Sequestration And The Military Depots

The defense department’s logistics system and supply chain face unprecedented challenges. Most obvious is the continuing and growing pressure on defense budgets. Pentagon officials have begun to focus on reducing costs in the supply chain in their attempts to cope with budget woes. There is the requirement to maintain, repair and overhaul aging equipment and platforms, and the challenge of resetting equipment worn out by a decade of combat in Iraq and Afghanistan. Finally, DoD is pursuing a number of initiatives to improve the effectiveness of the acquisition process.

Both the public and private segments of the logistics and supply chain will be required to do more without more, and have a shared destiny in the present fiscal crunch. This raises a number of important questions regarding the best strategy for managing logistics and the supply chain. How will both segments cope with this situation? What is the best approach for managing a changing workload? What should be the role for public-private partnerships in the future? What have been the results so far of the defense department’s initiatives to reduce costs and improve acquisition performance? Is it time to consider a new definition of core workload? Does DoD need to consider creating a true defense industrial policy?

The transformation of the national military strategy in the 21st century coupled with a reduced industrial base and significantly strained fiscal environment will require a new interdependence between the public and private logistics sectors in order to maintain the optimum level of readiness for U.S. military forces. Sustainment of military weapon systems at the depot level must become more effective, efficient, and affordable. Consequently, the existing system of laws and regulations may require modification. Current statutes and regulations were created two decades ago in response to the free-falling contraction of the defense industrial base at the end of the cold war. The intent was to limit risk and the threat of overshooting the contraction by managing government (organic) capability.

The situation today is changed significantly in that both the public and private sectors face underutilization of manufacturing and repair infrastructure. Federal deficit reductions will lead to additional pressure on both the public and private sectors. The strategic calculation is now moving away from maintaining a “surge” posture, the logic of which underpins current law and regulations. At the same time, both the public and private defense industrial bases are beginning to skirt close to the edge of having only a single source for the production and sustainment of major systems. Rationalization of the defense logistics, sustainment and industrial bases must be done carefully if the loss of critical, even irreplaceable knowledge, skills, and capabilities is to be avoided.

Opportunities exist now to address systematical ways of strengthening the logistics industrial base, both for the public and private sectors. Here are a few questions for military logisticians to consider:

1. Some observers believe there is an undeclared war on contractors. From challenges to industry profits to concurrent development costs, insourcing, and requests for industry technical and cost data, is there a pattern of the government trying to undermine industry’s role in defense logistics?

2. A number of reports in the early 1990s showed regulatory and administration overhead as a large part of acquisition dollars. Some reports pegged the burden as high as 50 percent but the landmark Coopers and Lybrand study concluded 18 percent. Such potential savings are incredibly compelling if possible because they would come at no cost to acquisition or performance. Much of the intent of the burden is to protect the government from unfair pricing. But how much of a premium is justified given already modest industry operating margins? Is there potential to reduce regulatory and administrative burdens to achieve affordability objectives?

3. A key government strategy today is to encourage market competition to reduce costs. Shorter contract periods are thought to increase opportunities for competition. However, “incremental regulatory and statutory adjustments to defense acquisition based on the presumption that the defense industry operates like a normal free market are not only unlikely to improve efficiency, but have often made things worse,” as the prestigious think tank CSBA has pointed out. Do government contractors have the tools they need to manage longer term contracts that might give industry the opportunity to squeeze out more costs?

4. Inherently governmental functions, current core requirements, and the 50/50 allocation of work all favor performance by the public sector. These requirements today take precedence over (or in spite of) cost considerations. Inherently governmental functions — properly defined — must by definition be performed by the public sector. However, for all other functions, given the previous questions, is there a continuing relevance to maintaining a prescribed division of public and private sectors separate from cost and industrial base considerations? Can we afford it? Can the future hold a vision of a combined capability that uses and maintains the strengths of both the public and private sector preserving both for the benefit of the warfighter and the taxpayer?

5. The Army, and to a lesser extent the Air Force, will continue to push for organic capability. As military depot civilians go increasingly expeditionary, how does that affect the organic/contractor mix for support? Even though the U.S. military didn’t have true expeditionary capability as we entered the Afghanistan and Iraq wars, the public sector industrial base responded rapidly (and for the most part faster than anything presented by a private contractor) to push maintenance capability into the war zones.

As the sequestration axe gets sharpened, these are increasingly important questions to ask, and get answered.