange of critical manufacturing skills (see box 4-E),facilities, and equipment. Companies whose manu-facturing capabilities are critical to the base must beexamined on a case-by-case basis to determine theviability of this strategy.

Reduce Barriers to Civil-Military Integration

The efficiency of the future defense productionbase may also be enhanced by changes in therelationship between industry and government. Re-designing Defense reported a broad consensus thatgovernment/industry relations have become in-creasingly adversarial.53 This stems from laws andregulations adopted in response to public fears ofwaste, fraud, and abuse. legislation, regulations,and the resulting procurement culture have 1ed toVoluminous contracts, layers of restrictive productspecifications and auditing procedures, and barriersto communication among industrialists and withgovernment program officers, and it has impededoff-the-shelf purchasing .54

Companies expend enormous energy and time onthe paperwork associated with DoD contract biddingand auditing. These costs are included in overheadand ultimately added to the price of procured items.While large firms can ‘‘afford” specialized staffs tocope with this paperwork, smaller firms face adisproportionate burden. Paperwork requirements

53 ne pemian @lf war ew~ relations temporarily. Procurements that usuaily take months or years were sped bough in weeks. Sptie pm andupgrades were rushed to the front in record time. Food, fuel, water, and other commodities were bought in local markets in Saudi Arabia and the UnitedStates until logistics officers could catch up with the rapid buildup. And commercial items were used to bridge gaps in Semice procurement. For example,the Navy’s Safety and Survivability Non-Development Item Office bought a number of products commercially, such as fire-fighting and detectionequipment, air hammers, and body armor, and delivered them to the fleet within 45 days. (U.S. Department of Defense, Conduct ofrhe Persian GulfConjlict: An Interim Report to Congress, July 1991, ch. 8, pp. 1-4.)

~ ~ese issues will be discussed in more detail in ch, 6, but are presented here m they relate to production specifically.


Box 4-E—Worker Skills in the Defense Production Base

The streamlining of the defense production base has forced many companies to focus on short-term survivalover long-term health. In addition to eliminating excess capital equipment and facilities, these companies feelcompelled to reduce personnel costs. Reductions have focused largely on the early retirement of older, moreexperienced workers and layoffs of young new talent. There has also been a retrenchment in spending on workertraining programs and apprenticeships. Many who have benefited from these services in the past are now movinginto the commercial sector. Moreover, nondefense workers and students, seeing the downward slide of defenseprocurement, are looking for careers elsewhere.

In the short term, this situation is tolerable to the DoD, if difficult for some of the workers Involved. The futureproduction base will not need the number of people currently engaged in defense manufacturing. However,employee reductions that do not take into account future needs may undermine the long-term health of the base.Manufacturers need to retain their most qualified personnel, while production base planners need to ensure acontinued supply of manufacturing talent. If the base becomes more commercialized, free mark:et competition maybe sufficient to generate the necessary talent. Government support may be needed to preserve select criticalskills-from shop floor machinists to naval architects. This help could take the form of scholarships or trade schoolsubsidies to employees or grants or tax breaks to businesses having trouble finding workers trained in needed skills.Alternatively, textual, audiovisual, and computer methods for storing manufacturing experience could be funded.Colleges and universities could strengthen the Nation’s future production base by emphasizing manufacturing inengineering and business school curricula. A better educated workforce will make the future base more flexible.SOURCE: Office of Technology Assessment 1992.

have also deterred some commercial companies Policy makers need to reasess the tradeofffrom bidding on defense contracts. 55 - between the costs of fraud and abuse and the cost

Further inefficiencies result from the DoD’srequirement that manufacturers produce items ac-cording to military specifications that dictate everyfacet of a product, including acceptable manufactur-ing processes. Many studies argue that these specifi--cations are out-dated and overly rigid.

Many companies have segregated their defenseand commercial work because of DoD require-ments for specialized military manufacturingprocesses and the need to avoid burdening theircommercial work with military accounting re-quirements. This segregation might entail separateproduction lines on the same shop floor, separateproduction facilities, or even totally distinct operat-ing divisions within a company. Segregation can

of oversight to prevent them. While preventingabuse is an important task of government, thecost of current efforts to do both, both direct andindirect, are large and may outweigh the mone-tary and moral gains of catching the abusers.Program officers, auditors, and inspectors engagedin often uncoordinated and overlapping jobs per-vade the defense industry. Congress might commis-sion an in-depth study of the diret and indirect costsand benefits of military contract oversight. Account-ability must be maintained, but policy might beredirected towards punishing transgressors moreseverely and rewarding responsible businesses,perhaps by making past behavior an important factorin awarding best-value contracts.

create redundancies in equipment, personnel,facilities, and management, and create barriers Government action to facilitate a more efficientto communication between military and civilian integration of civil and defense industry can rangeoperations. In the extreme, manufacturers in a from mild corrective measures to a radical restruc-defense division may have no direct contact with turing of defense production. some sectors of thetheir counterparts in a commercial division. Such defense production base are more amenable tosegregation raises costs and hinders the transfer of integration than others (e.g., defense electronics v.technology between the commercial and defense shipbuilding), making sweeping decisions moresectors. difficult.

55 FOr e=ple, ~~s cowo~tion Spnt over $2 million trying to comply with DoD accounting system s~dards before @~g up. Hewlett Packardonly deals with the DoD on a commercial basis. See Jacques S, Gansler, ‘‘Restructuring the Defense Industrial Base,’ Issues in Science and Technology,Spring 1992, p. 51.

Chapter 4---Efficient, Responsive, Mobilizable Production . 101


Soldier stacks provisions in a food tent in Saudi Arabia.

The DoD has not ignored the complaints ofindustry and has made repeated efforts to smoothrelations. In recent years, it has adopted a fewprograms designed to lessen the intrusiveness ofgovernment oversight. The Qualified Manufactur-ing Line program for the semiconductor industry,which began in 1987, is one example. Under thisprogram, a company can demonstrate that its pro-duction lines meet military standards and thus avoidhaving to test each chip, as has been traditional. Theelectronics industry has created the National Elec-

tronic Component Quality Assurance System as aself-policing measure. Among other activities, thissystem conducts an audit of the supplier base thatused to be done by each company individually .56Neither of these programs is widespread at this time.

Industry has also joined with the defense acquisi-tion, inspectorate, and auditing communities in thevoluntary Contractor Risk Assessment Guide (CRAG)program to reduce oversight burdens on businesses.The CRAG outlines five critical auditing areas:indirect cost submissions, labor charging, materialmanagement accounting systems, estimating sys-tems, and purchasing.

57 If a company demonstrates

effective internal accounting controls in one or moreareas, the Defense Contract Audit Agency (DCAA)reduces its oversight of that area. While the CRAGprogram has been implemented successfully in a fewtens of companies, the incentives for businesses toparticipate are mixed. On the positive side, theCRAG program potentially reduces the DCAApresence at a company; on the negative side,companies may find themselves paying for internalauditing services that the DCAA would otherwise dofor free, while the presence of oversight officialsfrom other government agencies is not reduced.

The defense production base could also takegreater advantage of products already on the com-mercial market. Efforts to increase the percentage ofDoD products bought from the private sector havebeen under way for almost 20 years.58 DoD Direc-tive 5000.1 requires that the “maximum practicableuse shall be made of commercial and other nonde-velopmental items. ’ For example, the Navy isinstalling commercial computer systems on combatships for many functions that were formally per-formed by unique, Navy-designed computers.59

Off-the-shelf procurements can be facilitated in anumber of ways, including: 1) elimination of unrea-sonable specifications that block commercial pur-chases (e.g., requiring nuclear effects hardening on

56 ,’jee Debra Polsky, ‘ ‘DoD Chip Oversight Plan Gains Favor, ’ D@ense Ne~)s, July 1, 1991, p. 9.57 Defense con~act Audit Agency, <‘A Report on Activities, ‘‘ DCAAP 7641.81, March 1990, p. 3, and Department of Defense, ‘‘The Contractor Risk

Assessment Guide, ” October 1988.58 US. congress, U.s. General Accounting Office, ‘‘Defense Acquisition Reform: Implcmcnting Defense Management Review Initiatives, ’

GAO/NSIAD-91-269 (Gaithcrsburg, MD: U.S. General Accounting Office, August 1991), p. 11.

5P Neil Munro, “Navy Wants More Commercial Computers Aboard Ships, ” Defenxe News, Jan. 27, 1992, p, 30.


products that are a part of an unhardened system),a

and 2) redesign of systems to use off-the-shelfcomponents (e.g., instead of making a monitorrugged, enclose a commercial TV in a shock-resistant shell). Buying many copies of a commer-cial product instead of one militarily unique productmight save money and provide sufficient redun-dancy to overcome a lack of ruggedness or capabil-ity 61 Of Course many items will still have to beprocured according to military specifications toensure that they will perform reliably under demand-ing field conditions.

The efficiency of the peacetime defense pro-duction base may be greater if the relationshipbetween government and defense manufacturersmoves to a more commercial basis. Manufacturerswould be evaluated on their ability to produce itemson time, at an agreed price, and of agreed quality.Military specifications would focus more on theessential characteristics of form, fit, and function,and less on laying out explicit manufacturingprocedures. For many products, commercial seals ofapproval or certification might be sufficient (e.g.,Underwriters Laboratory or the International Organ-ization for Standardarization). It might be importantfor the DoD to continue outlining some criticalprocedures (e.g., specialized welding), but thesespecifications could be arrived at through negotia-tions with the manufacturer, who might know ofsuperior processes. Military specifications shouldonly be passed on from one project to another if theyare demonstrably relevant.62

Several studies argue that increased reliance oncommercial business practices will give industrymore flexibility in carrying out contractual obliga-tions, will allow integration of commercial anddefense facilities, equipment, and supplies (now

largely segregated), and will reduce overhead spenton paperwork. These practices will lower unit pricesand decrease the competitive penalties associatedwith working for the DoD. The adoption of commer-cial practices could open competition to a widercircle of companies, because nondefense firms thatpresently avoid defense work would take advantageof the new environment.

For defense companies with little or no experi-ence with commercial operations, lowering thebarriers to civil-military integration will createunique challenges. In the defense market, thegovernment defines the product, determines appro-priate pricing and profit margins, and specifiesmanufacturing procedures. The challenge to thecompany is to convince the government that it candevelop the product more efficiently than its rivals.In the commercial market, on the other hand, aproducer must rely on its own resources and insightto define products and must carry the fill cost ofdeveloping them until they can be sold. Moreover, itmust convince customers to purchase the newproduct and possibly provide warranties and productsupport as a consumer relations strategy more thana contractual obligation.63

At the extreme, policy makers could undertakea radical restructuring of the DTIB based on thewholesale elimination of administrative and legalbarriers to civil integration, combined with theredesigning of military systems and the accep-tance of form, fit, and function specifications.These policies would effectively merge the DTIBinto the national industrial base. Many defenseitems could be close variants If commercial prod-ucts (e.g., the KC-10 tanker is based on theDC-lO).64 Products that are truly militarily uniquewould still be built, but could take advantage of

III Some ~omerci~ pr~ucts, notably in tie aero5pa& Sector, are manufactured at or above mili~ spectilcation Stid ~ds. me DoD might be ableto safely buy these items off-the-shelf at a lower cost. Periodic testing or performance reviews would ensure quality contr )1. In other areas, a loweringof military requirements might make the product sufficiently inexpensive to procure enough copies of an item to { ompensate for the loweredspecifications. Representatives of the shipbuilding industry have suggested that specifkations on sedift vessels be lowered n this way so that more suchvessels can be procured. These vessels would be protected by combatant ships built to military specifications.

61 Dfing the pemian G~ War, tie DoD bought 10,000 commercial light-weigh$ global positioning System reCeiVerS [0 help trOOpS, pardcdasly inhelicopters and tanks, locate themselves in the featureless open desert. See Conduct of the Persian Gu~Conflict, op. cit. footnote 53, ch. 8, p. 3.

62 tie pmw~ being diSCUSS~ in the Pentagon calls for a ‘‘ZCXO basing’ of military specification.s. This proposat would reverse the incentivestructuie of the current acquisition system by forcing program officers to defend the application of any military specitlcation [ o a product. See Lucy Reilly,“Milspecs Go Under the Gun: Pentagon Considers ‘Zero-Basing’ Approach,” Washington Technology, vol. 7, No. 2, Al r. 23, 1992, pp. 1, 13.

63 Defense man~ac~ms are increas~gly being ask~ to provide warranti~ fortheirproducts. If these w~anties arepai~ I fOr ha production cOntraCt,they may be one way to shift maintenance work back to the original manufacturer.

~ McDoMe~ Douglas is developing a new helicopter, the MD-900 Explorer (formerly the MDX), justi.tied on comme rCld grounds alone, but Adto be sturdy enough for utility, armed scout, medical evacuation, and other military missions. See Frank Coluui, ‘‘hmx in u~orm,” D@enceHelicopter, vol. 11, No, 1, March-April 1992, pp. 24-27.

Chapter 4-Efficient, Responsive, Mobilizable Production . 103

Photo credit: U.S. Air Force

McDonnell Douglas KC-10 Extender refuels F-15AEagle fighter.

many of the same production facilities, equipment,and workers as commercial products. 65 Uniquemilitary specifications on products or processeswould be an exception. Any activities that requiresecrecy could still be segregated, but only whenabsolutely necessary. Future flexible factories andother innovations described below would increasethe likelihood that this radical strategy wouldsucceed.

Cooperate With Foreign Nations

The U.S. defense production base can bebolstered through making greater use of theinternational base. First, sales of military equip-ment to foreign countries can be used to keepproduction lines open that might close otherwise. fi

Second, U.S. fms might increase cooperativeactivities with foreign countries, perhaps establish-ing joint ventures. Third, the DoD might purchaseitems overseas that either are not produced domesti-cally or are cheaper abroad. Fourth, foreign business

might purchase U.S. defense enterprises that arefailing and make them productive again. All of theseactivities are currently under way and raise opportu-nities and concerns. Policy makers will need toevaluate how changes in these activities mightaffect the production base and what their foreignpolicy and national security implications mightbe.

As domestic procurement declines, foreign salesmay be one way to keep production lines running. Afew defense firms already produce a majority of theirequipment for export. As one industry trade groupofficial stated, ‘‘Exports are no longer just the icingon the cake. They are the cake. ’ ’67 For manycompanies, exports have become relatively moreimportant as domestic sales have declined. Forexample, General Dynamics projects overseas salesto increase from 17 percent in the mid-1980s toabout 50 percent in the mid- 1990s, while MartinMarietta plans to move from 8 percent in foreignsales in 1991 to about 20 percent in 1994.68 Firmswere particularly optimistic about future sales afterthe success of U.S. armaments in the Persian GulfWar. Arms sales to foreign nations may also providethe United States some political leverage overrecipients through the sale of upgrades and spareparts.

There are, however, two major problems with anexpansion of foreign sales. First, as a result of theend of the cold war, many countries, particularlyNATO and former Warsaw Pact nations, have lessneed for weapons.

69 The shrinking world market forweapons is increasing global competition. Second,the spread of advanced weapons technology aroundthe globe has raised concerns over weapon prolifera-tion and the threat modern U.S. weapons may poseto U.S. forces engaged in future conflicts .70 Withoutthe global Soviet threat, calls for regional bans on

65 In tie few imtmcc5 where a commercial rcmedy could not be found, the government might establish a public or private amend (e.g., nuclti~rsubmarines).

66 For exmple, Alr Force Swretw Rice testified before a SeMte Appropriations su~ommittee that the General Dynamics F- 16 fighter productionfacility in Fort Worth, TX will stay warm based solely on foreign sales and aircraft upgrades when the Air Force cancels F-16 orders after next year.The Air Force may need the plant again for a new F-16 variant sometime in the future. A General Dynamics official and some members of Congresswere skeptical of this approach. See Ron Hutcheson, “Plan Threatens GD Plant, Official Says, ” Fort W[>rth Star-Telegram, Mar. 18, 1992, p. 1.

CT Joel L. Johnson, international vice president of the Aerospace Industries Association, cited in Steven pcadstein, ‘‘Stmggling to K~P WUPomPrograms Alive, ” The Washington fosf, Mar. 9, 1991, p. C2,

6S Ibid

69 Developing coU~e5, Which have been 1C55 aff~ted by tie political c~nges in Europe, a~ounled for over 75 percent of arms import sales in 1988.

U.S. Bureau of the Census, Statistical Absfruct of the United Sfufes 1991, 11 Ith ed. (Washington, DC: U.S. Government Printing Office, 1991),p. 339.

70 For more information on tie nega(ivc aspects of arms transfers, see US. Congress, Office of Technology Assessment, G/o~l Arms Trade,OTA-ISC-460 (Washington, DC: U.S. Government Printing Office, June 1991).


weapon sales may inhibit the traditional desire tofortify friendly nations against their adversaries andblock sales to regions that still demand new weap-ons.71 Congress will have to weigh the importance ofcontrols on international weapon exports against therisk that such controls will be circumvented and theneed of the defense production base and U.S. alliesfor arms sales.

Moreover, the decline of the world arms market isconsolidating defense industries on a global scale. InEurope, defense companies are increasingly engag-ing in translational mergers and joint ventures.72

Collaborative weapon development or productionwith foreign companies can spread developmentcosts and risks, while pooling technical knowledgeamong allies. Collaboration with foreign firms hasthe drawback of transferring American defensetechnology to companies overseas and reducingopportunities for domestic production. The benefitsand costs of cooperative efforts will need to beweighed in terms of their long-term effect on theproduction base and the national economy.

When systems either are not available or are moreexpensive on the domestic market, the United Statescan also place greater reliance on foreign sources ofmilitary supplies and components. This choicebetween materiel autonomy and increased interde-pendence raises many questions. In the extreme, theDoD could compete procurement contracts world-wide and take the best bid whatever its origin.Currently, foreign sourcing is restricted primarily tothe lower tiers of the production base, although

important subcomponents (e.g., flat-panel displays)and systems (e.g., the AV-8A Harrier jump jet, theMl 19 105mm howitzer, and the Berretta 9mmsidearm) have been purchased or produced underlicense. The full extent of foreign content is not wellunderstood by the DoD because of the difficulty oftracking all the parts in a system.73 Moreover, manylarge corporations generally ragarded as American(e.g., IBM) are in fact international in scope andperspective.

The risks of foreign sourcing will have to beweighed against the cost of sourcing componentsand systems domestically .74 the risk is a politicalcutoff of items that affect U.S. capabilities in a crisisor war75 Cutoffs could also result from a milit~blockade.7b Stockpiling items that will not quicklybecome obsolete and multiple sourcing of foreigncomponents can decrease vulnerability to a cutoff.Another risk is the potential for U.S. technologicaldependence on other countries. This dependencewould not only affect current systems, but thecapability to produce future systems as well. Creat-ing protected industries to preserve an uneconomicalcapability against a product cutoff will cost thegovernment more, reduce incentives to innovate,and constrain access to foreign technological ad-vances. Since purchases overseas will deprive theU.S. industrial base of the dollars transferred abroad,Congress might consider loosely tying foreignmilitary purchases to foreign military or commercialsales.77

71 Udess bans are ~ivers~]y enforced, they will not prevent countries from obtaining weapons and may serve primaril y to Cut signatov nations outof the export sales market. If all the industrialized democracies participate in a ban+ however, the level of wmpon sophi! tication sold into unfriendlyhands may decline.

72 One jou~ls( re~rted a &end in Europe towards a protected defense market. Trade barriers, offset agreements, an( i tiUiffs have been comb~edto create a Buy European atmosphere. Great Britain and the Netherlands are attempting to deregulate a community that in much of Europe isgovernment-controlled or-owned. (Patrick Oster, ‘ ‘Europeans Shelving Rivalries Over Big Weapons Contracts: Possible 1 rend Concerns U.S. DefenseFirms, ” The Washington Post, Sept. 11, 1991, pp. Cl and C3.)

73 U.S. Congress, General Accounting Office, ‘‘Industrial Base: Adequacy of Information cm the U.S. Defense Industrial Base, ’ GAO/NSIAD-9@48(Gaithersburg, MD: U.S. General Accounting Office, November 1989).

74 Te5@@ before tie House ~~ Semlces Co-ttee’s panel on tie s~c~e of U.S. Defense hdustial Base, Nov. 1, 1991, E. Gene Keifferproposed that instead of investing money to reproduce domestically what can be bought more inexpensively abroad, it would be wiser to invest inleapfrogging the foreign competition and produce a next generation of the item.

75 For exmple, nom~ sandbags intended for use in the Persian Gulf War were too porous for the fiie sands Of the Saudi d eserl, allow~g the~ cont~tsto filter out overnight. The only bags on the intemationat market made for this type sand were being distributed by a Dut, :h firm whose main supplierwas Iraq. The Generat Services Administration instead turned to U.S. manufacturers, which in the end produced 71 minim bags. (’‘The Finer Pointsof Sandbagging, ” Parade Magazine, Jan. 12, 1992, p, 14.)

76 ~ely domestic Souces me not imm~e to production cutoff. A variety of factors (e.g., accidents, severe weather, sm kes, or moral OU~ge) @@t

result in a shutdown in production. One example is the loss of tritium production as a result of environmental and safety c oncems. For a discussion ofthe risks of both domestic and internationrd dependencies, see “An ‘Adequate Insurance’ Approach to Critical Depend mcies of the Department ofDefense, ’ op. cit., footnote 8.

m At present, the Ufitd States sells far more military equipment overseas tin it buys.

Chapter L--Efficient, Responsive, Mobilizable Production ● 105

Global interdependence may also result in anincreasing number of foreign acquisitions of U.S.defense companies. This situation may not becritical if the acquired companies continue to workfor the DoD and obey export laws. During thePersian Gulf War, for example, Conventional Muni-tion Systems of Tampa, a wholly owned subsidiaryof the German firm Messerschmitt-Bolkow-Blohm,rushed U.S. Army orders for Patriot missile war-heads and parts, in addition to manufacturingMaverick missile warheads.7g If a foreign-ownedfirm opted not to assist the DoD in a crisis, it couldbe compelled legally to live up to existing contracts,or, in extreme cases, be nationalized. Moreover,such firms workforces and infrastructures remainresident in the United States, although patents mightbe held abroad. If such a company decided to leavethe defense business, it would be no different thanany number of American-owned firms now doing so.The Committee on Foreign Investment in the UnitedStates reviews foreign acquisitions and warns thePresident of potential threats to national security,79

The DoD can also restrict foreign investment infirms that do classified defense work.

Promote Manufacturing Innovation

The introduction of manufacturing innova-tions is another method to stretch limited defenseprocurement dollars. Capital investment, design,and production can be altered to reduce thelife-cycle costs of a product.

If procurement funding were to be made morepredictable in the future (e.g., through multiyearallocations), contractors’ capital investments couldbe optimized for long-term production efficiency,particularly when initial production has not yetbegun. Facilities, personnel, and manufacturingequipment could be sized appropriately for the job

without the higher costs associated with overcapac-ity or the delays caused by undercapacity. Andorganizational structures could be adapted to fit newproduction realities. Many ideas have been proposedto modernize American manufacturing-largely asa response to foreign competition—that have rele-vance for defense manufacturers. These range fromwell-understood techniques and technologies thatcan be implemented immediately to futuristic vi-sions that give manufacturers a sense of direction,but cannot soon be irnplemented.80

In the near term, manufacturers can increase theircurrent reliance on computer technologies to man-age resource allocations more efficiently (e.g.,just-in-time supply or staffing) and communicationswith suppliers and customers (e.g., computer-aidedacquisition and logistics) .81 Computer-controlledmachine tools that can flexibly switch from manu-facturing one item to another with a change ofprograming are already a common component inmany factories and may become more prevalent asdefense procurement moves away from high-rateproduction toward low-rate production .82 Typically,these machines are limited to a few related tasks anddo not manufacture a complete system. Organiza-tional innovations, such as quality programs (e.g.,Total Quality Management or Zero Defects Manage-ment) and working in group cells, can also beadopted.

Martin Marietta has adopted several of theseinnovative technologies and techniques in its Orlando,Florida, LANTIRN navigation pod production facil-ity, where it has established what it terms a‘‘paperless factory.’ The factory uses a centralizedcomputer system to keep track of all elements of theproduction process from inventories to producttesting. The computer system even displays step-by-step manufacturing process information through

78 Stuart Auerbach, “U.S. Firms Angered by Kuwaiti Contmct Award, ” The Washington Post, Oct. 29, 1991, p. D1. This article focuses on aconuoversy over awarding CMS a contract set aside for American businesses to carry out demolition work in Kuwait.

79 Report t. Congress on the Dqfense Industrial Base, op. cit., foo~ote 15, ch. 4* P. 5.

~ The Iac~ca Insti~te at Uhigh University is championing one such visio~ which it calls ‘‘Agile Manufacturing. ’ ThiS manufacturing StMe~for the next century, sponsored in part by the DoD Manufacturing Technologies (MANTECH) program, describes a wholesale renovation of traditionalAmerican manufacturing that emphasizes brainpower and flexibility. The goal is the creation of a world-class business organimtion and infrastructurethat can rapidly design and produce srrdl lots of high-quality and long-lasting custom products more economically than mass produced goods. See RogerN. Nagel and Rick Dove, 21s( Century Manufacturing Enterprise Strafegy, vols. 1 and 2 (Bethlehem, PA: Iacoeca Institute, Lehigh University, 1991).

g] According t. DOD documents, cost savings of up to 20 percent of a program’s budget are possible through Computer-tided A~uisition andLogistics Support (CALS) systems alone. (Neil Munro, < ‘Pentagon Urges Industry to Streamline With CALS,’ Defense New’s, vol. 6, No. 36, Sept. 9,1991, p. 39.)

82 1n 1988 tie U,S B~eau of the Cemus repofled that numerically controlled machines were used in 32-56 percent Of me heavy indus~ businesses. .sampled. Elaborate information systems, such as CALS, were employed in significantly fewer companies. See SfarisficaZ Abstract of fhe Unired Stu~es,.1991, op. cit., footnote 69, p. 760.


video and animation at each employee workstation.Construction, however, remains primarily a hands-on process, with little reliance on robotics. Accord-ing to Martin Marietta, the $40 million dollarinvestment reaped $100 million in cost savings inthe first 4 years.83

Further in the future, already extant computer-aided design (CAD) capabilities will become in-creasingly integrated with computer-tided manufac-turing (CAM). At first, this will mean making datapackages from CAD systems readily convertible toCAM systems;w eventually, this process will beautomated and directly linked. Then engineers willbe able to draft their designs on the same computersystem that will later direct man and machinethrough the manufacturing process. Late designchanges and error corrections made by engineerswill be transferred immediately throughout thefactory, ensuring configuration and inventory con-trol.

Initially, CAD/CAM systems will be used tomake discrete components of a system, but not thesystem itself. A plant of the future, where artificiallyintelligent computers create the actual design of aproduct (as opposed to simply graphically represent-ing a human design) and then task robots tomanufacture it with limited human intervention, iswell beyond current capabilities in most industrialsectors, but it is the target many innovators areworking toward.85

Another means of improving defense productionefficiency is concurrent engineering.86 In concur-rent engineering, the traditional sequential processof design, development, production, and mainte-nance is abandoned in favor of a more unifiedapproach. Experts in manufacturing and mainte-nance are brought early into the design process to

lend their expertise. This multidisciplinary teameases the normally rough transition from develop-ment prototype to production by emphasizing pro-ducibility at every step. (See figure 4-6.)

Figure 4-7 compares program spending over timefor procurement contracts based on concurrent andtraditional engineering. The curve corresponding toconcurrent engineering rises earlier, reflecting thecost of including manufacturing engineers andmaintenance personnel in the design process. Inorder for this “front-loaded” curve to pay off, thetotal cost of the program spread over the fullproduction run (and over the entire product lifecycle) must be less for concurrent engineering thanwould be paid traditionally. This reduction in overallcost comes from a smooth transition from develop-ment to production, which wolds many of themistakes, waste, and delays common in traditionalproduction runs, making manufacturing and mainte-nance easier. Development time can also be short-ened through concurrent engineering, although in anera of tight budgets and reduced threats short cycletime may not be a high priority. Special attentionneeds to be applied to how concurrent engineeringwill fit into an acquisition strategy that emphasizesprototyping over production. (See ch. 3.)

Companies with a large proportion of commercialwork are more likely to innovate in the mannerdescribed above. Defense contractors now depend-ent on the DoD, however, may need special incen-tives to innovate their manufacturing.

In all cases, the benefits of reproved manufac-turing technologies and ~ recesses must beweighed against the costs of continuing defenseproduction in the current fashion. For manyindustries, particularly those that produce special-ized products in small lots, automation may not be

83 OTA site visit on Sept. 11, 1991; and Steven Peadstein, ‘‘Contractors’ New Watchword: Efficiency, ’ The Washin, ~ton Post, Dec. 11, 1991, p.Al and A18.

84 A 19g5 DOD rew~stat~ hat “a~ommonda~basebetween design~d m~~ac~gf~ctio~ has inherent techni~ problems but has the high~tpotential payoff in product quality and productivity. ’ DepartmeM of Defense, Assistant Secretary of Defense for Acquisit on and Logistics, Transitionfrom Development to Production, Solving the Risk Equation, DoD 4245.7-M (Washingto~ DC: Department of Defensa, September 1985), ch. 5, p.24.

as U.S. Confless, OffIce of TechrIoIogy Assessment Computerized Manufacturing Automation: Employment, EdL cation, and the workplace,OTA-CIT-235 (Washington, DC: U.S. Government Printing Office, April 1984), p. 6.

86 1n a s~dy of ~nc~nt en~mfig for tie Office of tie Assiswt Secretary of Defense for l%duction ad ~@stiC 1, ~ys~ at tie ~sti~te forDefense Analyses came up with this defiition of the term:

Concurrent engineering is a systematic approach totheintegrate~ concurre nt &sign ofpmducts and their related processes, includiq manufacture and support.This approach is intended to cause the &velopers, from the outset, to consi&r all elements of the product life cycle hum conception d uwugh disposal, includingquality, cost, schedule, and user requirements.

Se-e Robert I. Winner et al., ‘‘The Role of Concurrent Engineering in Weapons System Acquisition, ’ IDA Report R-388 ( Mexandria VA: Institute forDefense Analyses, December 1988), p. 2.


i

s- - - - --’--%-. .

% .Photo credit: Martin Marietta

(Above) Engineers in a centralized control room overseeproduction in Martin Marietta’s “paperless factory.”

(Below) A technician checks his work against a diagram onhis computer terminal.

a cost-effective alternative to hand crafting andassembly, Moreover, it makes little sense to spendresources reducing direct labor in the construction ofan item where labor costs are negligible compared tocomponent costs (e. g., satellite assembly) or whereindustry is currently overcapitalized, unless such

investment produces otherreliability).

Currently, defense firmsadoption of manufacturing

gains (e.g., increased

are constrained in theinnovations by many

factors, including the disincentive of annual contractrenegotiations that eliminate profits achievedthrough increases in productivity. Until now, almostall the manufacturing innovation that has occurredhas been evolutionary, stemming largely from con-tractor initiative, contract requirements (e.g., newcomposite material fabrication techniques on theB-2), independent research and development (lR&D),and through manufacturing technology programssponsored by the DoD, such as the ManufacturingTechnology Program (MANTECH) and the Indus-trial Modernization Incentives Program (IMIP).MANTECH programs fund manufacturing process,material, and equipment R&D. IMIP progamsincorporate incentive clauses into contracts to moti-vate contractors to adopt proven manufacturinginnovations that the contractors would not be able orwilling to sponsor themselves. increases in produc-tivity, quality, and reliability are designed to benefitboth the company and the government. MANTECHand IMIP funds have largely gone to prime contrac-tors and not to subcontractors and suppliers.87

As the United States moves into an era of reduceddefense procurement, many of the traditional sourcesof funding for manufacturing innovations are begin-ning to dry up. Many surviving defense firms willnot be compelled by commercial market pressures toinnovate and will have fewer procurement dollars toinvest than -in the past. Natural monopolies will haveless incentive to update their manufacturing technol-ogy than companies forced to stay competitive. Inthese circumstances, Congress could fund MAN-TECH and IMIP programs as one approach tobringing innovation to these segments of the futurebase.88

Although manufacturing technology programshave been in existence since the 1950s, they havebecome much more prominent in recent years,

~T John A, Alic ct al., Bcvo~ Spinoff: Mili[arv and Commercial Technologies in a Chunging World (BOS1OW MA: Hmwd Business School ~css,. .1992), p, 344.

88 U,S, Depaflment of Defense, Defense Systems Management College, Dqfense Manufuctun”ng .Murragemem Guidefor program Munagers, 3d ti.(Washington, DC: U.S. Government Printing Office, April 1989), ch. 4, p. 5 and ch. 8, p. 5.

L

Figure 4-6-Decisions Concerning Producibility

L

tI 1

- - - f 1

I I

1

1I

SOURCE: Defense Systems Management College, 1989,

Chapter 4----Efficient, Responsive, Mobilizable Production ● 109

Figure 4-7—Theoretical Comparison of Concurrentv. Traditional Development and Production Programs

1 Earner manufacture nq release‘ ~ Identlflcation of crlticalI parts anc processes

1 Steeper Iearning curve and// Iower production costs

/// Cost Impact

/’{

/~ e n g i n e e r i n g

~ ,/”

/’/

of

D e v I o p n e n t ProductIon

Leqend

Co ‘lc u rre n t e n q I nce rl r7 (j [) roq rCinl

— Trad I t lonal prog ram


largely through congressional intervention.89 Eachof the Services runs a separate MANTECH program,in addition to a program run by the DefenseLogistics Agency. These programs, while focusingon different segments of industry, strive to bringgovernment, industry, and academia together (oftenin regional technology centers) to produce genericmanufacturing technology innovations that can betransferred to the defense production base. MAN-TECH ventures have been successful in processinggallium-arsenide wafers for advanced microelec-tronics, in nondestructive imaging of products, andin robotic ship welding.90 In addition, since 1985,the Navy’s Best Manufacturing Practices programhas sent survey teams to manufacturers to discoverwhat they are doing right and transfer this knowl-

edge to the rest of the Navy’s production base.91 TheDoD has also used the Asset Capitalization Program,authorized by Congress in fiscal year 1983, to fundthe modernization and acquisition of equipment forsuch operations as depots and shipyards. (See ch.5 . )92

A final method for increasing production baseefficiency through manufacturing innovation wouldbe to construct systems to incorporate modularsubsystems so that when a subsystem is broken orneeds to be upgraded, it can be readily replaced witha new, self-contained unit. The removed unit wouldthen either be sent back to a depot or to the originalequipment manufacturer (OEM) as part of a strategyto maintain the manufacturing capability of theOEM. Modular subsystems could be made commonacross several platforms (e.g., a plane, helicopter,and tank could all use the same radio) to generateeconomies of scale in production, and they wouldallow generic weapon platforms to be speciallyoutfitted for different missions.

The primary drawback of switching to modularsystems is that they may require built-in slots orboxes to hold them that would increase the overallcost and weight of the system, resulting perhaps inlower performance. For example, it has been sug-gested that many naval ships could be built accord-ing to one basic hull design that would accept avariety of weapon and equipment modules accord-ing to its mission (e. g., antisubmarine warfare, airdefense, cargo, or amphibious assault) .93 Whilecontainers for these modules might add as much as5 percent to the cost of a single ship, the economiesof producing identical ship hulls might result inlower total cost.94 Other modular systems mightinclude the next-generation tank or multirole fighter.The potential added cost and reduced optimizationof modular systems will have to be weighed against

s~ congress ks rc~atcdly authol-ized more funds for MANTECH than the DoD has requested. ‘IINs is duc in part to a dlff el Cncc In pcr$pectlvc. Thc

DoD, along with the .%rviccs, sees MANTECH as a tool for increasing productivity for specific weapon systems. Congress, on the other hand. sccsMANTECH as a stimulus to the production base as a whole, including the nondcfense community.

~ Torel]i et ~ tcstlmony before wc U.s. Congress, HOUSC Armed Services Panel on Future USCS of Manufacturing and Tdmology Resources, OCI..,24, 1991; and Computerized Manufarturinx Automation, op. cit., footnote 85, pp. 314-316,

91 Torclii ibici; ~lnd Dcp~ment of tie Navy, flesr practices. How’ fo A}oid Surprises in the World’s MO.U Complicated Techmcul Pn)cess, TheTrunsi(ionfi-;]m De}’elopment to Production, NAVSO P-6071 (Washington, DC: L1.S. Government Printing Office, March 1986)

~ u.S. Congress, General Accounting Office, <‘Industrial Funds: The Department of Defen.sc’s Management of ACP Funds, GAO/NSIAD-90202FS(Gaithcrsburg, MD: U.S. General Accounting Office, June 1990); and U.S. Congress, General Accounting Office, ‘ ‘Plant Moderl.iz~ti{m: DoD’sManagement of the Asset Capitalization Program Needs Improvement, ’ GAO/NSIAD-89- 147 (Gaithersburg, MD: U.S. General Acct~unting Office,August 1989).

93 me Gcman shlpbul]der B]ohm and Voss Constmc[s two Classes of modul~ Ships: tic MekO and the IleUtSChlan~ (Type 123) frigates,

W About 70 percent “f the cost of ~ m~ern Wmship is for systems, such A$ weapons and clec~onics, other tkln the hull, See G:LI-) Hmt and WilliamS. Lind, Amerlcu Can W[n. The Case for ~iirta~ Reform (BethcsdA MD: Adler and Adler, 1986), pp. 98-107,


Figure 4-8—Tradeoffs Between Production Efficiency and Surge andMobilization Preparation

Optimalpeacetimee f f ici e ncy

Max imumsurge andmob i I i zat ionca pab i I i t y

I

‘ – - T, -

1— d

I

; * -O *

Surge and mobilization preparations


lower production and maintenance costs and higheroperational readiness. (Ch. 5 discusses maintenanceissues in greater detail.)

Increase Commonality

Increased commonality in Service procure-ment and among defense products could makethe base more efficient. One notion is the creationof a more common procurement process among thearmed services. The aim would be to reduceredundant procurement programs and to make largerpurchases to achieve economies of scale. (Ch. 6discusses options for rationalizing the procurementstructure in more detail.)

The Services could also try harder than theycurrently do to build new systems with a greateremphasis on common components and standardizedparts. The Army is attempting greater standardiza-tion of parts and systems through such programs asthe Armored Systems Modernization program whichis designing the next generation of armored vehi-cles.95 This program is being redefined, stretched out,and scaled down in the face of budget reductions.

Current plans call for the development and produc-tion of the Advanced Field Artilery System and theFuture Armored Resupply Vehicle-Ammunition ona heavy-level protection chassis and the Line-of-Sight Antitank system on a medium-level protectionchassis. Three other vehicles intended for theheavy-level protection chassis have been deferredindefinitely: the Block III tank, the Combat MobilityVehicle, and the Future Infantry Fighting Vehicle. Inaddition to the common chassis, these armoredvehicles will have significant commonality in com-ponents, including armor, engines, tracks and sus-pension, electronics, instruments, hardware, andsoftware. Although the parts for the vehicles will notbe completely interchangeable,9b they will be ascompatible as their differing missions will allow.97

More universal parts would help those subcontrac-tors that might go out of business if them productsupported only one weapon system.

In addition to the above steps, the DoD shouldexamine how much standardization of parts, muni-tions, and systems there should be internationally,especially with our NATO allies One of the DoD’s

95 A Gener~ Motors Corp. study of an earlier armored vehicle modernization phm developed Severtd manufacturing] OptiOnS tit emp~~edcommonality in construction, vendors, and parts. See General Motors Corp., Military Vehicle Operations, “Manufacturing Plan Appendix, ” ArmoredFamily of Vehicles (AFV) Phase I Study, 1986.

% Job G. RCMX “$5$). BiUion Armor Mod Plan Has Only One Tread on the Ground, ’ Armed Forces Journal Internmonal, October 1991, p, 60.~ ~ exmple of tie ~~eased efficiencies of COrmnOnality is found in the Mazda Miata, This petite and sassy sports car -- the automotive sensation

of 1989 — appeared completely different from other Mazdas, but was built with 80 pereent standard parts. This strategy allc wed Mazda to bring a newproduct to market quickty and make a profit despite low volume sates. (Peter F. Drucker, “The Big Three Miss Japan’s Cruci{J Lesso~’ The Wall StreetJournal, June 18, 1991, p. A18.)


long-standing objectives has been to promote theadoption of standardized or interoperable equipmentamong allies and friendly nations. This issue shouldbe examined from the perspective of cost savings,base support, foreign dependence, and the changedinternational environment.

RESPONSIVE PRODUCTIONA future crisis might require the production base

to react through either a responsive surge of thedefense base or a longer term mobilization of thebroader national industrial base.98 The next twosections discuss the balance between peacetimeproduction efficiency and crisis requirements. Fig-ure 4-8 illustrates some tradeoffs between efficientpeacetime production and surge and mobilizationpreparations.

Policy makers can make the future base re-sponsive to crises short of a national emergencyin three ways: by surging production as requiredby commanders, by stockpiling products in ad-vante, or by relying on allies. Each of these optionshas advantages and disadvantages.

If production is sufficiently responsive, then thegovernment does not need to pay for surge itemsunless there is a crisis, nor does it have to pay forstorage. Relying on surge carries the risk that itemscannot be produced quickly enough to meet the fieldcommanders needs. Moreover, surge facilities mayentail higher overhead costs by maintaining moreproduction capacity than is needed for peacetimerequirements .99

If items are stockpiled, they are available ondemand if ever needed, but at a high up-front cost,and they may not be replaceable if productionfacilities close and requirements surpass stocks.Some items, like electronic components, becomeobsolete so quickly they are not conducive to

Table 4-4-Examples of Surge and Mobilization Items

Surge items Mobilization items

Ammunition Surge items (from list at left)Food New weapon systemsFuel Mothballed weaponsUniforms Commercial transportSpare parts Commercial engineering vehiclesMedical supplies National Defense Stockpile materialsMerchant marinePrepositioned equipmentSOURCE: Office of Technology Assessment, 1992.

long-term storage.100

A rolling production inven -

tory-an early buy of components to be used in finalproduction items—might reduce some of thesecosts,

Foreign acquisitions have the possible advantageof lower cost, but run the risk of political cutoff andare less likely to be able to meet the quantityrequirements of the U.S. military. Foreign items mayalso suffer from excessive transportation lag times.

Planners should use contingency plans for futurecrises to designate which items should be procuredin advance, which should be surged, and whichshould be obtained from allies. The resulting systemwill need to be properly funded and exercisedperiodically to ensure it will work when needed.

It is unlikely that production of major weaponsystems will have to be surged for a conflict that fallsshort of a national emergency. Moreover, if theUnited States pursues low-rate production, the surgeof such systems will be virtually impossible. It ismore likely that field commanders will need in-creased production of consumable or personal items,such as munitions, spare parts, fuel, food, andclothing. (See table 4-4.)

The DoD interim report to Congress on theconduct of the Persian Gulf War provides some

98 U.S. congress, Offlce of Technolo~ Assessment, Adju$fi”ng (0 u New Secun”p E~>*irOnment, The Defense Technology and ]ndustn.a/ Base

Challenge, OTA-BP-ISC-79 (Washington DC: U.S. Government Printing Office, Februq 1991), p. 4. This report maintains the detlnition used inAdjusting to a New Secun”ty Environment. Surge is the term used within the DOD to refer to the expansion of military production in peacetime withoutthe declaration of a national emergency. MobiZizution refers to the rapid expansion of military production to meet material needs in a war and involvesthe declaration of a national emeigency. Several types of mobilization are considered. Fulf mobilization refers to mobilimtion to fiIJ the existing or‘‘program force’ structure. Toral mobilization describes a mobilization effort that expands beyond the existing force structure. Mobilization is oftenreferred to m ‘ ‘reconstitution’ by the current Administration.

99 plants designed for cfficicnt pc.acetimc production can expand their work hours, at least temporarily, if they are IIOt already operating at maximumcapacity. Ixmger term reliance on extended or additional work shifts will require the hiring of skilled or trainable personnel,

[m The market lifespan of an electronic component has decreased from 10-12 years to 4-5 years, while weapon system 1Ongevity is 20 yews or more.U.S. Congress, General Accounting Office, “Defemc Inventory: DoD Could Better Manage Parts with Limited Manufacturing Sources,”GAO/NSIAD-9(L126 (Washington, DC: U.S. Government Printing Office, August 1990), p. 8.


useful examples.101 Generally, the Services had themajor equipment and supplies they needed beforethe crisis, but shortages of some items soon emerged.T-rations, designed to feed 8-10 people, had not beenincluded in the war reserves and, for a time, industrycould not meet the increased demand. Troops weretemporarily forced to eat the less palatable Meals,Ready-to-Eat (MREs), which had been stockpiled.Many troops also were initially stationed in SaudiArabia dressed in uniforms camouflaged for Euro-pean woodlands, while the clothing industry manufac-tured clothing and boots patterned for the Kuwaitidesert. While both of these shortfalls caused prob-lems, they did not significantly impede operationalpreparations. Shortages in the U.S. inventory ofheavy equipment transporters and offroad vehicleswere compensated for by leasing, buying, or request-ing donation of trucks from U.S. trucking compa-nies, and from Saudi Arabia, Germany, Egypt, Italy,and Czechoslovakia.

According to the report:

Literally thousands of items were accelerated tomeet the increased requirements of U.S. CentralCommand (CENTCOM). From weapons systems toindividual items of supply, a tremendous demandwas placed on the nation’s industrial base. Itemssuch as chemical protective clothing were surgedfrom 33,000 per month to 70,000 per month, desertcombat boots went from zero to 124,000 per month,and desert camouflage uniforms went from zero to376,000 per month over a six month period. In somecases, the increase in the production rate was thedirect result of an individual contractor’s performa-nce, in other cases, additional contracts wererequired. Preliminary investigation indicates thatdespite some shortcomings, the industrial base wasreasonably responsive to the needs of the force,These and similar instances reinforce the continuingrequirement to balance our war reserve programs anddepot production capabilities with a realistic assess-ment of industrial base capability. 102

Extensive preparation time, control over thetiming of operations, a short war, relatively lightcombat damage, support from Saudi Arabia and theother coalition partners, and a lack of a major threatelsewhere made the Persian Gulf surge effort easierthan it might have been otherwise.

Photo credit,

Meals, Ready-to-Eat (MREs) ire nutritious andenergetic foods packaged to wrvive the rigors

of a combat envirol~ment.

The DoD

Flexible manufacturing systems, besides beinguseful for an efficient peacetime base, can affectfuture responsiveness. On the positive side, they willmake it easier for companies engaged in peacetimedefense work to shift from a lower to a higherpriority product mix (e.g., from dress to camouflageuniforms) to meet specific surge demands.1°3 Com-panies that produce both commercial and defenseproducts would be able to temporarily halt commerci-al work and expand defense production. However,a production line set up for flexible manufactur-ing—where excess capacity has been cut to thebone—may make any expansion of production moredifficult if the majority of a company’s products arerequired for surge.

PREPARATION FORMOBILIZATION

If a future crisis is severe enough to warrant adeclaration of a national emergency, the surgecapability described above may not be adequate tomeet the challenge. Full or total mobilization(currently dubbed “reconstitute on”) of the broadernational industrial base, in addition to the defenseproduction base, may be necessary. With the disap-pearance of the Warsaw Pact threat to NATO inEurope, a war on this scale seems unlikely for the

lol Coductof the persian Gu~ConfZict, op. cit., footnote 53, ch. 7, pp. 1-7. This report carries the caveat that its informati m is prehminaryand subjectto change.

’02 Ibid., ch. 7, p. 2.10J me tie it t~es to shift from one product to another will depend on the degree of tool flexibility and product sfi ihwity.

Chapter G-Efficient, Responsive, Mobilizable Production . 113

foreseeable future, so it appears prudent to give morepriority to peacetime and surge planning. Neverthe-less, realistic planning for mobilization against amajor threat remains essential to the security ofthe Nation and its allies, especially consideringthe long lead times involved.

The most critical factor in mobilization plamingis the amount of warning time the industrial base willhave. This warning time depends on the speed of anadversary’s mobilization, the timeliness and reliabil-ity of intelligence, the length of time ready forcescan hold their own before being reinforced withmobilized reserves and supplies, and the timerequired for a political decision to mobilize. Thenational industrial base would have about 2 yearswarning of a major war in Europe, according tocurrent projections.104

Overestimating warning time in the planningphase can lead to serious shortages in the earlystages of a war. Underestimating warning time canlead to an overinvestment in stockpiled supplies andtoo little investment in manufacturing resources,leading to a full inventory at the beginning of theconflict, but a declining capability as it proceeds.Improved planning tools based on detailed produc-tion data and models can help prepare for large-scalemobilization, but only if the subjective inputs ofcrisis scenarios are accurate. ’05

Once planners have made their best estimate ofmobilization warning times, they can decide the bestway to meet mobilization requirements. Equipmentthat cannot be produced within the warning timemust be stockpiled in the national War Reserve orobtained from U.S. allies. Other items might also bestockpiled, but as mentioned above, stockpilinginvolves a large up-front investment in equipmentand supplies that may never be used. Moreover, themilitary may have difficulty replacing stocks ifdemand has been underestimated or after the crisis

iii’ “ –— 1

, - .—

Photo credit: BMY-Combat Systems

The fIexibility of a computer-controlled machining centerpermits BMY to move in minutes from working on aluminum

armored vehicle hulls to steel hulls, such as the M88Medium Recovery Vehicle pictured here.

is over, Products that can be manufactured within thewarning period but exceed the surge capacity of thedefense production base will need to be procuredthrough an expansion of the defense sector or fromthe commercial sector.

The dedicated defense production base provides acore around which the civilian base can be mobi-lized. The existence of a solid core of personnel,equipment, and facilities will depend on whatmeasures policy makers take now during peacetimeprocurement cutbacks (e.g., none, creation of anarsenal, low-rate production, or civil-military inte-gration). The implementation of rapid acquisitionrules and simplified procurement procedures afterthe declaration of a national emergency will allowexisting facilities to be expanded and new ones to bebuilt. Facilities that would require long lead-times tobuild and outfit may have to be mothballed inpeacetime (e.g., shipyards).

106Companies that havebeen participants in mobilization planning and those

104 Re~e~igning Dqfense, Op. Cit., fOO~Ote 1, P 24.

105 For ~xmpl~, ~~ ~y is funding a protot~e ~duction Expansio~~celeration Capabiliw Enhancement (PEACE) computer model developedby Salvador Culosi at the Logistics Management Institute, which optimiz~s funding for a particular product and its subcomponents to meet peacetimeand mobilization requirements based on such inputs as likely crisis scemrios, plant capacity, industrial planning measures, process flow times, andproduct and erit]cal subcomponent lead times,

106 Mo~balling fac11itie5 my not & a good Option for maln~inlng a Production capabili~ if similar work is not being performed elsewhere. Forexample, a company that currently produces ammunition or armored vehicles might be able, with significant difficulty, to bring on-line anothermothballed munitions plant or tank facility, but it would face greater, if not insurmountable (in the time provided), difficulties in restarting productionif it had not manufactured the product for several years. The Canadian Navy recently encountered this dilemma when they tried to construct a frigatewithout having built one in a decade. The result was a substantial expansion of costs and schedule and the need to rely heavily on foreign expertise. Ifit is necessary to mothball an entire capability for financial reasons, then every effort should be made to document production procedures and workerexperience {perhaps by creating computer expert systcms) before they are lost.


Table 4-5—Comparison of Production Issues

Desirable Policy options

characteristics of Enhancethe future Streamline and government and Reduce productimproduction base consolidate industry cooperation Foreign moderation rates Promote innovation— . . . . —. . .Etflcient Reduces

overcapadt y,preserves vitalproductioncapabilities

Responsive

Mobilizable

Maintainsproductioncapabilities,but decreasescapacity

Maintainsproductioncapabilities,but decreasescapacity

Lowers product cost,allows defense baseto draw on nationalbase, makesdefense work moreappealing, but risksabuse

Cooperativeatmosphere easesplanning for future

Cooperativeatmosphere easesplanning for future

Expands satesmarket, source oftechnology andmmponents, butunderminesdomestic base

Expands domesticbase, but risks cutoff

Essential for large-Scale conflict but riskscutoff

Short-term effici(mcyloss, but maintainsproductioncapabilities efficientlyafter streamlinirqj

Maintains productioncapabilities, butreduces capacity

Maintains productioncapabilities, butreduces capacity

Raises efficiency, butmay demand capitalinvestment

Flexibility aliowssurgeof select items, mayreduce capacity

Future flexibility mayailow easier transferof production tonationai base

. .SOURCE: Office of Technology Assessment, 1992.

that are flexibly organized (e.g., with working groupcells) will be better prepared to make the transitionto mobilization.

The health of the national economy is vital to asuccessful mobilization. In a national emergency,the DTIB will need to draw extensively on theskills, facilities, and management of nondefensemanufacturers. The commercial sector can be reliedon for a large number of off-the-shelf items or itemsthat are easy to adapt to military standards. This willbe particularly true if steps are taken now to integratethe DTIB with the broader civil production base.Mobilization of militarily unique systems, such asarmored vehicles and airplanes, will require preplan-ning by mobilization planners with the cooperationof defense manufacturers and the retention of criticalmanufacturing skills and equipment.

In the future, the spread and standardization offlexible computerized manufacturing tools through-out industry might make it easier to switch in anational emergency from commercial to defenseproduction.

107 This might be especially t.rile infactories that produce both military and civilian

items on the same equipment. During mobilization,designated companies W O U1d cease commercialproduction and use that freed capacity to manufac-ture military items. The DoD can foster such a futureby lowering the barriers to civil-rnilitary integration(as described earlier) and though manufacturingtechnology programs that emphasize equipment anddata-format standardization. For example, a govern-ment-funded model factory or laboratory might beestablished to design machine-tool data packagesand software for manufacturing, weapon componentsthat could be transferred easily to flexible comrner-cia1 plants in the event of a mobilization. Currently,manufacturers in both the commercial and defenseindustries lack this degree of flexibility, but thenecessary technologies are emerging and might befostered with the right incentives.

The industrial bases of U.S. allies will also be anintegral part of any future mobilization effort. Themagnitude of such a crisis would demand somedivision of labor among allies, regardless of the riskof material cutoff. Promoting mutual defense coop-eration with allies and friendly nations, protecting—

lo7 Flexible mmufac~g wi~ ~SO tie it easier for pure defense producers to switch from lower to higher priOr@ end items. For e-pie, theArmored Systems Modernization program mentioned earlier, which planned six armored vehicles based on two common c hassis, is being designed formore flexible manufacturing. The two chassis wilt be manufactured on the same assembly line using numerically contrc lled machine tools. Missionpackages in more or less modular form will permit relatively rapid shifts from producing one type of vehicle to some olher vehicle that is in higherdemand. Unlike a shift from commercial to defense production however, flexibility in strictly defense fkms alone will not expand their total militaryoutput, only priority items (e.g., a tank rather than an artillery vehicle). See Roos, op. cit., footnote 96, p. 60.


Table 4-5--Comparison of Production Issues (continued)

Policy options (continued)

Support Increasemanufacturing common system Increase component Maintain surgeskills procurement commonality y capability Stockpile Lay-away facilities

Fills critical gaps Reduces product life- Lowers costs and Raises overhead Allows short-term cost withoutcycle rests, but concentrates rests production, but product productproducts are less manufacturing may never be neededmission oriented

Provides labor Eases logistics Eases logistics Allows increasedpool for base production on shortexpansion warning

Provides labor Eases logistics Eases logistics Allows expandedpool for base defense baseexpansion production while

national base gearsup

Products avalabie whenneeded, reducesforeign dependency, maybe irreplacable once used

Products available whenneeded, reducesforeign dependency, maybe irrepkmableonceused

Eases expansion ofproduction,particularly forfacilities that aredifficult to rebuild

Eases expansion ofproduction,particularly forfacilities that aredifficult to rebuild

global sea lines of communication, and, perhaps,maintaining a forward presence, would help ensurethe viability of such overseas collaboration.

CONGRESS AND THEPRODUCTION BASE

Deciding on the necessary steps to restructure thedefense production base will challenge many pastnotions about how the base ought to be run.Congress, in cooperation with the Executive Branch,will need to reevaluate many controversial issues,such as the relative importance of competitiveprocurement, contractor accountability, and buyingAmerican. Efficient peacetime production will haveto be balanced against potential surge and mobiliza-tion requirements.

The measures Congress adopts during thetransition to the future production base willdepend on how damaging it believes procure-ment reductions of 50 percent or more will be tothe Nation’s defense industry. If Congress be-lieves that production base problems will belimited to select industries with the rest able toadapt successfully to the new environment, it willopt for small adjustments to existing laws andpractices. If it views the problem as more severeand fundamental, it may opt for a general

restructuring of the production base and defenseprocurement. In either case, policies will need to besensitive to the complexities of the base, particularlythe different industrial sectors and tiers. Table 4-5summarizes the measures discussed in this chapter,Below, these measures are discussed in groupings ofparticular interest to Congress.

Funding Decisions

Congressional control over DoD procurementfunds and the rate at which these funds are reducedwill have the most direct impact on the productionbase. Thoughtful reductions can ensure that futuremilitary requirements will be met. Greater consis-tency in procurement projections, perhaps withmultiyear contracts, will allow the production baseto reorganize more efficiently and manufacturedefense equipment effectively at lower rates. Con-gress might further the efficiency of the future baseby providing additional funds for the study of thebase (e.g., composition and effect of laws andregulations), the adoption of manufacturing innova-tions, and the maintenance of critical manufacturingskills. Funding will be necessary for long-rangeplanning, stockpiling, and the maintenance of excesspeacetime production capacity in select areas tomeet potential surge and mobilization requirements.


Base Structure

Congress has a range of options for restructuringthe future production base. At a minimum, Congressshould insist that the DoD identify critical producersat the supplier, subcontractor, and prime contractorlevels that are at risk due to procurement reductions,and use existing laws and regulation to save theircore capabilities, Public or private arsenals could beestablished for those industrial sectors that can nolonger maintain themselves through DoD contracts.

Next, Congress could support government inter-vention in the market, if necessary, to save andstrengthen critical producers through a combinationof sole-source production, prototyping, upgrade,spare part, and maintenance contracts. For the goodof the production base, the government might pick‘‘winners and losers’ or substitute ‘‘best value’ forthe lowest bid as the basis for awarding contracts.Congress could act to lower legal and regulatorybarriers to mergers, strategic partnerships, and thecreation of monopolies (e.g., antitrust laws andCICA) that undermine the consolidation of the basearound select quality producers.

At the extreme, Congress might remove thelegislative barriers to a fill integration of the civiland military production bases, thus drawing on thesize, efficiency, and innovation of the larger nationalbase. After a time, only the most unique militaryitems would remain in a separate DTIB, perhaps inarsenals (e.g., nuclear submarines).

Business Environment

Short of complete integration, Congress can act torelieve industry of many stifling characteristics ofcurrent defense work. These characteristics includecostly paperwork requirements from bidding to finalaccounting, pervasive government oversight, out-dated and obsolete specifications on many aspects ofproduction, and a potential loss of a fro’s competi-tive edge through the transfer of proprietary datarights to the government. The present businessenvironment makes the production base inefficientand uninviting to innovative companies interested indoing defense work. Next January, a congressionallymandated DoD advisory panel will present itsfindings on how to streamline current acquisitionlaws. 108 Congress can act on the findings of this

panel and of this report to foster a less adversarialrelationship with industry. It can also encourageongoing DoD efforts to procure more commercialproducts.

Acquisition Strategy

Congress could also promote the simplificationand consolidation of the prodtuction base by support-ing the consolidation of acquisition programs andorganizations. It might also support commonalityand modularity in weapon systems and subsystemsand the use of multi-Service procurement to providea more economic workload for a smaller number ofcore manufacturers. The government might alsoconsolidate procurement efforts.

International (Change

Finally, Congress needs to consider the role thatthe international defense production community willplay in the future domestic base. The internationali-zation of the domestic base is already a reality,particularly at the lower tiers Congress can act toincrease this interaction by promoting military sales,purchases, and cooperative ventures; or it can opt tosever some or all of these ties, relying more onAmerican industry.

SUMMARYThis chapter has discussed alternative policies to

ease the transition to a future production base thathas the desirable characteristics of efficiency, re-sponsiveness, and the ability to mobilize. A thought-ful, orderly restructuring of the defense productionbase, in the face of a reduced international threat andpressing domestic financial concerns, is one of thebiggest challenges facing defense policymakers. Ifthe Administration and Congress do not take meas-ures in the next few years, market forces combinedwith reduced defense spending will perform thisrestructuring haphazardly, resulting in a smaller,weakend, and potentially Crippled DTIB. Somefirms would weather these changes and continue tomanufacture defense products. Others would beforced into other business areas or close. More thanlikely, should the need ever arise to surge capacityor mobilize, the United States would find itselflacking in critical capabilities.

108 We footnote 34.

Chapter 5

The Maintenance Base

Contents

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .THE CURRENT DEFENSE DEPOT MAINTENANCE SYSTEM . . . . . . . . . . . . . . . . . . . . . . . .

Army Depot Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Navy Maintenance and Overhaul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Marine Corps Depot Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Air Force Depot Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REQUIREMENTS FOR A ROBUST FUTURE MAINTENANCE BASE . . . . . . . . . . . . . . . .ALTERNATIVES FOR THE FUTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reduction and Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Changing the Private/Public Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Competition and Efficiency in Military Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .New Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Supporting Military Equipment Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figures

Page119121122124126126127128128129133134135135

Figure Page

5-1. Army Depot Maintenance Realignment: Work Consolidation . . . . . . . . . . . . . . . . . . . . . . . 124

TablesTable Page

5-1. Depot Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1205-2. Average Age in Years for Selected Military Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1205-3. Defense Depot Maintenance Council Commodity Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1225-4. Army Organic Depot Maintenance Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1235-5. Navy and Marine Corps Depot Maintenance Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1255-6. Air Force Organic Depot Maintenance Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Chapter 5

The Maintenance Base

INTRODUCTIONThe maintenance base is the third principal

element of the defense technology and industrialbase (DTIB). It is the portion of the base thatsupports deployed military systems, ensures forcereadiness, and sustains forces during military opera-tions. Redesigning Defense discussed why a robustdefense maintenance base will be vital in thenational security environment the Nation faces in thefuture.

Defense maintenance is currently divided into atleast three levels. The first is organizational levelmaintenance, where members of the operational unitmake functional checks and adjustments, and faultyparts are serviced or replaced. The second isintermediate level maintenance, where field person-nel perform more extensive repairs. The third isdepot level maintenance, where highly trainedpersonnel rebuild, make complex repairs on, andoverhaul equipment in specialized facilities.1 Thischapter concentrates on depot level maintenance anduses the term ‘‘maintenance’ to refer to it.

The U.S. military spent approximately $13 billionon depot level maintenance in fiscal year 1991,supporting a huge fleet of aircraft, armored vehicles,and other weapon systems and support equipment.(See table 5-1.)2 Depot maintenance is currently theresponsibility of the individual Services.

The depot maintenance system consists of twocomponents. The organic (i.e., Service-owned andoperated) component is composed of Army De-pots, Air Force Air Logistics Centers, Naval Avia-tion Depots, Naval Shipyards, and Marine CorpsLogistics Bases. This in-Service maintenancecomponent employs about 150,000 people. It issupported by the private sector through the work ofthousands of firms, including both repair houses andoriginal equipment manufacturers. These firms sup-

ply parts and provide direct maintenance support intheir own facilities or in government-owned andcontractor-operated (GOCO) facilities.

Maintenance differs from production in thatequipment arriving at the depot or factory for repairor overhaul must first be inspected and faultsdiagnosed. Once major items, such as ships, aredisassembled to begin an overhaul, unanticipatedrepair requirements may be found, resulting inadditional costs. Nevertheless, some maintenanceand production activities are similar and many of thesame skills are involved in manufacturing new partsor repairing old ones.

Future maintenance requirements will differ fromthose of the past 40 years. For example, the UnitedStates is likely to retire many weapons in responseto the waning threat from the former Soviet Unionand to arms control agreements. Since the oldestweapons are likely to be retired first, not only willthe number of systems in the forces decline, butdeployed weapons will initially tend to be newer andhence will require less maintenance. While somefacilities such as shipyards are likely to haveincreased activities during the transition to a smallerforce (e.g., decommissioning work), overall mainte-nance requirements will drop substantially.

Current trends, however, indicate a major reduc-tion in new weapons procurement in the future,Thus, once present forces are reduced, the Nationwill probably retain weapons and equipment ininventory longer than in the recent past, preferring toupgrade deployed systems when possible instead ofproducing new ones .3 (See table 5-2.) This agingequipment may require more maintenance to retainhigh readiness levels. Also, military systems arebecoming more sophisticated; in particular, theembedded electronic components are becomingmore important and more complex. These trendswill change the types of facilities needed for repairs

1 The Army and the Marine Corps have five levels of maintenance: user, organizational, divisional, intermediate, and depot.

z The FY 1992 U.S. global milltary force, for example, includes over 45,000 armored vehicles, 490 combat ships, 4,100 major fixed-wing aircrtift,and 260,000 Army tactical wheeled vehicles.

1 The Congressional Budget Office nofed that (he cxpectcd changes in age of equipment arc mixed, depending on the type of weapon. Between 1991and 1995 ships WIII be relatively newer as will Air Force tactical aircraft, The average age of Al my equipment and the agc of Navy aircraft will increase.Statement of Robert F. Hale, Assislant Director, National Security Division, Congressional Budget Office before the U.S. House of Reprcscntativcs,Commiuec on Armed Services, Mar. 19, 1991. After 1995, all clmscs of fielded equipment are likely to be older. Upgrading and retrofitting existingequipment ]s more similar to manufacturing than is repair, but such activities often take place in the maintenmcc, rather than in the prod~ction base.

-119-


Table 5-l—Depot Maintenance (fiscal year 1991 milllons of dollars)

Army Navy Air Forca Marine Corps Total

Aircraft . . . . . . . . . . . . . . . . . . . . . . . . 294 1,830 4,001 a 6,125Ships & boats . . . . . . . . . . . . . . . . . . 7 3,936 NA NA 3,943Combat vehicles . . . . . . . . . . . . . . . . 628 NA NA 34 662Missiles . . . . . . . . . . . . . . . . . . . . . . . . 190 60 278 12 540Communications & electronics. . . . . 244 12 70 10 336Ordnance, weapons, munitions . . . . 53 150 19 3 225Automotive . . . . . . . . . . . . . . . . . . . . . 142 32 11 185 370Other. . . . . . . . . . . . . . . . . . . . . . . . . . 48 675 300 36 1,059Totals . . . . . . . . . . . . . . . . . . . . . . . . . 1,606 6,695 4,679 280 13,260Contract to private industry. . . . . . . . 340/0 1$)O/o 270/. 2% 247.a Maintenanm performed by Nav.

KEY: NA - not applicable.

SOURCE: Office of the Secretary of Defense.

and the skills of the people that perform maintenancework. 4 Some future upgrades and retrofits will aimat increasing the reliability of deployed systems,thus potentially reducing future maintenance work-loads. For example, Rockwell International’s cur-rent upgrade of F-1 11 avionics aims at improvingreliability and maintainability.s

Force reductions and increased equipment relia-bility have already caused reduced workloads andovercapacity in the Service’s present depot mainte-nance system. Future defense maintenance baseobjectives include:

1.

2.

3.

preserving appropriate maintenance capabilitywhile forces are being reduced;G

providing maintenance support in peace, cri-sis, or war to a force that is likely to consist ofolder platforms that have been upgraded; andsupporting fewer but more sophisticated sys-tems over the longer term.

Integrating more maintenance activities into theproduction element of the DTIB has been suggestedas a way to sustain the defense production base andmanufacturing skills in a period when less newequipment is produced. If this objective is accepted,it will have a significant effect on the size of thein-Service component of the maintenance base.

This chapter describes the current defense mainte-nance base, defines what is needed to have a robustmaintenance base in the future, discusses some of

Table 5-2—Average Age in Years for SelectedMilitary Equipment

Equipment 1990 1993 1995

Air Force tactical aircraft . . . . . . . 10 8 10Navy combat aircraft. . . . . . . . . . 12 13 15Naval surface combatant ships . 15 13 14Attack submarines . . . . . . . . . . . . 14 14 14Ballistic missile submarines . . . . 18 15 11Ml tank . . . . . . . . . . . . . . . . . . . . nA 6 8Bradley fighting vehicles . . . . . . . NA 6 8M-109 howitzer . . . . . . . . . . . . . . NA 23 25AH-64 attack helicopter. . . . . . . . NA 6 8NA - not available.SOURCE: OTA, based on information fron] the Congressional Budget

Office, the Department of Defensa, and the Department of theArmy.

the alternative ways of achieving a robust base andtheir policy implications. The options available forthe maintenance base are similar to those in theproduction base. These options include:

1.

2.

3.

4.5.

consolidating and restructuring the base whileretaining its current character,increasing use of the private sector,

increasing competition among Service organi-zations (depots and air logistics centers) andbetween Service organizations and privatef i n s ,

exploiting new technology, andproviding maintenance upgrades to U.S. equip-ment abroad, as well as foreign manufacturedequipment.

4 Alfred H. Bcyer and Connelly D. Stevenson, Depot Maintenance in fhe 1990’s (BethesdA MD: Logistics Managemer t Institute), July 1986, p. 4.5 William B. ScotC “Manufacturers Embrace Upgrades to Suwive in ‘90s, ” Aviation Week & Space Technology, July 22, 1991, pp. 4-5.b Defense Depot Maintenance Council, Corporate Business Plan FY 91-95, Deeember 1991. The Council, for exax pie, states that the ‘‘depot

maintenance community finds itseLf faced with the challenge of having to downsize while simultaneously increasing efficien :y and productivity in orderto sustain forces in the field’ in operations such as Desert Storm.

Chapter 5--The Maintenance Base ● 121

Photo credit: Rockwe// /nterrrationa/

U.S. and Australian F-1 11 fighter-bombers are upgradedside by side in this industrial facility. Maintenance

of foreign-owned equipment could help supportthe U.S. maintenance base.

These options are not mutually exclusive butmight be used in combination as a part of an overallmaintenance strategy.

THE CURRENT DEFENSE DEPOTMAINTENANCE SYSTEM

In the past, each military Service has maintainedits own equipment with the exception of a few selectitems (e.g., some aircraft engines), for which a singleService has assumed overall maintenance responsi-bility. The Services have traditionally sought owner-ship and control of maintenance for their ownsystems to ensure that they have the technicalcompetence and resources to respond to emergencyrequirements. 7 The Services have also been con-cerned that failure to develop in-Service mainte-nance capabilities might leave them hostage toescalating cost demands by sole-source privatecontractors, or without the necessary support if theprivate sector determines that maintenance work isno longer profitable and leaves the business. How-ever, these in-Service maintenance capabilities areexpensive. For example, the acquisition by the

Services of standard test program sets, which allowthe military to test and repair complex electronics,can add up to 20 percent to the total developmentcost of a single electronics package. This cost wouldnot be incurred if maintenance remained the manu-facturer’s responsibility. The increased use of theprivate sector is discussed later in this chapter.

Before fiscal year 1983, Service depots competedfor equipment funds from the same pool that wasused to acquire ships, aircraft, and other weaponssystems; in many cases they were unsuccessful inobtaining funds to modernize their facilities.8 Dur-ing the expansion of the 1980s, however, the Servicedepots underwent substantial modernization fundedby the DoD Asset Capitalization Program. TheServices spent hundreds of millions of dollars onnew equipment and in some cases replicated capa-bilities that already existed in another Service or inprivate industry.9 By the end of the decade, however,the waning Soviet threat produced almost universalagreement that the existing capacity in the depotmaintenance base exceeded future needs.

The Defense Management Report (DMR) re-leased by Secretary of Defense Richard Cheney atthe beginning of the Bush Administratim idcntifiedways to improve the management of thc DTIB,including maintenance. Deputy Secretary of De-fense Donald Atwood subsequently directed theService Secretaries to prepare plans to reduce thecost of depot maintenance operations between fiscalyear 1991 and fiscal year 1995 by a total of $1.7billion ‘‘through internal streamlining and reducingthe size of their maintenance depot infrastruc-ture. 1 0 Among the specific actions directed were:transfer of workloads, establishment of one navalaviation depot maintenance hub on the east and oneon the west coast of the United States, single-sitingmaintenance, improvement of labor productivity,and consideration of the withdrawal of Air Forcemaintenance activity from one of that Service’s fivemain Air Logistics Centers. Another $2.2 billionwas to be saved through long-range efficiencies that

—T Kelvin K K iebler, Larry S. Klapper, and Domld T. Frank Army Depot Maintenance” More Effecti}e ZIse of Orga rr[c <J rr,i Contra L rur Resotir< e,s,

report no. AR803R I (Bethesda, MD: Logistics Managemen[ Institute, June 1990). p. 1-1.

8 The rmlltary Services primarily usc amual appropriation.. to reimburse the depots for actual work perfommt. Organic cicpo(s do not receive directappropriations for this purpose; instead, (hey arc funded Indirectly using working capitat in the Dcfeme Business Operations Fund an(i orders from theircustomers to tlnance the cost of goods and services.

~ Beyer and S[c}cnson, op. Cit , f~tnote 4, pp. 7-9. The Logistics Management Institute study reported, for example ~at tie AmIY developedGlpabllities in microelecuonics, automatic test equipment, and software that already existed elsewhere in the DoD.

10 Deputy Sccretagr of Defense Donald Atwood, Memorandum for Secretaries of lhe Mllltary Depar(n~ent~ Subject Strengthening DepotMu/ntenance Ac(/}[nes, June 30, 1990,


included inter-Service competition for maintenance,competition between Service organizations andprivate fins, and increased use of depot capacity .11

The Atwood directive established a DefenseDepot Maintenance Council (DDMC) composed ofrepresentatives from the Services and relevant agen-cies to advise the Assistant Secretary of Defense(Production and Logistics) on maintenance and tocoordinate activities. To develop cost-saving strate-gies, the DDMC commissioned studies on capacityutilization, performance measurement, informationsystems, cost comparability, and a number ofspecific weapon systems and technologies. (Seetable 5-3.)

The current planned changes assume that a majorin-Service maintenance base will continue long intothe future. The position of DDMC is that

the highly developed capability of organicmaintenance depots, supplemented by that of com-mercial industry, makes it possible to maintain ahigh state of readiness during peacetime and sustainthe continuing maintenance requirements essentialduring wartime. ”12

This position is supported by Public Law 100-370(July 1988), which directs the DoD to maintain acore logistics capability for performing depot main-tenance. The definition and uses of a core capabilityare discussed later in this chapter.

As a result of the Defense Management ReportDecision (DMRD-908) dated November 17, 1990,the Services developed a Corporate Business Plan inDecember 1991 that describes how the Services willreach the savings goals established earlier by Mr.Atwood. The savings target of $3.9 billion is to beachieved by fiscal year 1995 through increasedefficiencies in depot maintenance operations.13 Aninitial aim of the Corporate Business Plan appears tobe to promote more cost-effective operations whilemaintaining a depot infrastructure for each Serv-ice The plan is to achieve savings through‘‘inter-Servicing” (developing single DoD sites to

Table 5-3—Defense Depot Maintenance CouncilCommodity S1 udies

Army IeacRotary wing aircraftCombat, artillery, and tactical wheek d vehiclesGas turbine engineshompressorsConventional munitionsRail equipmentGeneral purpose equipment

Navy leadCarrier based aircraftaTactical missilesF-4 and OV-1 O aircraftaFlexible computer integrated manufaf turingRemotely piloted vehicleshnmanned aerial vehiclesJ79~56 enginesb

Air Force let ‘idLand based aircrafPType 1 metrology laboratoriesLanding gearTF30/Fl 10/LM2500 enginesbEngine blades/vanesBearings

Marine Corps l~adSmall armsGround mmmunications-electronics equipment

DLA leadIndustrial plant equipmenta combined into one fixed wing aircraft stUC y.b combined into one engine study.

SOURCE: Defense Depot Maintenance Couwil, Corporate Business PlanFY 91-95, December 1991.

maintain similar technologies or systems for allServices), increased capacity utilization (consolidat-ing facilities for a given technology and weaponsystem within each Service), and greater reliance oncompetition. Current Service depot maintenancestructure and restructuring plans are outlined below.

Army Depot Maintenance

The Army’s depot level maintenance is managedby the Army Materiel Command through its DepotSystem Command (DESCOM~, which administersmaintenance funds and assigns work to depots.15

The Army currently runs 8 major depot maintenancefacilities, has a budget of about $1.6 billion, and

11 Ibid.12 Defe~e Depot Maintenance Council, op. cit. fOOtnOte 6, p. 5.

13 Ibid., p. 1.14 Depot Ma~tenance Ex~utive @oup, Depot Maintenance Business Vision and Strategies for 1995 and Beyond: F’ndings for the Joint POllCy

Coordinating Group, Aug. 21, 1991.15 Dept ~~tenmce rqfiements me determined by me -y Materiel Command’s Sk major subordinate commands ~ent, Munitions and

Chemical Command (AMCCOM); the Aviation Systems Command (AVSCOM); the Communications-Electronics Commmd (CECOM); the MissileCommand (MICOM); the Tank-Automotive Comma nd (TACOM); and the Troop Support Command (TROSCOM).

Chapter 5—The Maintenance Base ● 123

Table 5-4-Army Organic Depot MaintenanceFacilities

Facility Location

Anniston Army Depot . . . . . . . . . . . . . . . . . . . Anniston, AlabamaCorpus Christi Army Depot . . . . . . . . . . . . Corpus Christi, TexasLetterkenny Army Depot . . . . . . . Chambersburg, PennsylvaniaMainz Army Depota . . . . . . . . . . . . . . . . . Mainz, West GermanyRed River Army Depot . . . . . . . . . . . . . . . . . . Texarkana, TexasSacramento Army Depo!$’ . . . . . . . . . . . . Sacramento, CaliforniaTobyhanna Army Depot . . . . . . . . . . . . Scranton, PennsylvaniaTooele Army Depot . . . . . . . . . . . . . . . . . . . . . . . . . Tooele, Utaha Closlng,b DeS[gnat~ for closure by “Defense Base Closure and Realignment

Commission Report,” July 1, 1991.

SOURCE: Defense Depot Maintenance Council, Corporate Business PlanFY 91-95, December 1991.

employs about 18,000 people in its in-Servicefacilities. 16 (See table 5-4,) In fiscal year 1990 theprogram repaired over 300,000 secondary items(e.g., radios) and almost 100,000 major end items(e.g., tanks, trucks, engines) .17

Over the past decade, the Army has contracted outto private firms between 30 and 40 percent of its totaldepot work. The percentage contracted out varies bytype of equipment. For example, in fiscal year 1989,about 50 percent of Army aviation depot mainte-nance went to private firms, and another 10 to 15percent was sent to the other Services. In contrast,only about 35 percent of vehicle maintenance wasdone outside of the organic base, and over 90 percentof that was performed in a government-owned,contractor-operated (GOCO) facility .18 The amountof maintenance contracting has been controversial.Current legislation requires that not less than 60percent of funds available for fiscal years 1992 and1993 Army depot level maintenance shall be usedfor maintenance performed by employees of theDepartment of Defense.

19 (Congress’ role in legis-

lating different private and public-sector mixes ofmilitary maintenance is discussed below.)

As a result of DDMC actions, the Army isengaged in a significant restructuring and consolida-tion by technology and type of equipment at single

Photo credit: U.S. Army

Anniston Army Depot performs depot level maintenanceon the Army’s tanks.

sites. (See figure 5-1.) Heavy combat vehicle main-tenance will be consolidated at Anniston ArmyDepot, light combat vehicles and artillery at RedRiver, missiles at Letterkenny, and tactical vehicles(e.g., trucks) at Tooele. Further steps for achievingsavings involve the increased use of inter-Servicemaintenance, and the closing of both the SacramentoArmy Depot and the Mainz Army Depot in Ger-many.

While these steps promise increased peacetimeutilization of the remaining facilities, they also carrythe risk that depots may be less responsive in crisisor war. Army maintenance planners express concernthat excessive consolidations could impair theirability to react to contingencies like OperationDesert Storm. While they acknowledge the impor-tant support of private contractors during the PersianGulf War, they argue that the Army’s in-Servicecapability is essential to support future theatercontingencies. Indeed, the Army’s maintenance basestrategy anticipates that the percentage of futuremaintenance carried out in government facilitieswill increase,

20 T he Army’s flexibility in reducing

the percentage of maintenance in government facili-

16 us, Amy Depot system command b+ fing, Nov. 13, 1991, DESCOM employs more tin 30,000” pe~onne). The remainder of these personnelare involved in meeting the command’s other responsibilities: amrn unition storage, maintenance of portions of the Nation’s strategic materials stockpile,and the distribution of commodities assigned by (he Army Malenal Command, the Defense Logistics Agency, the General Services Administratio~ andother suppliers.

IT U.S. .hnY Depot System Comma nd Director for Maintenance briefing, Sept. 30, 1990.

Is Kleb]er c[ al., op. cit., fOOUIOte 7.

1’J Natio~l Defense Authorization Act for Fiscal Years 1992 and 1993, S-X. 314.

~ Defense Depot Maintenance Council, op. cit., fOOtnOte 6, pp. 12-13.

326-447 - 92 - 5 : Q[, 3


Figure 5-l—Army Depot Maintenance Realignment: Work Consolidation

Mainz Acrny Depot*

Heavy Light Tacticalcombat combat vehiclesvehicles vehicles

● Closing

NOTE: This figure does not include inter-Service transfers.

SOURCE: DESCOM command briefing.

ties (should it decide such reductions are best) islimited by legislation.

DESCOM will soon be consolidated with aportion of the Army Armament, Munitions, andChemical Command into a single Army IndustrialOperations Command. This new command is ex-pected to consolidate the depots into smaller, robustmanufacturing and maintenance centers that willfocus on maintaining those military systems used inthe short-warning regional conflicts that Armyplanners believe are the most likely contingencies inthe foreseeable future.

Navy Maintenance and Overhaul

Navy depot maintenance and overhaul is managedby two organizations. The Naval Air SystemsCommand (NAVAIR) controls the six Naval Avia-tion Depots. The Naval Sea Systems Command(NAVSEA) manages the public shipyards (table5-5) and controls the repair and overhaul workconducted at private shipyards. NAVSEA alsomanages ordnance facilities and weapons stationsthat perform depot level maintenance. Total Navy

maintenance was over $6.5 billion in fiscal year1991.

Navy ship repair and overhaul is conducted at 44private shipyards and 8 Navy shipyards. Theworkforce engaged in Navy repairs and overhaulwork consists of about 20,000 in the private sector(out of a total private shipyard workforce of just over100,000) and 60,000 public-sector workers (whichthe Navy plans to reduce to about 40,000). Addition-ally, U.S. Navy ships whose home ports are outsidethe United States are overhauled overseas. Forexample, Navy overhaul and repair activities atSubic Bay, Philippines; Guam; and Yokosuka,Japan have, in recent years, totaled more than $100million per year.

In the mid- 1960s, the Navy adopted a policy ofassigning all new ship construction to privateshipyards and having its own shipyards concentrateon overhaul and repair. Since that time, 60 to 70percent of the Navy’s ship repair and overhaul workhas been done by Navy shipyards, while theremaining work, along with all new construction,has been performed by private-sector yards.21 Con-gress required competition between the private and

21 Chton H. ~itehmst, Jr., The U.S. shipbuilding Indusrry (Annapolis, MD: Naval Institute Press), p. 90, notes that 1 Etween 1974-1983 about 30percent of Navy ship repair went to private shipyards.

Chapter 5—The Maintenance Base ● 125

Table 5-5---Navy and Marine Corps Depot MaintenanceFacilities

Fad lit y Location

Naval Aviation DepotsNADEP Alameda . . . . . . . . . . . . . . . . . . . . . . Alameda, CaliforniaNADEP Cherry Point . . . . . . . . . . . Cherry Point, North CarolinaNADEP Jacksonville . . . . . . . . . . . . . . . . . . . Jacksonville, FloridaNADEP Norfolk . . . . . . . . . . . . . . . . . . . . . . . . . . .Norfolk, VirginiaNADEP North Island . . . . . . . . . . . . . . . . . San Diego, CaliforniaNADEP Pensacola . . . . . . . . . . . . . . . . . . . . . Pensacola, florida

Naval ShipyardsNaval Shipyard Charleston. . . . . . . . Charleston, South CarolinaNaval Shipyard Long Beach . . . . . . . . . . Long Beach, CaliforniaNaval Shipyard Mare Island . . . . . . . . San Francisco, CaliforniaNaval Shipyard Norfolk . . . . . . . . . . . . . . . . Portsmouth, VirginiaNaval Shipyard Pearl Harbor . . . . . . . . . . . . Pearl Habor, HawaiiNaval Shipyard Philadelphiaa. . . . . . Philadelphia, PennsylvaniaNaval Shipyard Portsmouth . . . . . . Portsmouth, New HampshireNaval Shipyard Puget Sound . . . . . . . . . Bremerton, Washington

Ship Repair FacilitiesSRF Guam . . . . . . . . . . . . . . . . . . . . . . . Guam, Mariana IslandsSRF Yokosuka . . . . . . . . . . . . . . . . . . . . . . . . . . Yokosuka, Japan

Marine Corps Logistics BasesMCLB Albany . . . . . . . . . . . . . . . . . . . . . . . . . . . . Albany, GeorgiaMCLB Barstow . . . . . . . . . . . . . . . . . . . . . . . . Barstow, Californiaa ~hedu[ed to be closed.

SOURCE: Defense Depot Maintenance Council, Corporate Business PlanH91-95, December 1991.

public sectors for Navy ship overhaul and repairbeginning in 1985. By 1990, largely because ofdeclines in shipbuilding work, repair constitutedalmost 20 percent of the work in private yards doingbusiness with the Navy.22

The Navy Sea Systems Command’s plan forachieving its DMRD-908 savings goals includesconsolidations and reductions in workforce thatbegan in fiscal year 1991. The Navy reports that itsship depot level maintenance resides in both privateand public yards, although the near total lack of newconstruction threatens the survival of private U.S.shipyards. The Philadelphia Naval Shipyard isscheduled to close once it completes work on theaircraft carrier Kennedy, The Navy has recentlyproposed consolidation of its ship overhaul capabili-ties by creating a central-hub shipyard on both theeast and west coasts that would provide ‘‘support

P .*

-, 4[? -’ ‘-

Y , ,.,.,

Photo meclit: Bath Iron I$6rks

The U.S.S. Samuel B. Roberts at the Bath Iron Worksundergoing extensive repa’r for mine damage. Many t ypesof maintenance and repair work require the same skills and

facilities as manufacture.

functions such as planning, design, procurement andaccounting and maintenance. ’23 This consolidationof overhead functions would support a series ofsatellite yards that retain unique facilities (e.g.,nuclear submarine overhaul and repair, and aircraftcarrier overhaul) and trained personnel. Despite theconsolidations and closures to date, and those thatare planned, there is still considerable overcapacityin U.S. shipbuilding and repair. Nevertheless, theNavy’s ability to consolidate further may be con-strained by the huge capital investments in dry docksand support equipment required in its specializedmaintenance facilities.

Naval aviation depot maintenance, employingmore than 20,000 people, is carried out in 6 NavalAviation Depots, which also benefited from themodernization of the 1980s. In response to DMRD-908, the Navy plans by fiscal year 1992 to consoli-date maintenance activities for each type of aircraftat single sites. 24 plans call for the 6 depots to be

~ Naval Sea Systems Command, United S/ate~ Shipbuilding Industry, briefing paper, July 1990. Navy shipbuilding covered tie bulk of ~1 o~erwork. The latest Navy report to Congress on shipbuilding, Report on the Effects of the FY 1991-97 Navy Shipbuilding and Repair Programs on U.S.Private Shipyards and the Supporting Industrial Base, April 1991, noted that “In recent years, Navy funding has accounted for 90 percent of theemployment at those private yards performing Navy work. Further, 90 percent of Navy shipbuilding funds has been concentrated in only five privateyards. ’ ‘

23 Robcfl Holzer and Neil Munro, “Navy Weighs Overhaul of Shipyards, ” Defense New’s, Dec. 23, 1991, p. 17.

~ Defense Depot M~ntcMn~ Counci], op. cit., footnote 6, p. 15. The A-6 will not be single-sited until the completion of CuITent rewing work.


Table 5-6—Air Force Organic Depot Maintenance Facilities

Facility Location

Air Logistics Centers

Ogden Air Logistics Center. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hill Air Force Base, UtahOklahoma City Air Logistics Center . . . . . . . . . . . . . . . . . . . . . . . . . . . Tinker Air Force Base, OklahomaSacramento Air Logistics Center. . . . . . . . . . . . . . . . . . . . . . . . . . McClellan Air Force Base, CaliforniaSan Antonio Air Logistics Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kelly Air Force Bas e, TexasWarner Robins Air Logistics Center . . . . . . . . . . . . . . . . . . . . . . . . . . . Robins Air Force Base, Georgia

Other Air Force depot maintenance activities

Aerospace Guidance and Metrology Center. . . . . . . . . . . . . . . . . . . . . Newark Air Force Stat on, OhioSupport Group Europea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RAF Kemble, United KingdomDetachment 35 ....., ., . . . . . . , ... , ., . . . . . . . . . . . . . . . . . . . . . . . . Kadina Air Force Base, JapanAerospace Maintenance and Regeneration Center. . . . . . . . . Davis-Monthan Air Force Base Arizonaa ~h~uled to close.

SOURCE: Defense Depot Maintenance Council, Corporate Business Plan FY91-95, Deeember 1991.

linked through two Business Operating Centersco-located with the depots at Norfolk, Virginia andNorth Island, California. According to the Navy,savings will be achieved by reducing the number ofpersonnel who now work on a single aircraft type atmore than one site, and through equipment reduc-tions. 25 Engine and aircraft component work is beingconsolidated, and Navy plans also call for increasedinter-Service maintenance. The aviation depots, likethe naval shipyards, have engaged in limited compe-tition with commercial firms since 1987. The Navyprojects savings from competition in aircraft mainte-nance to add up to more than $550 million betweenfiscal year 1992 and fiscal year 1995.

Marine Corps Depot Maintenance

The Marine Corps has two logistics bases. (Seetable 5-5.) The Service has done little outsidecontracting and has used Navy facilities to supportMarine aviation. Pursuant to DMRD-908, the Ma-rine Corps plans ‘‘cost avoidance’ of about $27million by not developing its own Abrams tankmaintenance facilities, It also anticipates additionalsavings from increased inter-Service maintenancecombined with increased competition. Indeed, mostproposed Marine Corps savings are expected tocome from increased efficiency resulting fromgreater competition, both among the Services andbetween the public and private sectors.

Air Force Depot Maintenance

The depot level maintenance activities of the AirForce are currently managed by the Air ForceLogistics Command and include the repair, modifi-cation, and support of aircraft and equipment.2G TheAir Force has five major A r Logistics Centers(ALCs), some smaller support centers, and a limiteddepot maintenance capability overseas. (See table5-6.) Air Force maintenance currently employsabout 36,000 people (scheduled to fall to about31,000 by 1995). Fiscal year 1991 work totaledmost $4.7 billion. The Air Force performs about60-70 percent of its depot maintenance in itsALCS.27 Another 6 percent of Air Force depot workis performed by the other Services,28 and theremainder is performed by private firms undercontract. In fiscal year 1988, the Air Force LogisticsCommand repaired or modified 1,307 aircraft, 7,727engines, and 817,000 exchangeable parts. Approxi-mately 90 Air Force systems are currently supportedthroughout their life by the private sector.

The Air Force modernized its depot maintenancesystem during the 1980s. It has long consolidated itsdepot maintenance around Technology Repair Cen-ters. For example, the repair of aircraft engines isconcentrated at the Oklahoma City and the SanAntonio ALCs and landing gear - at Ogden ALC. TheAir Force is now downsizing and further consolidat-

~ Ibid., p. 14.X On July 1, 1992 tie Air Force LQ@iCS Command and Air Force Systems Command will merge into the Air Forct Wteriel Comma.n d.27 MG Joseph K. Spiers, comm~der, Oklmoma City Air Logistics Center, testimony before the House Committee on 1.rrned Services, panel on the

Structure of the U.S. Defense Industrial Base, Nov. 1, 1991.2$ ~ Force I@stics Center, J988 Production Base Analysis, october 1989, p. ~.

Chapter 5-The Maintenance Base . 127

ing its base to reduce total costs by about $1.1 billionbetween fiscal year 1991 and fiscal year 1995.

Current Air Force mobilization planning require-ments are based on a scenario that envisions twosimultaneous regional conflicts in different parts ofthe world.29 Air Force studies of the infrastructureneeded to support these requirements caused theService to begin downsizing the workforce begin-ning in fiscal year 1991. The Air Force plans toretain, but scale down, each of the current ALCs.

The Air Force plan calls for rapid personnelreductions, installation closures, and process imp-rovements. In the longer term, savings will beaccomplished by increased inter-Service mainte-nance competition and increased utilization offacilities, Most long-range savings are expected tocome from greater efficiency spurred by competi-tion. 30

The Air Force considers the retention of skilledpersonnel an immediate and important problem andis concerned about their loss as budgets and forcesdecline. The commander of the Oklahoma CityALC, for example, testified that he was losing bothcurrent expertise and future capability because hisolder, experienced workers were leaving through‘‘early-out retirements and his younger workerswere leaving because of reductions-in-force.31 Asecond Air Force concern is its ability to continuesufficient investment in depot facilities over the longterm.

REQUIREMENTS FOR A ROBUSTFUTURE MAINTENANCE BASECongress and the DoD need to plan the size and

nature of the future maintenance base. As discussedat the beginning of this chapter, the future base willbe smaller because the Nation will have fewerdeployed weapons, will face smaller militarythreats, and systems in the field may be morereliable. Even so, the retention of older weaponsystems will make maintenance, as well as upgrad-ing and retrofitting, important. Much of this upgrad-ing is expected to occur in avionics, electronics,software, and advanced materials. Thus, a futurerobust maintenance base will not be just a collection

Photo cwdit: DoD

In modern combat, field maintenance must be able toreturn equipment rapidly to operation.

of metal-working shops but must be capable ofsupporting an increasingly complex inventory ofweapon systems.

The future maintenance base must be efficient inpeacetime; this is an objective of many currentService initiatives. The Services’ plans for futureefficiency rest on the increased use of competitionand better use of physical plant. But competition andhigh facility utilization can be incompatible. Truecompetitive bidding implies multiple sources, andhence some overcapacity. The anticipated savingsthrough competition hoped for by each Service maybe based on the belief that it, and not anotherService, will win such competitions. A major bonusof increased competition is that it is a politicallyacceptable way of elimin ating facilities (public aswell as private) that are unable to modernizeadequately. Another way to improve efficiency isthrough new maintenance techniques and technolo-gies, including modular repair centers, robotics, andadvanced diagnostic equipment. Built-in diagnos-tics may reduce field maintenance costs in the future.

The future base must retain a capacity to respondrapidly to crisis or war. However, peacetime effi-ciency resulting from the high utilization of themaintenance base in peace may also be incompatiblewith responsiveness in crisis and war. Such respon-siveness will continue to be critical in the short-warning regional conflicts that many planners envi-

29 Defc~.e Depot M~ntenance Council, Op. Cit., foo~ote 6, PP. 3’l_35.

~ Ibid.3 I Spiers, op. cit., footnote 27.


sion in the future. During the recent Gulf War, thedepot system appeared to respond well. The Servicesmodified equipment both in the United States and inthe Gulf. The Army DESCOM, for example, shipped500,000 tons of materiel, rapidly upgraded 743MIA1 Abrams tanks, deployed 2,000 civilian em-ployees to the theater, and established a forwardmaintenance facility in Saudi Arabia. Contractorsalso deployed hundreds of maintenance personnel tothe theater of operations and made important modifi-cations to equipment once they were there. Althoughthe future maintenance base will need to respond,there will be a lesser magnitude of wartime demandassociated with the smaller contingencies likely inthe foreseeable future.

ALTERNATIVES FOR THEFUTURE

The principal alternatives for ensuring a robustdepot level maintenance base in the future areevident in the Service’s responses to DMRD-908,and were noted earlier in the chapter. They arediscussed below and include:

1.

2.

3.4.

5.

reduction and consolidation of current in-Service and private-sector capabilities;increased use of the private sector both to gainexpected efficiencies, and also to providesupport for the private production base;increased use of competition;development of new technology for mainte-nance; andmaintenance and upgrading of U.S.-producedequipment abroad as well as foreign-producedequipment.

These alternatives, as noted earlier, are notmutually exclusive; rather in combination theycould fashion a future robust maintenance base.

Reduction and Consolidation

Reduction and consolidation of the base is ongo-ing, as described above. Current plans are significantin the context of past DoD attempts at consolidation.But viewed in the context of the end of the cold war,these plans are less impressive. Even after presentplans are carried out, the DoD will have almost thesame number of major in-Service maintenancefacilities as existed during the cold war.

Photo credit: U.S. Nayy

A nuclear submarine leaves the dry dock at Bangor,Washington. Some specialized maintenance work, suchas repair and overhaul of nuclear- mwered submarines,

can only be accomplished c t special sites.

Further consolidation can be carried out acrossService lines. Consolidating maintenance of similarsystems or technologies at single facilities—regardless of Service affiliation--reduces overheadand makes better use of specialized capabilities.Projected DMRD-908 savings from inter-Servicemaintenance are $120 million for the fiscal year1991 to 1995 period. The Services report that over60 percent of depot work could be accomplished bymore than one Service. This figure excludes workthat requires such specialized facilities as largedrydocks, large hangers, naval nuclear-reactor refu-eling facilities, and the skilled people to run them.Nevertheless, in fiscal year 1989 only 6 percent ofthe maintenance that could be performed on aninter-Service basis was sent a moss Service lines,indicating considerable redundancy in the base. Thatpercentage is projected to rise to only about 9percent by fiscal year 1995.32

Individual Service planners express a number ofconcerns about inter-Service maintenance consoli-dation. One of the principal worries is that anotherService will not meet the special requirements ofparticular equipment, such as he Navy’s need toprotect its aircraft engines from he corrosive effectsof the marine environment. O her risks cited arepossible lack of responsiveness by another Service.

The ongoing reductions and consolidations arepolitically unpopular because they carry up-frontcosts that may seem large compared to the promise

32 Defe~e D~t Mainkmn@ Council, op. cit., fOOt.IIOte 6, pp. 37-~.

Chapter 5—The Maintenance Base . 129

of future, long-term savings. In particular, Servicedepot maintenance facilities are important sourcesof jobs. Public opposition to impending closings hasled Congress to mandate work assignments toparticular facilities to keep them open. But congres-sionally mandated workloads make it difficult forthe DoD to improve the efficiency of the mainte-nance base. A Logistics Management Institute(LMI) study found, for example, that special legisla-tion enacted in 1986 exempting the Army electron-ics repair depots from personnel reductions resultedin significant inefficiencies in managing depotworkload. 33 Thus, even when Services decide toconsolidate facilities, they may be barred from doingso because of congressional pressure to preservejobs.

The expected large reductions in maintenancerequirements, combined with falling defense budg-ets, make it imperative to rationalize the depotmaintenance base. One way of dealing with thisproblem is legislation such as the Defense BaseClosure and Realignment Act of 1990, whichrequires that all installations be considered equallyfor possible realignment or closure. The Act estab-lished new procedures for closing military installa-tions in the United States and formed an independentcommission to recommend which bases should beeliminated. 34 Such legislation can help assert thenational interest in rationalizing the maintenancebase over the local interest in preserving jobs.

Changing the Private/Public Mix

The current debate over increasing the percentageof private-sector involvement in future depot main-tenance work is principally motivated by twofactors: (1) the anticipated reduction in new weaponsproduction that will leave large defense manufactur-ing firms with little new production for the foresee-able future; and (2) the reduction in spending in thedepot base that is driving the consolidations andreductions discussed above. Advocates of moreprivate-sector involvement argue that the privatesector can provide depot maintenance at lower costthan can the public sector, and that a shift toward theprivate sector would help keep the production base

healthy during a period of much reduced newweapon procurement.

There are, however, concerns about the long-termimplications of increasing the private-sector share ofdepot maintenance and skepticism about the utilityof using depot maintenance to support manufactur-ing skills. The concerns center on questions abouthow well the private sector can respond to short-notice crisis and conflict requirements, and whetherprivate contractors can indeed provide depot mainte-nance at a lower cost. The skepticism centers on theamount of overlap between maintenance and manu-facturing skills and whether performing mainte-nance can indeed support relevant manufacturingskills. It is worth noting, however, that most allies inEurope and the Far East rely on their private sectorsfor almost all their military depot maintenance.

The Current Mix

A significant portion of depot maintenance fund-ing is currently spent in the private sector. Forexample, between 20 and 30 percent of the depotlevel maintenance is now performed by privatefins. Almost all new weapon systems begin theirservice lives under interim contractor support (ICS)provided by the manufacturer of a system. Thissupport usually lasts until the system is deployed insufficient numbers to warrant transferring mainte-nance responsibility to the Services. During thisinitial period, test equipment is developed for use inthe Service support base, and Service depot person-nel receive maintenance training. While the majorityof systems move on to Service depot maintenance,some continue to be maintained by the private sectorin what is termed contractor logistics support (CLS).

In addition to the direct revenue from mainte-nance, repair, and overhaul, the private-sector pro-duction base also derives considerable income fromthe sale of spare parts and other goods and services.The commander of the Air Force Oklahoma CityALC, for example, reported that in fiscal year 1991,his command had contracted for ‘$2 billion of workwith over 6,500 private sector organizations in 46states and 9 foreign countries. ’ ’35

s~ Kiebler et d., Op. Cit., fOOhIOte 7, p. ‘2-23.

~ General Accounting Office, Mi[itaq Bases: Observation on the Analyses Supporting Proposed Closures and Realignments, GAO~SLAD-9 1-224,May 1991, p. 15.

35 Splers, op. cit., footnote 27. Note, however, that much of this is accounted for by the purchase of spare parts to support work actuallY done at ticALC.


Photo uedit: General Dynamics

General Dynamics performs periodic depot n@ntenanceon Navy fleet missiles.

The combination of private-sector maintenanceand direct sales accounts for more than 50 percent ofcurrent depot maintenance spending. This sharedemonstrates a private-sector commitment to depotlevel maintenance and an acceptance by the Servicesof private-sector involvement. It also suggests thelimits of any additional private-sector shift.

The Logistics Core

Current Service and DoD policy of maintaining a‘‘core in-Service logistics capability will affectany shift to the private sector. The core depotmaintenance capability is basically that minimalcombination of people and facilities each Servicebelieves it needs to support its forces in likely futureoperations. According to the Defense Depot Mainte-nance Council, the logistics core is ‘‘an integral partof a depot maintenance skill and resource base whichshall be maintained within depot activities to meetcontingency requirements. ’ ’36 It is to consist of onlya ‘‘minimum level of mission essential capability.

How this concept of a core capability is deter-mined differs among the Services. The Army, forexample, defines its core requirements as workloadsthat are essential to the mission or critical to thecapability of each unit. Navy aviation core require-

ments are based on a regional war scenario. TheNavy’s core maintenance requirements for its seaforces are defined as ‘‘a responsive, geographicallydispersed, strike-free industrial capacity . . . . whosepriorities are controlled by the Navy. Interestingly,the Navy’s logistics core for sea systems includesprivate as well as Service facilities and people. TheAir Force definition of core requirements is based onan analysis of the skills and weapons needed tosupport specific regional-conflict scenarios.37

Commercial firms will have a difficult timecompeting with in-Service depots for future mainte-nance work if the Services reserve a large core forthemselves. While the Services’ protected logisticscore can reduce their own workload fluctuation andmaintain internal skills, it has the drawback ofincreasing the fluctuation in any workloads per-formed in the private sector. From the Services’perspective, however, the concept of a core capabil-ity is critical to maintaining essential expertise. Theybelieve that opportunities for changing the private/public mix of maintenance work will be limitedbecause, as one Air Force commander testified,“government workloads that would be the mostattractive to the commercial repair and maintenancesector would be the high-volume, state-of-the-arttechnology, stable workloads . . . [that are] the veryworkloads that are imperative for [the Air Force] tokeep . . . to maintain a mobilization skills base, ”38

The Debate over the Mix

The past division of labor demonstrates industry’sinterest in depot maintenance. Much of the increasedinterest is in upgrading current] y deployed systems.As part of an integrated DTIB strategy, shifting thiswork to private firms could provide employment forproduction staffs during low points in procurementcycles and could also generate another source ofincome for firms attempting to maintain researchand design, as well as production, capabilities.Proposals for upgrading armored vehicles, for exam-ple, envision work-sharing arrangements with Serv-ice depots to combine depot overhaul with majorupgrades and thus keep production lines warm.Upgrading could bring older tanks and infantryfighting vehicles up to date with new communica-

~ Defe~e Depot Mtitemnm Council, op. Cit., fOOtf30te 6, p. 33.

37 Ibid., pp. 33-35.38 Spiers, op. cit., footnote 27.

Chapter 5--The Maintenance Base . 131

tion and sensor technologies.39 Upgrades would alsosupport the production base through the manufactureof subcomponents and parts. In fact, upgrades willhave a positive impact on subtier firms regardless ofwhether the overall system work is performed by aprime contractor or an in-Service facility. TheElectronic Industries Association (EIA), for exam-ple, anticipates that upgrades will provide consider-able business for the electronics sector in the nextdecade, although recently, EIA’s estimates of thesize of the future market have been going down.a

In general, manufacturing firms argue that theyhave an inherent capability to maintain the equip-ment they have produced and that developingin-Service support capabilities often ‘‘duplicates anexisting commercial defense capability that wasdeveloped to design and initially manufacture themilitary equipment. As such, it is entirely feasible inmany cases for the U.S. [private] industrial base toreplace the in-Service capability for the U.S. mili-tary. ‘ ’41 Contractors say they are more efficientbecause the pressures of competitive bidding forcethem to control costs and that they have differentpersonnel policies than does the DoD. Further, manyprivate contractors say that they are as responsive asthe Service maintenance base and point out thatcurrent Service response capabilities already dependon spare parts and services from private industry.The private sector’s ability to respond quickly hasbeen demonstrated during the Vietnam and PersianGulf conflicts.

Government proponents of an in-Service capabil-ity make a number of counterarguments. Theybelieve that in-Service maintenance facilities aremore responsive in crisis and war than privateindustry, and are also more flexible because they cantake on new work without changes in contracts. TheAir Force, for example, has testified that the AirLogistics Centers have “the flexibility to deal witha highly dynamic war environment and that no

contractor or group of contractors could replace thecohesive, highly flexible capabilities of the in-Service facilities. ’ ’42 Along similar lines, the Armyargues that assigning surge maintenance tasks “tothe private sector, without the insurance of thecontractor’s ability to rapidly expand, could jeopard-ize the Army’s ability to get equipment to the soldierin time of national emergency. ’ ’43 The Navy hasexpressed less concern about increasing private-sector involvement in maintenance than the otherServices. In part this is because shipyards are largeand easy to monitor and also expensive to duplicate.The Navy plans for private shipyards to be the soleprovider of some of its ship maintenance andconsiders private-sector yards to be part of its coresea systems capability.

The Services have noted that many systemsmaintained in contractor logistics support in the pasthave ultimately devolved to in-Service maintenanceas they aged and became more difficult to repair. Asa result, Service officials are concerned that they willbe stuck with maintaining all the old systems ratherthan those essential to war-fighting. Other risksassociated with relying on the private sector are saidto be strikes and bankruptcies. A Logistics Manage-ment Institute study concluded, however, that theseproblems are likely to occur only in peacetime andcan be dealt with by the DoD through existing legalmechanisms.”

The evidence supporting arguments on either sideis scarce and largely anecdotal. Some GeneralAccounting Office (GAO) studies have questionedthe economics of developing in-Service depot sup-port capabilities for equipment that may be widelyused commercially. A recent GAO study, for exam-ple, found that the Air Force had spent millions ofdollars establishing a maintenance capability for thenew engine of the KC-135 tanker but was using onlyabout 15 percent of that capacity. GAO argued thatthe Service might better have relied on existing

39 c~~b &&~r, ‘ ‘Army Seeks Stable Bradley productio~” Defense News, Oct. 14, 1991, p. 8.

~ Brwk W. Henderso~ ‘ ‘Stagnant Military Electronics Spending Likely Under Tight 1990s Budgets, ’ Aviation Week and Space Technology, Mar.16, 1992.

41 ~. Gordon R, England, Executive Vp.AU~aft programs, Gener~ Mamger-Fort Wofi Divisio~ Gener~ Dynamics, Statement before the ~OUSt?Armed Services Committee, Structure of the U.S. Defense Industrial Base Panel, Oklahoma City Field Hearing, NOV. 1, 1991.

42 Spiers, op. cit., fOO~Ote 27.

.t3 ~y 1~omtion papr, Army’s Maintenance ad ~gistics System, May 14, 1991, provid~ in response to OTA questions.

44 Kiebler, et a]., op. cit., footnote 7, pp. 2-24 tO 2-26.


commercial facilities.45 While a GAO study on theeffects of competition found that using private/public competition has resulted in savings in navalaviation overhaul, an earlier study of ship repaircould not confirm the savings the Navy had pro-jected from greater use of the private sector.46

Discussions with government personnel indicate abelief that private firms are less responsive inpeacetime (because of general business practices),but OTA has been unable to find any hard evidenceto show that the Service maintenance base is indeedmore responsive than private contractors in a crisis.

Despite arguments that private contractors avoidmaintaining older equipment, the Army has con-tracted out maintenance of older electronics equip-ment that its own depots do not want to handle. Anymigration of older systems into the in-Service basemay stop as the Services are forced to pay the truecosts of maintenance whether it is performed in thein-Service component of the base or in the commer-cial component.

Increased maintenance, especially overhaul andupgrades, may help support the production base insome sectors, Upgrades of several armored vehiclesmight maintain active production lines. Further,some sectors (such as electronics) claim there isconsiderable overlap in skills between maintenanceand manufacturing. Nevertheless, many governmentplanners remain skeptical of the overall benefits ofsuch change. They believe that industry is moreinterested in production than maintenance and istherefore unreliable, that maintenance skills aredifferent from manufacturing skills, and that DoDefforts to support production will reduce Servicemaintenance capacity while propping up uneconom-ical production. Further, the use of private firmscould erode surge capability over time. The basis formany of these government concerns is best summa-rized in an observation by Air Force logisticsplanners:

Transferring maintenance tasks to the privatesector will provide short term capital to defense

Photo credit: Bath Iron Wxks

lltis plasma arc burning machine cuts metal pieces forboth new instruction and tt e rnahtenance and

overhaul of olde ” ships.

firms. Over time, however, it is likely that privatesector firms will evolve to ‘ ‘peacetime efficient”operations with little of the ‘‘excess capacity”needed for the essential support of any significantsurge. We will have canceled the insurance policy(i.e., organic capability) in anticipation of only“good times. ” If the “good times” end quickly wewill be at a significant logistics disadvantage.47

Sorting through the arguments on both sides de-mands systematic study.

Congress

Congress has exhibited a mixed response toincreasing private-sector involvement in depot main-tenance. For example, Congress and the Navy havesought to ensure that the private-sector share of shiprepair not fall below 30 percent.48 At the same time,Congress has limited private-sector involvement inArmy and Air Force depot maintenance to not more

45 U.S. @M~ hmm~ mm, Commercia[practices: OppomnitiesEm”st to ReduceAircraftEngine Support Costs, GAO/NSIAD-91-240, J-1991, p. 5. l%c Air Force spent $40 million on a repair facility at the Oklahoma City ALC and also opened three intermediate maintenance facilitiesfor the engine. GAO pointed out that General Electric and Aviall repair similar engines.

~ GAO~SIAD-92-43, forthcoming, title not available; and U.S. General Accounting Offlce, Navy Maintenance.” Status of Public and Pn”vate

Competition, GAO/NSIAD-90-161, September 1990.47 ComMPndmW with Headquarters, Air Force Logistics COmman d, Mar. 16, 1992.M ~tehwst, op. cit. footnote 21, p. 67.

Chapter S-The Maintenance Base . 133

than 40 percent of the funded work.49 Current lawsupports some public-sector capability. It states that:

It is essential for the national defense thatDepartment of Defense activities maintain a logisticscapability (including personnel, equipment, andfacilities) to ensure a ready controlled source oftechnical competence and resources necessary toensure effective and timely response to mobilization,national defense contingency situations, and otheremergency requirements.w

The law gives the Secretary of Defense theauthority to identify those in-Service maintenancecapabilities necessary to maintain responsiveness.As a result, the Secretary has discretion over whento use the private sector.

Congress may wish to support significant changein the current private/public mix. Should moreprivate-sector involvement appear desirable, thereare a number of ways to move in that direction. Oneis through increased contracting and competitionwith the private sector, as discussed in the followingsection. Another way would be to privatize existingin-Service facilities. Depots might be converted toGOCOs. Such facilities have the advantage ofcombining long-term government control of thefacilities with more flexible private-sector operationon a day-to-day basis. If depots become GOCOs,large capital cost items (e.g., dry docks) could bepaid for by the DoD while management and workerscould be paid through the private sector. As forresponsiveness, many ammunition facilities areGOCOs and are designed to respond to crisis.Depots could also be closed and equipment moth-balled. While this approach would not address theneed for responsiveness, it would provide somecapability for longer term mobilization.

Finally, depots could be sold to the private sector.Selling depots to industry maybe more difficult thanconverting them to GOCOs. Privatization couldallow the use of the large government investment forcommercial as welI as military use. However,industry has shown little interest in buying thedefense industrial base facilities that have been forsale over the past decade. Industry would probably

prefer to move maintenance activities to existingprivate-sector facilities.

As Service maintenance organizations becomemore streamlined, the greater efficiency of contrac-tors may become a less compelling argument formoving to the private sector. For example, the AirForce has reduced its workforce by 6,000 since fiscalyear 1991 and plans to support many programs withpersonnel hired on temporary appointments. Con-versely, if the United States chooses to move towardmore civil-military integration in weapons designand manufacture, increased use of the private sectorfor maintenance might make even greater sense.

Cornpetition

Competition in

and Efficiency in MilitaryMaintenance

the maintenance base, like that inthe production base, is intended to promote effi-ciency and fairness. In the past, individual DoDprogram managers had the authority to decide on thebasis of cost whether to rely on in-Service or privatemaintenance, although the Services planned tomaintain some core capabilities. But past policiesalso stressed the importance of multiple sources forwartime expansion. Thus, these policies often aimedat increasing capacity rather than promoting effi-ciency.

Competition was also used to help private compa-nies gain access to maintenance contracts. Congres-sional concern about the health of the U.S. ship-building industry resulted in opening Navy shiprepair work to private shipyards. The frost suchcompetition occurred in fiscal year 1985. By the endof fiscal year 1989, maintenance work on 43 surfaceships and 25 submarines had been competed .51Competition involving the Naval Aviation Depotsbegan in 1987. The National Defense AuthorizationAct, passed in fiscal year 1991, expanded themaintenance competition programs on a limitedbasis to all the Services. This program is designed topromote competition among the Services as well asbetween the Services and private industry.

DMRD-908 proposes to achieve one-third of theprojected $3.9 billion maintenance base savings by

49 Boti tie 198t3 and 1%9 Defense AuthorizationActs contained a requirement that the by swnd a minimum of 60 percent of the depot maintenancebudget on programs performed by the organic DoD workforce. Current law mandates that 60 percent (by cost) of Army and Air Force depot work beperformed by government employees.

m 10 U.S. Code Section 2464.51 GAO~S~.9@161, op. cit., footnote 46.


efficiency improvements resulting from competi-tion. Competition is expected to increase efficiency,control and reduce costs, and foster innovativeapproaches to maintenance. Four areas are to beopened to competition:

1.

2.

3.4.

items currently under commercial contractwhose renewal is imminent,major refurbishment and modification pro-grams,manufacturing and fabrication, andin-Service workloads deemed in excess of thelogistics core.

How effective competition really is in controllingmaintenance costs is debatable. As noted above, a1990 General Accounting Office report on shipyardcompetition concluded that the Navy’s projectedcost savings for private yard ship repair could not besubstantiated. 52 GAO noted, however, that competi-tion had encouraged the Navy’s own shipyards toadopt ‘‘a more businesslike approach to ship repairw o r k . In addition, a more recent GAO study ofnaval aircraft maintenance found that competition inF-14 aircraft maintenance had resulted in a 25percent decline in overhaul costs.53

Partly because of congressional restrictions, com-petition is just beginning in the other Services. U.S.Code, Title 10, Section 2466, for example, prohib-ited the Army and the Air Force from competingagainst each other or with the private sector.Competition will take some time to develop properlyas organizations that have never had to competelearn to price their services and put together bidproposals. But the advent of business offices atdepots, and new awareness of overall costs, supportthe Navy’s contention that competition reducesoverall maintenance costs.

Structuring competition and developing a “levelplaying field” agreed to by both the private sectorand the public sector will probably remain conten-tious. A key issue has been how to compare costsamong different Service depots and between theprivate and public sectors. The Services jointlydeveloped and published a Cost ComparabilityHandbook to help make these comparisons andeliminate differences in accounting procedures usedby various public and private competitors.

Photo credit: U.S. Air Fome

An Air Force repair facility for jet e lgine casings. This andother repair technologies have =en developed withspecial Repair Technology, or 3EPTECH, funding.

While recent changes promote competition in themaintenance base, there are still major limitations.Current law limits the Army and Air Force competi-tion program to not “more than 10 percent of alldepot-level maintenance of materiel that is notrequired to be performed by employees of theDepartment of Defense. ’ This limitation effectivelyexcludes 96 percent of Army and Air Force mainte-nance work from the pilot program.

Competition, if it develops, may prove to be agood means of selecting those organizations, privateor public, that should be retained in the futuremaintenance base. It will be much more difficult topreserve a government facility or private firm thathas systematically failed to attract work on acompetitive basis.

New Technology

The future depot maintenance base should seek tobenefit as much as possible from new technology.An obvious area for improvement is the design anddevelopment of weapon systems and equipmentwith higher overall reliability, thereby reducingmaintenance requirements. Modular components(e.g., circuit boards) and built -in diagnostic checksare changing maintenance tasks. They are, forexample, making it easier to repair and replaceequipment in the field.

52 Ibid., p. 1.53 GAo~sIAD-gzqs, op.cit., fm~ote %.

Chapter 5-The Maintenance Base ● 135

Flexible manufacturing systems, robotics, andcomputer-integrated manufacturing are all increas-ingly used in weapon system maintenance and holdthe promise of reducing labor requirements. The AirForce has an active Repair Technology program(REPTECH) as a part of its Manufacturing Technol-ogy program. The Service’s REPTECH initiativesinclude a flexible center to repair aircraft enginecasings at the Oklahoma City ALC, compositeengine repair centers at Oklahoma City and SanAntonio, and nondestructive means of inspectingsolder joints in printed wiring assemblies. The Navyhas developed a Rapid Acquisition of ManufacturedParts (RAMP) project at the Charleston navalshipyard to shorten the time needed to produce spareparts, which can take weeks to obtain from theprivate sector. The Defense Logistics Agency andthe Federal Emergency Management Agency arefunding a transfer of a prototype of the RAMPtechnology to a small manufacturer.

Supporting Military Equipment Abroad

Upgrades of U.S. weapon systems abroad, orforeign systems, are another way to support the U.S.defense maintenance base. The potential market issignificant. The upgrade of F-5 fighters, for exam-ple, is estimated to be a $3 to $5 billion business inTaiwan and Singapore.54 Upgrading the F-16A/B,which is in foreign nations’ air forces, could beworth another $2 billion.55

Upgrades or repairs are not the only options forinternational activities. In the past, U.S. firms havecontracted to establish and run military maintenanceorganizations and facilities for selected countries(e.g., Iran under the Shah). Maintenance support ofallied forces is a possible source of future income.

The U.S. government is involved in severalinternational cooperative maintenance programsthrough the NATO Maintenance and Supply Agency(NAMSA), the primary logistics support agency forNAT0.5G Since 1985, the United States has in-creased cooperation with its NATO allies for spare-

‘8. -

Photo credit: DoD

Belgium’s is only one of several foreign air forces thatfly the U.S. F-16 fighter aircraft.

parts support and depot level maintenance. TheUnited States is involved in collaborative mainte-nance on the Multiple Launch Rocket System, thePATRIOT Missile System, and the C-130 Herculesaircraft. 57 There are 11 other NATO maintenancepartnership programs in which the United Statesdoes not participate.

Opportunities for supplying foreign markets withupgrades, or for providing other services, willdepend on U.S. technology-transfer policy—as doinitial sales of weapons. The tasks for which U.S.firms might be most competitive (e.g., avionics andelectronics) might also present the greatest risk forgiving away technological and military advantage.58

There is also likely to be more international competi-tion as foreign firms vie with U.S. firms for theglobal maintenance market.

SUMMARYMaintenance is critical to peacetime operations

and to sustaining forces in crisis or war. Therequirements for depot maintenance have signifi-cantly changed as a result of the waning directmilitary threat to Western Europe. While currentDoD efforts to streamline and consolidate the base

W willl~ B. SCOtt, op. Cit., fOOtIIOte ~.

55 ~c~el Mec~, ‘‘Europ~n PMWNXS Pair Upgrades with New Aircraft Development’ Aviation Week & Space Technology, July 12, 1991, p.54.

% It should be not~ that Iogistics has been a national responsibility in NATO.57 Dep~ment of DefeB, Co&ined Annul Report t. congress on sta~ardization of Eq~”pment With IVATO hletiers Of cooperative Research

and Development Projects with Allied Countries, July 1991.58 At tie same time, however, supplying maintenance and upgrades may provide leverage on a client. If the maintenance support is cutoff, the weapon

system will degrade.


represent significant change by the standards of thepast 40 years, they are insufficient in the newsecurity environment. A smaller national DTIBdemands that the Nation consider significant changesin the maintenance base.

Consolidation of in-Service maintenance facili-ties will be constrained by the fact that such facilitiesare important sources of jobs, and sometimes thelargest employer in a region. As a result, there isoften considerable political pressure to maintainthese facilities.

Responsiveness of the maintenance base in crisisand war will remain important. However, potentialregional threats do not demand the magnitude ofsurge maintenance required in the past. Futuremaintenance capabilities might therefore stress peace-time efficiency, which could be enhanced by invest-ments in process technology. The Air Force is usingits REPTECH Program for such improvements, butthe other Services have made more limited efforts inthis area. Congress might wish to consider how bestto apply new technology to maintenance.

The arguments for transferring more maintenanceresponsibilities into the private sector include lower

costs, less redundancy, and better support of anintegrated DTIB. Congress should examine thearguments for increased use of’ the private sector formaintenance and consider how best to modify thepublic/private split, for example by transferringmaintenance work to private firms or by convertingpublic facilities to GOCOs. Increased competitionamong in-Service facilities, and between the privateand public sectors, may be the best way to accom-plish this transition. Such competition could selectthe facilities best qualified to support future forcesover the longer term. Finally, Congress shouldreevaluate the concept of a core logistics capabilitynow used to define which activities should beretained in the in-Service maintenance base.

Maintenance contracts directed towards criticalmanufacturers in the private sector may help supportthe firms in a period of declining defense procure-ment. But the degree of support will probably varyby industrial sector. Combined with a prototyping-plus strategy that provides for some manufacturing,as well as continued technological innovation,private-sector maintenance might add significantlyto the health of the future U.S DTIB.

Chapter 6


INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .GOOD, INTEGRATED MANAGEMENT . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. OF . . . . . . . . . . . . . . .Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Coordination and Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Clear Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ALTERNATIVES FOR MANAGING CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A Free-Market Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .An Activist Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A Mixed Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FUTURE MANAGEMENT TOOLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Improved Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Organizational Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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. . . . . . .

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. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .Talented and Experienced People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Box6-A. DTIB

Figure

P1anning

. . . . . . . . . . . . . . . . . . . . . . . . .

139140140140142143144145145146147147147148152153

B o x

Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page. . . . . . . . . . . . . . . ...! . . . . . . . 143

6-1. Acquisition Management Structure . . . . . . . . . . . . . . . . . . . . . . .6-2. Congressional Line Item Changes to DoD Budget Requests

. . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .. . . . . . .6-3. DoD Reporting Requirements in Annual Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?6-4. Cost v. Regulatory Intensity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6-5. Integration of the STIB Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6-6. U.S~Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table6-1. Characteristics

139141142145148151

PageAcquisition Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

Chapter 6


INTRODUCTIONPrevious chapters examined the three principal

elements (R&D, production, and maintenance) ofthe defense technology and industrial base (DTIB),the desirable characteristics of the future base, andways to achieve those characteristics. RedesigningDefense noted that good, integrated managementis a desirable characteristic of the future DTIB,indeed, it is fundamental to its health andstrength. The report defined integrated managementas linking the DTIB goals of crisis and wartimeresponse with the peacetime goals of developmentand production of high-quality and affordable mili-tary materiel. Good management will also closelyintegrate the R&D, production, and maintenanceactivities of the DTIB. Thus, there is a need forcoordination and cooperation throughout the DTIB.

DTIB management has been the focus of anumber of recent studies. One of the most influentialwas the President’s Blue Ribbon Commission onDefense Management (known as the Packard Com-mission), which recommended a number of reforms.Many of these have been adopted, including theestablishment of an Office of the Under Secretary ofDefense for Acquisition (USD(A)) responsible forDepartment of Defense (DoD) acquisition policy,administration, oversight, and supervision; the vest-ing of similar acquisition authority and responsibil-ity in a single Service Acquisition Executive (SAE)within each Service; and a general simplifying of theDoD management structure.1 (See figure 6-l.)

The most recent annual report of the Secretary ofDefense details additional actions taken by the DoDto improve DTIB management and some successesto date.2 Despite this attention, there is widespreadagreement that management of the future DTIBrequires additional changes to meet the challenges ofthe new world security environment.3

Figure 6-l—Acquisition Management Structure

/Program managers

\

SOURCE: Defense Systems Management College, 1989; Office of Tech-nology Assessment, 1992.

This chapter does not assess all recent manage-ment initiatives, but focuses on the managementimplications of alternatives for restructuring theDTIB discussed in earlier chapters. The chief DTLBmanagement challenge is how to preserve an advan-tage in defense technology and retain the ability tomanufacture and maintain military systems—all ona much smaller defense budget.

Additional management changes are needed topromote integration with the Nation’s civilian indus-trial base and to implement a prototyping strategy asthe administration and others, including OTA, havesuggested. While the Packard Commission recom-mended the use of prototyping to test new ideas andto lower costs, its recommendations were advancedin the context of large production runs. As outlinedin Chapters 3 and 4, the management of prototyping

1 The President Blue Ribbon Commission on Defense hlanagemen~ A Formula for Action:A Report to the President on Defense Acquisition, April1986.

z Secretary of Defense Dick Cheney, AnnuaZReporr to the President cmdthe Congress (Washington DC: U.S. Government Printing Office, Febrwy1992), pp. 28-39 and 49-53.

3 Secretary of Defense Dick Cheney, Defense Management Report to the President, July 1989, p. 8. This report noted that “Efforts to date have notproduced the tangible results envisioned by the Commission. This is indicative of the dimension of the problems the Commission identitled, thefar-reaching solutiom it offered, and the persistence required if DoD’s management of major acquisition programs is to emulate the characteristics ofthe most successful commercial and government projects.

–139–


Table 6-l-Characteristics of SuccessfulAcquisition Programse

● Clear command channels. Program stability● Limited reporting requirements● Small, high-quality staffs● Good communications with users● Prototyping and testinga The Pres&nrs Hue Ribbon Commission on Defense Management, April

1966.

will be affected by a transformed security environ-ment that will feature production of fewer newweapons and longer intervals between new systemstarts. This new environment requires the elimina-tion of the near-automatic link between programstart and quantity production.

The changes in the security environment arelikely to require significant shifts in managementstructure and approach. Successfully managing asmaller future DTIB will require a much moreintegrated approach by the DoD, the administra-tion, Congress, and the private sector. For exam-ple, a DTIB that is much more integrated with theNation’s broader industrial base will require manag-ers capable of monitoring civilian technology world-wide.

This chapter examines what good, integratedmanagement of the future DTIB will entail, andconsiders ways to achieve it in the new nationalsecurity environment.

GOOD, INTEGRATEDMANAGEMENT

Ultimately, the criteria for judging the success ofDTIB management will be how well the defensebase can 1) provide and support high-quality mili-tary equipment at an affordable cost in peacetime;and 2) meet increased military requirements forgoods and services in crisis or war .4 Discussingproblems of defense acquisition in the 1980s (manyof which still exist), the Packard Commissionidentified what it felt were certain characteristicscommon to successful commercial and government

projects (table 6-l). The Commission recommendedthat the executive branch and Congress change DoDacquisition to develop these characteristics. TheCommis sion suggestions still ap ply and will strengthenthe future base, but alone do not address the changesin DTIB requirements brought on by the ending ofthe cold war.

People

Trained and experienced people will be criticalnot just at the top but at every level of future DTIBmanagement. If the future DTIB has greater civil-military integration and less stringent military speci-fications, the need for individual expertise andjudgment will increase at each level. The PackardCommission noted, however, that “recruiting themost capable executives for jobs of such importanceto the Nation is extremely difficult. . . in the face ofcurrent disincentives to entering public service.These disincentives include relatively low pay forsenior government managers; but according to manyobservers, legislation that severely limits post-government employment is all even greater disin-centive.

Organizatim

The overall balance of management activityshould change as managers become more concernedabout maintaining the base instead of procuringparticular systems. The future: DTIB will requireshifts away from the present focus on weaponsystems production to a focus 011 R&D and prototyp-ing that might provide more opportunities for testingnew ideas and alternative ways of performing amission. DTIB management night use technologiesor mission requirements as an organizing manage-ment principle in addition to, or instead of, produc-tion. An important management principle remains:the organization must stay small enough to avoidstifling, bureaucratic intrusion and retain flexi-bility, but large enough to manage the DTIB.Indeed, some observers of the DTIB say that theimpediments of government are less a function of thenumber of regulations than of the number ofregulators.

4 The Department of Defense has recently outlined similar criteria for DTIB management. In its Repon to Congress on he Defense Industm”al Base,November 1991, p. ES-7, the Department noted that:

Inordertoensure that industry remains capable ofproducingthe weapon systems the DepartIxEntof Defense requires, the Departnnm of Defense must managea range of industrial base activities: the peacetirm business of equipping and supporting military forces; ensuring industrial preparedI ess to &al with potentirdregional contingencies and conflicts; and phmnin g for the reconstitution or expansion of military forces in response to a potential fu ure, global threat.

5 The President’s Blue Ribbon Commission on Defense Management, op. cit., footnote 1, p. 27.

Chapter 6-Good, Integrated Management . 141

Streamlining and reducing the DTIB managementoutside the DoD is important too. Secretary Cheneyin his Defense Management Report (DMR) notedthat limiting any reorganization to the DoD wouldnot be sufficient to truly improve DTIB manage-ment. He argued that the base also suffers from theway Congress carries out its legislative and over-sight responsibilities relating to the DTIB, anargument also advanced earlier by the PackardCommission. b The Secretary wrote that “profoundmanagement problems and waste’ result from the‘‘redundant phases of budgeting, authorizing, andappropriating defense resources year by year’ andthat DoD managers are often unable to take neededactions while waiting for uncertain budget authority.He also noted that the large number of congressionalcommittees, subcommittees, and panels with juris-diction over DoD activities produces “policy grid-lock. ’ ‘ He wrote that the complexity and lack ofcoordination in the congressional defense processincreases program costs by more than half a billiondollars and causes instability in planning.g (Seefigures 6-2 and 6-3.)

Similar concerns have been echoed by manythoughtful observers. The problem is not onlyinefficiency but loss of responsibility. A recentbook, for example, reported that the average ‘‘de-fense R&D program is voted on by Congress alonean average of 18 times a year in its 8-year life—atotal of 144 opportunities to change something. ’One result of this process is that:

. . . there is no one individual who feels accountablefor results—and when things go wrong there is noone to stand and accept responsibility; there arealways lots of persons who can be pointed at ashaving had their fingers in the pie. The problem is amanagement structure that permits no single individ-ual to be truly responsible for anything, even at thehighest organizational levels-up to and includingthe President of the United States. 10

Figure 6-2-Congressional Line Item Changesto DoD Budget Requests

Adjustments2100 { / , 1/ \/ I/ \

/ \/

1500\

// \

“ n

/ \1200 . . - — — — / \ /

. - \ /9 0 0 ~ = ~ ” v

- “600 “

0 1,..., =.. -,----,=— ~ –T .–T... ~ ~ ~—~ -–~– , –7 —r— ~.. TJ

70717273747576777879 8081828384858687888990Fiscal year

– – Appropriation — Authorization

SOURCE: Secretary of Defense, “White Paper on the Department ofDefense and the Congress,” January 1990.

Such lack of accountability, coupled with thecosts of the budget process, have prompted manymembers of Congress to argue for change. Forexample, Senator Sam Nunn, Chairman of theSenate Armed Services Committee, has observedthat ‘‘We are spending most of our time looking atgrains of sand on the beach, and we are not lookingat the ocean or looking at the horizon. ’ 11

Congress spends time looking at the “grains ofsand’ because these represent smaller, potentiallysolvable problems in which members have animmediate interest; whereas the ocean presentsproblems that often seem too big and diffuse forCongress to deal with. In addition, Congress steps inwherever it perceives that the DoD has not per-formed responsibly. The ideal might be for thePresident to describe an overall strategy, Congress todecide on an overall level of effort, and the DoD towork out details and execute the policy. The realityis that strategies have been difficult to articulate,Congress has had a hard time reaching consensus onthe proper level of effort, and the DoD is not just the

6 The Packard Commission reported:where nzwional defense is concerned, today’s congressional authorization and appropriation processes have become mired in jurisdictional disputes, leading

to cnwrlappurg review of thousands of he items within the defeme budget. A growing rivalry between the &d Services Committees and the DefenseAppropriations Subcomrni!tees over I& line-item markup of the defense budget has played a major role in rrmving congressional review of the defense budgettoward narrowly fmused financial achon on individual items and away from oversight based on operational concepts and military effectiveness.

7 Chency, op. cit., footnote 3, p. 26.8 Report to the President by the Secretary of Defense, White Paper on the Department of Defense and Congress. January 1990, p. 1.

~ Kenneth L. Adeknan and Norman R. Augustine, The Dtfense Ret’olution: Strategy for the Brave New World (San Francisco, CA: Institute forContemporary Studies, 1990), p. 171.

lo Ibid.

] ] Steven V. Roberts, “Billions for Defense, The Spending Debate, ” The New York Times, May 17, 1988.


750

600

450

300

150

0

Figure 6-3-DoD Reporting Requirements inAnnual Legislation

Reports

I I I I I I I I 1 1 I I 1 I 1 I I I I I 1

70717273747576777879 80818283848586878889 90Fiscal year

SOURCE: Secretary of Defense, “White Paper on the Department ofDefense and the Congress,” January 1990.

manager of defense acquisition, but is also, withallies in Congress, the advocate of individualprograms. The program-oriented approach has madeit difllcult to see or organize the big picture.

Once Congress assumes detailed managementand control, the DoD loses its incentive to makeinternal tradeoffs between one weapon and anotherto accomplish a given mission, since money savedby canceling one program is unlikely to be moved tothe other.

To promote efficiency, Congress might give upsome of its detailed regulatory role by expanding theDoD’s incentives to regulate itself. For example,Congress could reduce the proportion of fundsdirected at specific programs and expand the propor-tion allocated to particular missions. When money isallocated to ‘‘air defense’ rather than to a particularweapon system, then the DoD has a greater incentiveto stop work on a troubled system in order to havemore resources for a more promising approach to theair-defense mission. The higher the level at whichfunds are aggregated, the greater are the number ofoptions for achieving a military mission, but Con-gress’ control declines. For example, if the Army is

allocated money for air defense, it might choosebetween guns and missiles, but it is unlikely toconsider fighter aircraft. If the allocation is made atthe DoD level, the tradeoffs ketween ground-basedand airborne systems can occur. However, byfunding at this level, Congrest has less influence onwhich approach is taken.

The danger in making rrore general fundingallocations is that DoD management may producesolutions that a majority in Congress believe arewrong-headed. Congress must choose between giv-ing the DoD responsibility for making choices in theinterests of greater efficiency overall and acceptingthose choices in all but the rarest cases, or maintain-ing a closer watch over DoD management to avoidthe occasional fiasco, while reducing the DoD’sincentives to set priorities itself.

Planning

Good, integrated management also requires adefense industry strategic-planning capability thatanticipates future national security requirements andconsiders DTIB alternatives for meeting them. (Seebox 6-A.)

Planning was addressed in broad terms in thePackard Commission report and more recently in the1988 DoD report, bolstering Defense IndustrialCompetitiveness. The DoD report outlined somespecific steps, including establishment of a taskforce to develop a policy 01 defense industrialplanning in support of military operational plans.12

That task force was never established. But as a partof the DMR, Secretary Cheney directed the estab-lishment of a Defense Planning and ResourcesBoard (DPRB), under the direction of the DeputySecretary of Defense, to replace the then operatingDefense Resources Board. The mission of the DPRBis to ‘‘help to develop stronger links between ournational policies and the resources allocated tospecific programs and forces. ’ 13

In the absence of DoD actions, Congress hasshown considerable recent interest in DTIB plan-ning. It has, for example, mandated an annual planfor developing the technologies considered mostcritical to ensuring the long-term qualitative superi-

12 Report t. be Secmwof Defense by the Undm Secretary of Defense (Acquisition), Bolstering Defense Indusm”af Co? zpetitiveness, July 1988. The

report recommended, for example, that the DoD “develop industrial strategic plans explicitly linked to military operational plans . . . [and] . . . providefor a continuing assessment of both short- and long-term defense industrial base capabilities, ” pp. 42-43.

13 Defense Ma~ge~nt Report to the President, Op. Cit., fOO~Ote 3, p. 5.

Chapter 6--Good, Integrated Management ● 143

Box 6-A—DTIB Planning Structure

The National Security Act of 1947 addressed theplanning requirement squarely. The Act createdthree boards with planning responsibility for the useof science and industry to support the nationalsecurity establishment: 1) a National SecurityResources Board (NSRB) reporting directly to thePresident and responsible for formulating policyand plans for industrial and civilian mobilization; 2)a Munitions Board, located in the DoD andcomposed of Assistant Secretaries of the Army,Navy, and Air Force responsible for planning andcoordinating industrial mobilization, productionand procurement for the military Services; and 3) aResearch and Development Board, also located inthe DoD and tasked with developing an integratedR&D program and advising on scientific trendswith national-security implications.1 These organi-zations never achieved their purpose. The Muni-tions and Research and Development Boards wereabolished in 1953 and their functions transferreddirectly to the Office of the Secretary of Defense.DoD resource-allocation and major-program plan-ning were later subsumed in the Planning, Program-ming and Budgeting System (PPBS) established bySecretary of Defense Robert McNamara. The NSRBunderwent a series of mergers and reorganizationsand ultimately became the current Federal Emer-gency Management Agency.

1 s= Stam R~deq History of the Wce of the Secr@rYof Defense: The Formatz”ve Years, 1947-1950, Historicxd OffIce,OSD (%%dl@tO~ DC: The Government Print@ CM&e), pp.24-27.

ority of U.S. weapon systems (the DoD CriticalTechnologies Plan),14 an annual report on actionstaken to improve the ability of the U.S. DTIB to meetnational security requirements and the effects on thedefense industrial base of defense budgets andplans, 15 and a National Defense Manufact ig

Technology Plan.16 Congress has also stronglyurged the establishment of a defense industrial baseoffice within the DoD for the development ofpolicies and plans for the DTIB.17

Although such steps appear even more importantin the face of a changing international securityenvironment, strategic planning for the DTIB re-mains controversial. While almost all observersacknowledge the need to ensure that future U.S.military forces have the best scientific and industrialsupport, some see in DTIB planning the potential fora national industrial policy, which they argue isincompatible with the U.S. free-enterprise system.Others argue that planning is not only essential tomatch military operations with available resources,but also because the defense industrial base does notoperate in a free-market environment. According tothis view, the single-buyer relationship between theDoD and defense firms puts a special responsibilityon the DoD to plan activities to assure the futurehealth and strength of the DTIB.18

Future DTIB planning requires a consensus onwhat U.S. defense policy will be, what size and typesof forces the Nation needs, and what missions theyshould perform. This consensus has not yet emerged.

Coordination and Cooperation

Integrated management requires coordination andcooperation between the government and the privatesector and between the DoD and Congress. The 1988DoD report Bolstering Defense Industrial Competi-tiveness noted that there are now “deeply ingrainedadversarial relationships between Government andindustry’ and argued that these adversarial relation-ships ‘‘undermine industrial efficiency, responsive-ness, and technological innovation. 19 The DMRalso noted that the relationship must change, butinterviews conducted by OTA with business execu-tives and government officials indicate that a greatdeal of friction remains. The contracting process isby nature somewhat adversarial and will remain so.Further, the government has a responsibility toensure accountability of public funds. The tensionhas been fueled by continued DoD and congres-sional concerns over unethical behavior by a fewdefense contractors, combined with intrusive laws

M 10 U.S. Code Section 2508.

1510 U.S. Code Section 2509.

lb 10 U.S. Code, Section 2513.

17 10 U.S. Code S=tion 2503. The ofllce that currently fulfdls this function is the OffIce of Deputy ASSiStant Secretary Of Defense (~oductionResources), which includes offices overseeing industrial engineering and quality, manufacturing modernization commercial acquisition and productionbase assessment.

18 Adelman and Au~tine, op. cit., footnote 9, pp. 128-130.

19 Bolstering Defense Industrial competitiveness, Op. Cit., fOOblOte 12.


and regulations that often apply criminal sanctionsto what might be honest mistakes. Requirements forindustry executives to certify, under threat of crimi-nal action, that their firms have properly accom-plished numerous activities (many involving paper-work rather than actual production) also costs moneyand slows the weapons-acquisition process.20

The adversarial relationship is not just betweenthe government and industry. The 1990 DoD WhitePaper on the Department of Defense and Congressnoted, for example, that “a final, critical factoraffecting congressional defense oversight is a pro-found lack of trust’ flowing from Congress’ doubtsconcerning the competence of DoD managers andthe Department’s willingness to comply with con-gressional guidance.21 Improved intra-governmentrelations will be as important for the future DTIB aswill improved relations between government andindustry.

Clear Laws and Regulations

Finally, good, integrated management of theDTIB will require clear laws and regulations toguide DTIB activities. Both Congress and the DoDhave recognized the need for simplifying the lawsand regulations governing resource managementand defense acquisition. The DoD Advisory Panelon Streamlining and Codifying Acquisition Laws,mandated by Congress, is a step toward achievingthis objective. Simpliiication is essential to anymovement toward increased civil-military integra-tion. Ideally, DoD regulations would be no moreonerous than those of the many other governmentagencies, such as the Departments of Transportation,State, Labor, Commerce, and Justice; the Environ-mental Protection Agency; the Occupational Safetyand Health Administration; and the Equal Employ-ment Opportunity Commission.

There are also many congressional committeesother than the Armed Services Committees involvedin defense procurement, including Appropriations;Banking; Education and Labor; Energy and Com-merce; Foreign Affairs; Government Operations;

Intelligence; Science, Space an Technology; SmallBusiness; and Ways and Mean.

All of these agencies arid committees havedifferent interests, and efficient defense ctionmay not be their number one pririty. According toone industry executive, one of the consequences ofthis current fragmentation of oversight authority isthat

There is no central clearing house for policy,regulations, and oversight nor an integration func-tion in either Congress or the Executive Branch. Yetsuch an organizational respons bility appears neces-sary for coordination of any policy recommenda-tions. Without an identified change agent’ in theU.S. government, it is very difficult for industry toinfluence the multitude of issue,; that impact or couldimpact the industrial base.22

In the absence of action to change the situation,problems with “fragmentation of oversight author-ity’ are likely to be compounded in the future, andthe laws and regulations that govern defense busi-ness are unlikely to be simplified.

The elements of good, integrated managementoutlined in this section are no: particularly contro-versial in theory but they are extremely hard toimplement. For example, mamy of the PackardCommission recommendation have been acceptedonly slowly, and even when written into law (e.g.,the establishment of a USD(A) , have taken years tohave any effect.

There is a fundamental problem of balancebetween efficiency and accountability in the base.DTIB management should aim to be efficient whileaccounting for the use of public funds. The need foraccountability increases the size of staffs and thenumbers of reports. It results in laws and regulationsthat are more intrusive than they would be if theyaimed only at efficient production. Such regulationcarries costs that must be weighed against thepotential benefits of reducing losses due to fraud,waste, and abuse. A 1989 OTA report illustrated thetrade-off graphically (See figure( 6-4.) and stated that“Analyses of defense procurement consistently

20 One fii repofied, for emple, that it had no~ied the DoD it would stop supplying a product that previously ~d ~ en Considmed a commerci~item and supplied at a fixed commercial price. The product’s commercial status bad changed because it had become obsol ;te in the commercial worldbut was still used in the military. Selling the product to the government required adapting to numerous cost accounting requirements and corporatecertification of activities with the potenti for miminal sanctions.

21 White Paper on the Depafiment of Defense and the Congress, op. cit., footnote B, p. 20.

Z2 M Gordon R E@and, ex~utive vice pr~ident-~craft Programs, general manager-Fort Worth Division General 1 -CS, Sfutement b~orethe House Armed Services Com”ttee Structure of U.S. Defense Industn”al Base Panel, Oklahoma City, Nov. 1, 1991.

Chapter 6-Good, Integrated Management ● 145

Figure 6-4-Cost v. Regulatory Intensity

cost

[ /

AcquisitionSystem

IL – — — >

Degree of regulation

SOURCE: Of fi@ of Technology Assessment, 1989.

indicate that the [current] system lies somewhere onthe side of excessive regulation, at least in terms ofstrictly economic consideration. ’ ’23 That judgmentstill appears correct. But the OTA report added thatit is possible that ‘‘the American taxpayer prefers topay the high costs of overregulation rather thanpermit even lesser amounts of public money to gounearned into someone’s pocket. ’ ’24 Congress willwant to consider whether the current amount ofregulation is optimal for the new defense era.

ALTERNATIVES FORMANAGING CHANGE

The immediate challenge facing DTIB manage-ment is that the defense budget will shrink markedlyin the decade ahead. Earlier chapters argued that aproportional reduction in all sectors of the DTIBwould not produce a strong and healthy base. Thus,the United States will face some difficult choices inthe coming years.

Redesigning Defense suggested some criteria formaking these choices by listing the desirable charac-teristics of the future base. (See table 1-1.) Thesecriteria ultimately affect specific policy choices, asoutlined in chapters 2 through 5. The Nation may, for

example, choose to invest relatively more in defenseR&D at the expense of production, and close someproduction facilities and radically restructure thosethat remain. The Nation may also decide to movemore of its R&D capability to the private sector. Ifso, then some Service research facilities may have tobe closed, an action which will require both politicaland management skills. Similarly, the pursuit of aprototyping-plus strategy, like that outlined in chap-ter 3, might be accompanied by the reduced produc-tion of new weapon platforms, again requiring theclosure of some facilities. Three strategies for thetransition to a smaller DTIB are discussed below.

A Free-Market Strategy

One alternative advocated for managing thereductions in the DTIB is ‘‘allowing the market todecide” which defense contractors will survive inthe future. Most of the larger firms that responded toOTA’S defense-industry survey favored this ap-proach.

25 These firms argued that the future survi-vors in the U.S. defense industry should be decidedon the basis of which firms win individual contracts.The DoD, in its recent industrial base report toCongress, stated that ‘‘in broad context, free marketforces will guide the industrial base of tomorrow. ’26

A pure free-market approach would make awardsbased on the ability to meet each individual contractwithout consideration of the long-term health of theDTIB. Such an approach would have to end thecurrent practice of using one activity to subsidizeanother. For example, many observers note that thegovernment often tries to mask the true costs ofR&D by having companies support R&D in theexpectation of recouping their investment from laterproduction profits.

In the extreme, a free-market approach wouldallow companies to invest in new products, whichthey would hope to sell to the DoD at a price thatcovered R&D costs and adequate compensation forthe capital put at risk. This approach could work fora variety of so-called “nondevelopmental items, ”especially those using the larger pool of commercialtechnology and production processes. With attention

~ U.S. ConWes5, Office of Technolo~ Assessment, Holding the Edge: Maintaining the Dgfense Technology Base, OTA-IsC420 (w~hingkw Dc:U.S. Government Printing Office, April 1989), p. 152.

U Ibid.z See us. CoWess, Office of T~hnoloW Assessment, Redesigning Defense. Planning the Transition to the Future U.S. Defense Industn”al Base*

OTA-ISC-500 (TVa.shingto& DC: U.S. Government Printing OffIce, July 1991), p. 43.E Report t. congress on the Dgfense Industrial Base, Op. cit., foornote 4, P ES-7.


/%oto credit: U.S. Navy, 1983

Submarine manufacturing technology may be toospecialized to be supported by commercial industry alone.

focused on the comparison of the price and value ofa product, there would be no need for internalaccounting to establish production costs, since theprice to the government, not the cost to the company,is the only financial concern of the government inthe role of free-market customer.

Industry self-financing would work less well forspecialized military products or entire weaponplatforms. In these cases, defense R&D wouldalmost certainly have to be funded by the govern-ment. Whichever firm was judged best qualifled tocarry out the development would win the develop-ment contract. Afterwards, production contractscould be let using the same criterion. In those sectorswhere specialized production houses (so-called ‘build-to-pMt‘‘ shops) consistently won the productioncontracts, the free market would evolve toward adivision of labor between design houses and produc-tion houses. One criterion for awarding a develop-ment contract could be that the product be produci-ble in the largest possible number of commercialfacilities. In many sectors, however, some advantagewould accrue from having the R&D function andproduction under the same roof. In these sectors,build-to-print shops would not be able to compete,and more integrated firms would evolve.

Multiple sources would survive only when such amarket structure was more efficient than one com-posed of single sources; a pure free-market approach

would not admit to giving contracts to second-placefinishers just to maintain alternative sources ofsupply.

Many observers, as noted elsewhere in this report,argue that pure free-market mechanisms are impos-sible to apply because the defense industry simplydoes not operate in a free market, but is instead aregulated monopsony. But a number of these observ-ers argue that eliminating many of the currentlegislative and regulatory restrictions on defenseacquisition will open the defense market to in-creased competition. This increased civil-militaryintegration of the base may promote the use of afree-market approach in many sectors of the futureDTIB.

An Activist Strategy

A second management alternative is a moreactivist approach, stressing government participa-tion in implementing the chanles in the DTIB. Theactivist approach includes a range of proposals.Some advocates want to select surviving defensefirms and support the development of defensetechnologies having civilian application. The argu-ment for such support is that the broader nationaltechnology and industrial base is essential to futureU.S. military strength.27 Advocates of an activistapproach see little potential for free-market opera-tion in most of the defense sectors, given the DoD’srole as single buyer. As a result, while they supportchanging the regulatory environment to permit theuse of commercial practices, they also favor moregovernment intervention to enhance specific tech-nologies and industrial sectors.

An activist approach is used in France, forexample, where government planners allocate de-fense work to ensure the competitiveness andfinancial health of the French defense industry. Topreserve a key design team, for example, the Frenchprocurement agency, the General Delegation forArmaments (DGA) may award a developmentcontract on a competitive basis but give the loser ashare of the subsequent production work to keepboth firms in business, even f total procurementcosts are thereby increased. Similarly, the DGA mayprocure a system from a French firm even when itcould be acquired faster and more cheaply from aforeign source; and it may keep an assembly line

~ me ~D repfi Bo/sfen”ng D#eme Ir@strial Cornpefi”tiveness, for example, exfied the negative trends in such f Ud-USe industi smtOm Mmachine tools and electronics and sought to develop policies to help change these trends.


open between procurement cycles by stretching outthe rate of production until the next contract comesalong. m This approach has sometimes involvedmaking a choice between buying weapons that theFrench armed services desired or buying weapons tosupport elements of the French defense base.

A Mixed Strategy

The successful management of the future, smallerDTIB will probably involve elements of both thefree-market and activist strategies. Where sufficientreal competition exists, the free-market approach ofproviding funds to the successful bidder will besatisfactory. But this competitive environment islimited to particular technologies, mostly subtierindustries making components common both tomilitary systems and civilian products. In otherareas, where a defense technology or industrialsector has little or no civilian counterpart, sourceselection on a nonmarket basis is more appropriate.

The DoD appears, in practice, to support thismixed strategy approach. While the DoD has beencriticized for placing too much reliance on marketforces in defense procurement, the Departmentacknowledges that the free market alone might notprovide the necessary industrial capability in se-lected areas. For example, because the U.S. ship-building industry is dependent on Navy business, theDoD has stated that it ‘‘will require continuousmonitoring by the DoD to ensure a capable primecontractor and supplier base is available for militaryneeds. ’29 Secretary Cheney has also said that hisdecision to build another nuclear-powered aircraftcarrier was based, in part, on the need to preserve theNavy’s shipbuilding industry .30 The DoD industrialbase report suggests the possibility for interventionin the armored-vehicle sector, although the Depart-ment has not yet taken any action to preserveproduction capabilities in this area.

How much government intervention is necessarywill depend on how the Nation structures the futureDTIB. Those advocating greater civil-military inte-gration argue that integration will strengthen the freemarket and ultimately reduce the need for govern-

ment intervention. But civil-military integrationwill occur only at the price of modifying some ofthe regulatory mechanisms currently built intothe procurement system to ensure public ac-countability of funds.

Any strategy to restructure the DTIB requires thegovernment to have a clear vision of the fituredefense establishment and the DTIB needed tosupport it. That vision must be communicated toindustry. In the words of one defense contractor:

It is our view that the White House, OSD, andCongress must articulate and agree on a nationaldefense policy to avoid the chaos of a teardownrather than an orderly builddown. If a teardownoccurs, the quality of defense products is likely tosuffer badly .31

FUTURE MANAGEMENT TOOLSBeyond the immediate problems associated with

down-sizing, there are longer range concerns overhow to manage the future base to get the most returnfrom a smaller and much changed DTIB. Steps thatmight be taken to improve the management of thefuture base are outlined below.

Improved Planning

Future DTIB planning must be better coordinated.Today, DTIB planning remains relatively decentral-ized within the DoD. The individual Servicesdevelop plans that are further subdivided into R&Dplans, production plans, and depot maintenanceplans. Decentralized planning has the benefit ofstaying close to Service requirements. Yet if itresults in costly redundancies and bottlenecks inindustrial responsiveness, it will fail to meet eitherthe immediate military needs of the cornmanders-in-chief of the unified and specified military commandsor the longer term needs of the DTIB. Bettercoordination among the three elements of the base(R&D, production, and maintenance) will helpreduce the past tendency of DTIB managers to makedecisions that seem best for their organization, butactually have negative implications for the base as awhole.

2S U.S. Conpess, OffIce of Technology Assessment, f.essons in Restructuring Dtfen.se Industry: The French Experience, OTA-Bp-ISC-%(Washington, DC: U.S. Government Printing Oflice), June 1992.

29 Repo~ t. Congress on the D@ense Industrial Base, op. cit., f~~ole 4* P ES-5.

~ ‘‘Indus~ Base, Fee Sticture Entered Carrier Decision--Cheney, ’ Dtfense Daily, Feb. 6, 1992, p. 200.

31 Respnse to OTA industrial bi%w 5LI~ey.


The growing importance of the broader nationaland global technology and industrial bases inmeeting defense requirements increases the need tobring other government agencies into DTIB plan-ning. The Federal Emergency Management Agency(FEMA) is responsible for emergency and mobiliza-tion planning involving the civilian agencies. TheDepartment of Commerce might share more peace-time DTIB planning responsibilities with the DoD.Industry must also be more directly involved in theplanning process. FEMA has taken a number ofinitiatives to increase the understanding of the rolesthat the civil agencies must play in supporting theDTIB.

One of the chief criticisms of current planning isthe lack of good information on the DTIB. Operatingin a more integrated base with fewer resources willrequire a better understanding of not only the DTIB,but also the larger national base. The CriticalTechnologies Plan and the Industrial Base Reportappear to have been partly motivated by a desire tohave the DoD collect better data and thus develop abetter understanding of the base. The DoD hassupported several industrial base data-gatheringefforts, but has never placed high priority on them.

Redesigning Defense examined a number ofcurrent government and industrial databases andconcluded that all ‘‘are short of data because datacollection efforts are generally underfunded and arenot standardized. ’ ’32 For example, the DefenseIndustrial Network (DINET) sought to link a numberof commercial and DoD industrial databases in orderto provide insight into the condition of the DTIB.But according to many observers, this effort wasunderfunded. In other cases, support for setting up adatabase has not been followed up with adequatefunding for data collection to make that base useful.Systematic data gathering is expensive.

The DoD should set priorities on what data togather and how much data are needed to manage thebase. But, there are other agencies (e.g., such asDepartment of Commerce and FEMA) that shouldplay a more active role. Congress can act to ensurethat industrial-base data priorities are estab-lished by the Executive Branch and that adequatefunding is available.

Figure 6-5--Integration of t~ e DTIB Elements

/

Production

\Maintenanca J

\ / /

SOURCE: Office of Technology Asessment, 1992.

Organizational Changes

The future DTIB must have more integration ofthe R&D, production, and maintenance elements.(See figure 6-5.) The Air Force appears to havebegun this process by combining its Air ForceSystems Command and Air Force Logistics Com-mand into a single Air Force Materiel Command(effective July 1, 1992). The other Services are alsocombining elements of their commands.

But more important than the major commandreorganizations will be changes involving programsand technologies. The Air Force’s new concept ofintegrated weapon system management (IWSM) iscurrently being tested on 21 weapons programs.33

The IWSM establishes a program director in chargeof all aspects of the life cycle c f a weapon systemfrom R&D through production and maintenance.The program office is located in a product divisionduring program development, but moves to a logis-tics center once the system has been produced and isoperational.”

While a concept such as the IWSM integrates themanagement of the three principal elements of theDTIB, it may not be adequate in the future environ-

32 Re&~igning D#e~e, op. cit., fOOtnOte 25, P. 116.

33 John Terino, “Doing Business, “ National Defense, January 1992, pp. 18-19.M Ufitd Stata h Form Fact Sheet, Integrated Weapons System Management: Cornerstone of Air Force Materiel Command, NOV. 1, 1991.


ment because it is focused on managing weaponsystems. It does not break the present near-automaticlink between development and production. In thefuture, research, development, and prototypingwill be pursued without the expectation thatproduction of a final system will necessarilyfollow. Therefore, DTIB management cannot becentered around individual weapons programs.A useful additional concept is that of integratedmission area management. This approach wouldexamine alternative ways of achieving a mission aswell as the tradeoffs among R&D, prototyping,production, and maintenance in sustaining an overallDTIB capability to support identified national secu-rity requirements. This is now done by the Servicesin their mission area analyses and in their manage-ment of technologies (e.g., the Tank AutomatizeCommand looks across the armored vehicle sector).But current efforts are largely limited to programswithin a single Service. The Joint Staff mightassume the job of analyzing missions among theServices.

Degree of Centralization

The degree of centralization of future DTIBmanagement is an important issue. Secretaries ofDefense have generally pushed for increased controlof resources and acquisition (Secretaries Laird andWeinberger were exceptions), while the Serviceshave sought more autonomy. Proponents of morecentralized acquisition argue that current inter-Service coordination will be insufficient to managethe future DTIB so that it will be suitably strong andflexible. Proponents of decentralization counter thatcentralization will separate equipment acquisitionfrom the military users.

Several forms of centralization have been pro-posed. Three possibilities are:

1.

2.

3.

A

a “purple suit” (i.e., joint-Service) procure-ment agency that would buy all militaryhardware and supplies;a division of procurement tasks so that eachService is responsible for supplying the otherswith a set of procurement items; oran independent acquisition corps separatefrom the Services, staffed by civilians.

joint-Service agency might resemble an ex-panded Defense Logistics Agency, which is cur-rently responsible for providing common items,such as fasteners, food, and uniforms.35 This newagency would take advantage of the long-termexperience of career civilian procurement officersand the military expertise of Service officers.3G Itsfacilities would need to be geographically close toService technical centers.

Alternatively, tasks could be distributed accord-ing to Service expertise or priority. Thus, the AirForce might be responsible for all cargo planes, theArmy for all trucks, the Navy for all boats and ships,and the Marines for landing craft. The DoD has runjoint procurement programs; some successful (e.g.,trucks and 20mm ammunition), and others lesssuccessful (e.g., F-1 11).37

A separate civilian acquisition corps could breakdirect Service advocacy for developed systems toenter production. But a drawback of this approach isthat an independent organization can easily losesight of Service requirements. The French acquisi-tion agency, for example, has been criticized for notbeing responsive enough to battlefield require-ments. 38

The goals of any reforms should be to reduceredundancy, to make larger, more economical pur-chases, and to have an experienced cadre of acquisi-tion personnel who do not have a direct Service stake

M me DefenX ~~~tlc~ Agency ~~o ~rWWe~ ~placemen~ for mimocficui~ tit have gone OUt of commflci~ production but ~ still re@ed formaintaining a weapon system. Many microcircuits have a product cycle of about 7 years, while the systems they are a part of may have an operationallifespan of 20 years or more. See Donald O’Brien, testimony before the U.S. Congress, House Armed Services Panel on Future Uses of Manufacturingand Technology Resources, Oct. 24, 1991.

36 me French ~ve a ~en~allzcd pr~uement agency, which has resulted in muhi-Servict procurements and better coordimtion of R&D ~ves~ent.Nevertheless, critics allege that the agency has overemphasized industrial base considerations at the expense of military requirements and force readiness.See U.S. Congress, Office of Technology Assessment, op. cit., foomote 28.

37 The F.111, ongl~ly desipt~ tie ~ (~ctic~ fighter, expe~enta~), beg~ as a b~e~ice program IUII by the Air Force to meet Navy fl@air defense and Air Force deep strike requirements. The differences between the two variants of the plane were to be minimal and the use of commonparts was to be emphasized. Secretary of Defense McNamara believed that joint procurement and commonality would save the Nation about $1 billion.In 1968, 7 years after the program bega~ Congress canceled the naval variant of the F-1 11, ostensibly because the effort to achieve commonalityundermined the planes’ ability to carry out their different missions and was not cost effective. See U.S. Senate, Government Operations Committee,Permanent Subcommittee on Investigations, Hearings cm the TFX Contract Investigation (Second Series), Part 1, Serial No. 43-096, Mar. 24, 1970.

38 ~ssons in Restricting Defense Industry , op. cit., foomote 2*.


Photo adit: U.S. Department of Defense

Congress canceled the Navy’s F-1 11 variant after anexperiment in joint procurement and commonality y

with the Air Force failed.

in getting a particular weapons program into produc-tion.

Congress may also wish to reconsider its commit-tee structure for overseeing the DTIB. Oversight ofR&D, acquisition, and maintenance could be con-solidated. Congress may wish to consider reducingthe number of committees, subcommittees, andpanels responsible for DTIB issues just as it calls onthe DoD to be less top-heavy in its management ofthe base.

Degree of Civil-Military Integration

The Federal Government’s role as single buyer inthe military market gives it enormous power toshape that market. In the past, the DoD has been sucha large customer that it could establish unique andsometimes onerous requirements-in accounting,manufacturing, and management-and still be con-fident that sellers would step forward to seek itsbusiness. This heavy regulation has isolated theDTIB from the broader national base.

The burden of regulation was not financiallycrippling as long as the DoD market remained largeenough on its own to support entire companies. But,excessive regulation will become a major obstacle tomaintaining a healthy DTIB as the defense marketshrinks and becomes less attractive to private fins.

Integratinglarger industrducing the amountfirms’ defense

the defense base back into theal base will require changes. Re-of government oversight ofwork is possible--but only in re-

sponse to assurances that there is proper corporateaccountability. Two general courses might be fol-lowed. One involves change: within the currentdefense acquisition system. Examples include suchprograms as the Corporate Risk Assessment Guide(CRAG) developed by the Defense Contracts Audit-ing Agency to reduce the number of on-site inspec-tors in key financial areas; the Exemplary Facility(EF) program, which has been tested in a number ofmanufacturing facilities in the past 2 years; and theArmy’s Continuous Process Improvement Program.While such programs have the objective of reducingoversight and therefore reducing costs, they allsuffer from inadequate government support—especially a lack of support by relevant DoDoversight agencies—and a subseqent lack of indus-try incentive to participate. For example, the EFprogram was recently discontinued by OSD withlittle discussion with the companies involved. Fu-ture efforts to reform the acquisition system willrequire broad-based support within the DoD if theyare to succeed.

The second course is to make much wider use of“commercial standards” in auditing and produc-tion, i.e., a broad, direct effort at increased civil-military integration of the base, This course offersgreater potential benefits than limited change withinthe DoD system. For example, acceptance of com-mercial standards in place of miltary standards (e.g.,replacing Mil-Q-9858A with ISO 9000) has beenproposed by many in industry, but has not been actedon favorably by the DoD.39 (See figure 6-6.) Even ifthis change were made, the DoD need for account-ability would be different from that of the civilsector. Advocates of civil-military integration arguethat, nonetheless, the regulatory barriers to doingDoD work should be lowered and more firmsbrought into the defense business, at which pointaccountability can be better assured through redcompetition.

Much of the burden of government accounting,auditing, and management regulations derives from

39 IS() 9000 is ~o~nd for International Standards Organization (ISO) 9(IW 9004, a series of documents on qtity issuance pubhkxl b tie

Geneva- based 1S0. The 5 documents outline standards for developing Total Quality Management and a Quality Improverr ent Process. 9000 consistsof guidelines for the selection and use of the quality systems contained in 9001-03.9001 outlines a model for quality assuran-x in design, developmen~production installatio~ and servicing. 9002 outlines a model for quality assuran ce in production and installation. 9003 olltlines a model for qualityassurance for final inspection and testing. 9004 is not a standard but contains guidelines for quality management and quali y system elements.

Chapter 4--Good, Integrated Management ● 151

Figure 6-6-U.S. Standards

Total94,000

* — -

Federal Gov~rnm Pnt

52,500+

5,000 adoptedprwate sector

1

‘1

PrwatP sector

41,500

- . 1 T —1

~ Caution must be men to e~e tit “advisory’ specifications do not become de~acto 5peCiflCatiOm.


which are now largely segregated, and reducingoverhead spent on paperwork. The DoD has begunto test the effectiveness of commercial practices inlowering costs while guarding against abuse. Itcould widen such practices in the future.

The current Advisory Panel on Streamlining andCodifying Acquisition Laws is scheduled to reportin January 1993. It is expected to provide insight intohow Congress might best reform the vast body ofacquisition law that was built up during the cold war.

Improving Cooperation and Coordination

Combined government and industry action will becritical in managing the transition to a productionbase with the desired characteristics discussed inchapter 4. Unfortunately, as noted earlier, government-industry relations are often adversarial. Improvedcooperation and coordination is needed not onlybetween industry and the DoD, but also between theDoD and Congress and between Congress andindustry.

This improved cooperation could begin in theplanning phase. Industry needs to understand futuredefense requirements so it can prepare to meet them.To achieve such coordination, attitudes on all sideswill have to change. Deputy Defense SecretaryDonald Atwood has acknowledged the need formore cooperation and more industry participation indefense planning, noting that in the past it wasconsidered “a crime if you [business] knew whatwe’re going to do. ’ ’41 Since long-term DoD plan-ning goals were classified, industry had difficultypreparing for the future. A more open approach isneeded so all sides can make coordinated plans in away that reduces any incentive to cheat.

Talented and Experienced People

While program managers and contracting officersare certainly key players, management of the DTIBinvolves more than running acquisition programs.Future DTIB managers will have to make trade-offs among the three principal elements of thebase (R&D, production, and maintenance), whileensuring that the desired future DTIB capabilitywill be available. Dealing with these broad andbasic questions demands experienced personnel.

I%oto credit: Defense S, /stems Management College

A lecturer conducts a managerwnt course at theDefense Systems Managelnent College.

‘‘Revolving-door’ laws make it difficult to at-tract talented and experienced people as seniorcivilian DTIB managers. These laws limit thepost-government activities of appointees and requirethat they divest themselves of current stocks orcommitments that might be a conflict of interestwhile they serve the government Such disincentivesto government service could be some even greater ifa strategy of increased civil-m Mary integration ispursued, since senior managers of non-defense firmsmight also be dissuaded from DoD service. Thus,while conflict-of-interest laws are essential, theymight be reformed with an eye to attracting experi-enced private-sector managers to DoD jobs.

The quality of the Services’ acquisition workforcehas also been criticized. The principal problemsappear to be rapid turnover among uniformedprogram managers, inexperience, and inadequateeducational backgrounds. The defense AcquisitionWorkforce Improvement Act (DAlVIA) sought toaddress some of these problems. The military has setup a Service Acquisition Corps and acquisitioncareer paths. However, since over 90 percent of thepersonnel in the acquisition workforce are civil-ians,42 programs to enhance military personnel arenot enough to improve DTIB m magement. Greaterefforts have to be made toward civilian managers.

41 DCPUW Seaew of Defense Don~d J. Atwm, speech to a Technical Marketing Socie& of herica S~inW in Arlington VA, ~Port~ inAerospace Daily, June 3, 1991, p. 370.

42 U.S. House of Represen~tives Committee on Armed Services, Report of the Subcommittee on Investigations, The Q,udify and Professionafimof the Acquisition Workforce, May 8, 1990, p. 14.

Chapter 6-Good, Integrated Management ● 153

One problem is that civilian salaries lag behindmilitary pay.43

DAWIA also provides for better training ofacquisition personnel. The acquisition university,mandated by the Act is now being established.About 75 students per year will receive specializedacquisition courses at the Industrial College of theArmed Forces. Senior DTIB managers need trainingin how to maintain a ‘‘warm capability’ involvingtradeoffs among all three elements of the base, andhow to manage a base that is more integrated withthe civilian sector.

One approach to maintaining a cadre of technicalmanagers, as well as a labor force, has beensuggested by William L. Clark of the DefenseSystems Management College. Training personnelat all levels could be accomplished by establishinga Civilian Technical Reserve Corps-a volunteergroup of skilled defense engineering and productionpersonnel who would take periodic ‘ ‘updating’ andretraining in their particular specialties. Some of thisperson-to-person training might be aimed at youngerpeople to preserve generational continuity.

In case of a national emergency, a cadre of suchtrained individuals would greatly facilitate DTIBmobilization and, in particular, the transition ofprototype systems to quantity production. A prece-dent for this kind of continuing education alreadyexists in the medical profession and, to a lesserdegree, in the legal profession. Volunteer reserveforces also exist in the military and the Peace Corps.All of these have successfully harnessed personalpride and patriotism to serve well-defined nationalgoals. A Civilian Technical Reserve Corps wouldrequire participation by industry management, or-ganized labor, and human resource experts.

SUMMARYFor the Nation’s DTIB to remain strong and

healthy in the future, it will have to be managed innew ways. There must be greater centralization in

planning, more flexibility in operation, and in-creased integration with the larger civilian technol-ogy and industrial base. A coherent managementstrategy for the entire base (R&D, production,and maintenance) will be critical to halt theweakening of the present base and ensure that a“build down” rather than a “tear down” occurs.Centralized strategy will need to be combined withdecentralized operation, giving individual managersmore responsibility and authority. Managers willhave to make tradeoffs with respect to the entire baseand not just a single element. DoD managers shouldhave more flexibility in dealing with industry, andDoD contractors should have more authority todeliver products and services in a way that is mostefficient for them and the base as a whole, Theseshifts will require experienced and talented manage-ment personnel-who will only be available ifchanges are made in training, career paths, and pay.

Sweeping reform of the acquisition laws andregulations will be essential to achieve the flexibilityneeded for restructuring. Congress might supportprograms that reduce direct government oversight,or change the oversight process radically and moveto a more commercial environment. Such reformsshould differ somewhat according to the industrialsector. Those defense sectors with more civilianoverlap might best be managed according to civilianstandards, while militarily-unique technologies willneed more specialized management.

Finally, successful DTIB management will re-quire better coordination and cooperation betweengovernment and industry and between the executivebranch and Congress, Consensus on the role that theDTIE3 plays in national security is needed. If pastinefficiencies are allowed to persist, the muchsmaller future base will be unable to provide therequired support.

43 Ibid,, pp. 48@187.

Appendixes

Appendix A

Defense Technology and IndustrialBase Policies of Allied Nations

U.S. strategies for restructuring the defense technologyand industrial base (DTIB) will be influenced by theDTIB strategies of our principal allies as well as anypotential adversaries. For example, allied emphasis oncollaborative procurement may affect the tendency of theUnited States to engage in such efforts. Also, internationalarms sales will affect both U.S. sales and possible levelsof U.S. R&D. This appendix provides a tabular overviewof foreign DTIB structures and policies for Canada,France, Germany, Japan, and the United Kingdom. Thedefense bases of these nations are all facing pressuressimilar to those on the U.S. DTIB.

Table A-1 describes the structure of the DTIBs of thefive countries. Indicators are the size of the industry

(measured by personnel), percent owned by the state, andexport sales.

Table A-2 indicates current spending and trends indefense spending (where available), including invest mentin military R&D and procurement.

Table A-3 lists the countries’ goals for restructuringtheir defense bases, such as what design and manufactur-ing capabilities each country wishes to preserve, prioritiesfor defense R&D and procurement, and plans for surgeproduction or industrial mobilization in crisis and war.

Finally, table A-4 describes government strategies forachieving the desired goals.

Table A-l—Structure of the Allies’ DTIBs

Country Industry size 1990 Export sales(direct employees) Percent state-owned (billions of U.S. dollars)

Canada . . . . . . . . . . . . . . . . . . 80,000 o% $0.88b

France . . . . . . . . . . . . . . . . . . . 260,000 80%Germany . . . . . . . . . . . . . . . . . 265,000 almost 0% N~

C

Japan . . . . . . . . . . . . . . . . . . . NA 0 “ / 0

United Kingdom . . . . . . . . . . . 300,000’ almost O?!O w0.4NOTE: Conversion rates: $1 = 0.56f; $1 = 5,5FF; $1 = 1.19 Cdn.NA - not available.a Financial year I g8g/90, Includes 150,000 jobs sustained by defense eXPorts.b Most exprts are to the United States.c A relatively Small amount.

SOURCE: Office of Technology Assessment, 19!32.

Table A-2—Fiscal Year 1992 Allied Defense Spending(billions of U.S. dollars)

Country Total defense budget Defense R&D budget Procurement budget Percent GNP

Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . $10.6 $0.12 $5.1 1.8%France . . . . . . . . . . . . . . . . . . . . . . . . . . . $35.5 $5.5 $18.7 3.3 ”/0Germany . . . . . . . . . . . . . . . . . . . . . . . . . $40.2 $1.8 $ 4 . 8 2.50/.Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . $34.2 $0.93 $ 6 . 5 0.9 ”/0United Kingdom . . . . . . . . . . . . . . . . . . . . $43.1 $4.7 $16.1 4.0%

NOTE: Defense budgets converted to U.S. dollars using the following exchange rates$1 = 1.19 Cdn$1 = 135 ~$1 = 1.64 DM$1 = 5,5 FF$1 = 0,56 f

SOURCE: Off Ice of Technology Assessment, 1992.

-157-


Table A-3-Priorities for Restructured DTIBs

Country Core capabilities R&D Procurement Surge/mobilization

Canada . . . . . . . . . . . Complex subsystems,shipbuilding, light armoredvehicles, trucks, small arms,helicopters.

France . . . . . . . . . . . . Full range of major tacticalweapon platforms, nuclearweapons.

Germany . . . . . . . . . . Issue iscurrentfy understudy.

Japan. . . . . . . . . . . . . Develop wartimemaintenance and supplycapabilities, relies onavilian R&D, supportsaircraft electronics.

United Kingdom . . . . . Determined by marketforces.

Focus at subsystems level;government facilitiesspecialize in militarilyunique technologies.

New emphasis on spacesystems, command andcontrol, and guided standoffmissiles.

Stresses joint developmentprograms, aerospace.

Increased emphasis ondefense R&D, aircraft, missiles,logistics and support, but relieson civilian technicaldevelopments in key hightechnology areas.

Aviation, stealth, andelectronics.

- ,, , , . . ,. . . . . . . . ,. , , ,~anaalan pawol lngale, ilgmarmored vehicles, tacticalcnmmand and control systems,helicopters.

Rafa/e fighter,Leclerc tank,Arn6fhyste submarine,Charles de Gau//ecarrier, Hdlios andSyracuse satellites.Major cuts over next decade inheavy armor. Continuedcommitment to the EuropeanFighter Aircraft in question.

Present program stressesimprovement andmodernization of existingequipment.

Challerrgertank, EuropeanFighter Aircraft, attackhelicopter, nuclear deterrent.


Table A-4-Allies’ DTIB Strategies

i nsnwuonallzao aelensei Mustry planning, stresses{operation with the United1 ;tates.

I.ittle emphasis on planning by! ;ervices.

tlo detailed defense industrialr mobilization planning.

Flo detailed defense industrialn~obilization planning.

Currently relies on limited, adhx planning, but may move tonlore structured planning.

Countrv National Plan International collaboration Civil-m ilitarv intmration Consolidation

Canada . . . . . . . . . . . Focus is on cmntinued closecooperation with U. S.,limited governmentintervention, and increasedgovernmenVindustryconsultation.

France . . . . . . . . . . . . Central governmentstrategy is to maintain areasof excellence in Frenchdefense industry, stressinternational sales.

Germany . . . . . . . . . . Free-market orientation,with cfose exchange ofinformation betweengovernment and industry.

Japan. , . . . . . . . . . . . Limited defense pfanning,stress on U.S. relationship,use of dual-use technology.

United Kingdom. . . . . Reliance on the privatesector, greater civil-militaryintegration, exports, limitedgovernment intervention.

Participates in NATO’sConventional ArmamentsPlanning System, but this is nota major policy thrust. Efforts areencouraged at the firm level.

Systematic approach toEuropean collaboration andstrategic alliances, but go-slowapproach to free arms marketwithin the EC.

Strong and growing emphasison collaboration.

Strictly limited by law,cooperation with U.S. is viewedas important.

Supports collaboration withallies, expects it to increase asbudgets are reduced andforces become moreinternational.

Recognition of increasedimportance of dual-usetechnologies, closer tiesbetween defense and civil R&Dorganizations.

Government encouragesdiversification of firms, nobarriers to civil-militaryintegration.

Stressing avilian producfswheremilitarily acceptable.

Considerable integration; mostdefense firms produce civilianproducts, but a few firmsproduce most Japanesedefense items.

Key component-relaxedrequirements to permit use ofdvil technology, most defensefirms diversified into avil sector.

R 91ying on market forces,fcreign demand.

G >vernment promoting somea rrsolidation, cross-borderm wgers.

In justry is down-sizing,g( vernment currently sees nom ed for major additionalrestructuring of base.

Ostensibly left as a caporated(cision, but most Japaneseirnjustriai-sector decisionsirv~olve governmentac ministrative guidance.

Rfdying on market forces,government providesinf xmation to industry aboutful ure defense plans andintentions.

SOURCE: Office of Technology Assessment, 1992,

Appendix B

Reviewers

This report has benefited from the advice of many individuals from the government and the private sector. OTAespecially would like to thank the following individuals for reviewing various drafts of the report. The views expressedin this report, however, are the sole responsibility of the Office of Technology Assessment.

LTC Diane BeardsleyHeadquartersAir Force Logistics CommandWright-Patterson AFB, Ohio

Don CarsonTASCArlington, VA

William ClarkDefense Systems Management CollegeFt. Belvoir, VA

Richard E. ClemensBMY-Combat SystemsYork, PA

James M. ComptonOffice of the Secretary of DefenseDepartment of DefenseWashington, DC

Jim DeZutterDigital Equipment Corp.Marlboro, MA

Gordon R. EnglandGeneral Dynamics Corp.Fort Worth, TX

S. Bruce EnsleyDepartment of the NavyWashington, DC

Don FergusonBell Helicopter Textron, Inc.Fort Worth, TX

Donald FowlerF&F Associates, Inc.Arlington, VA

Gary W. FredricksGeneral Dynamics Corp.San Diego, CA

George L. FriedmanNorthrop Corp.Lms Angeles, CA

Steven R. GoldbergITT Defense AvionicsClifton, NJ

Joe P. GoldenOffice of the Secretary of DefenseDepartment of DefenseWashington, DC

Jack S. Gordonbckheed Advanced Development Co.Sun Valley, CA

Jay W. Gould IIIDefense Systems Management CollegeFt. Belvoir, VA

Col. Robert HayesUnited States Air ForceWashington, DC

Del JacobsNorthrop Corp.Hawthorne. CA

Major General Harry G. KaregeannesU.S. Army Depot System CommandChambersburg, PA

Chuck KimzeyOffice of the Secretay of DefenseDepartment of DefenseWashington, DC

Leslie M. LackmanRockwell International Corp.LQS Angeles, CA

Arnold LevineRAND Corp.Santa Monica, CA

Henry J. LopezAllied-Signal Aerospace Co.Torrance, CA

Robert MasonOffice of the Secretary of DefenseDepartment of DefenseWashington, DC

Lucy W. FyfePratt & WhitneyWest Palm Beach, FL

–159-


Bettie McCarthyProprietary Industries AssociationWashington, DC

William W. MoganTalley Defense SystemsMesa, AZ

Joseph MorelandFederal Emergency Management AgencyWashington, DC

Jimmy C. MorganMunitions and Chemical CommandRock Island, IL

Robert MorganAIResearch, Los Angeles DivisionTorrance, CA

William MotleyDefense Systems Management CollegeFt. Belvoir, VA

Joseph MuckermanOffice of the Secretary of DefenseDepartment of DefenseWashington, DC

Daniel J. O’NeilThe University of OklahomaNorman, OK

George A. PaulikasThe Aerospace Corp.El Segundo, CA

Robert PendleyLQS Alamos National LaboratoryLos Alamos, NM

George E. Pickett, Jr.Northrop Corp.Arlington, VA

Arati PrabhakarDARPA/MTOArlington, VA

Winn PriceBath Iron WorksBath, ME

Thomas W. RabautFMc Corp.Santa Clara, CA

Frederick RiddenInstitute for Defense AnalysesAlexandria, VA

Howard RobertsGeneral Dynamics Land SystemsSterling Heights, MI

Mike RobinsonRockwell International Corp.In Angeles, CA

Fred E. SaalfeldOffice of Naval ResearchArlington, VA

Philip A. SelwynOffice of Naval TechnologyArlington, VA

Giles SmithRAND Corp.Santa Monica, CA

H.C. Smyth, Jr.Bell Helicopter Textron Inc.Arlington, TX

William M. TonesNaval Research LaboratoryWashington, DC

Nicholas M. Torelli, Jr.Office of the Secretary of Defens>Department of DefenseWashington, DC

Tom WelchOffice of the Secretary of Defens(:Department of DefenseWashington, DC

William R. WidmerGeneral Dynamics Corp.Tallahassee, FL

Dennis J. WrightmanLogistics Management InstituteBethesda, MD

T.G. YuguchiGeneral Dynamics Corp.San Diego, CA

Otto ReniusGeneral Dynamics Land SystemsSterling Heights, MI

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