The Hidden Costs Of Military Depots

Over the last ten years, the defense department’s maintenance depots, shipyards and logistics centers have worked hard to reinvent themselves while supporting warfighters engaged in fighting overseas conflicts. Most people associated with the public-sector logistics system will tell you the facilities are better run and more productive today than at any other time in recent memory. Some observers even think they are more efficient than private-sector sources of technical services.

Whether that is true or not, there are larger reasons to suspect that the military’s organic repair facilities are an unnecessary drain on the economy and therefore need to shrink markedly in the years ahead. The drawbacks of maintaining the current system have been largely overlooked because the government is not equipped to think systematically about the relationship between military spending and economic goals. However, when you reflect on where America’s economy is today and what it will take to remain competitive, it is easy to see ways in which military depots might be a drag on progress. Let’s consider a few of them.

First of all, the government typically relies on the private sector to design, develop and manufacture complex military systems, which are then turned over to the public sector for maintenance and repair during their operational lifetimes. Since similar skills and tooling are needed to produce and repair military equipment, what this means in practical terms is that the government must pay for two different industrial bases — one to manufacture the equipment and the other to support it. This is an intrinsically expensive way of doing business that does not exist in any other sector of the economy, and it undoubtedly adds to the government’s huge budget deficit.

Second, severing system development and production from sustainment means fracturing the product life cycle. The prevailing management model in high-tech industries today calls for integrated life-cycle management, where each stage in the process is influenced by what has or will occur in all the other stages. But that’s difficult to do in the government’s bifurcated industrial system because private-sector developers and manufacturers have little opportunity to interact with maintainers. Even if they could, it wouldn’t be the same as having the whole life cycle managed by one organization in a unified fashion. The current system thus discourages efficiency and increases risk.

Third, the current approach to system maintenance inevitably undermines economies of scale which otherwise might enable the military to field an effective force for less money. Take the example of jet engines. Such engines typically require a steady stream of spare parts to keep them operational during their post-production service lives. The parts are usually identical to the parts used when the engines were first built. If the engine manufacturer can concentrate all of its production for a given part such as a fan blade in one facility and workforce, then it can achieve economies of scale by using skills, tooling and other inputs with maximum efficiency. Under the present system, though, there is no way of knowing when depots might order parts, or even where they will order them from, so economies of scale are undermined and the manufacturer must charge more up front for its engine to assure all costs are recouped. This is not the way things are done in the commercial sector.

Fourth, military depots and logistics centers drain business away from major exporters at a time when companies need all the help they can get to remain competitive with overseas rivals. The resulting loss of revenues and returns leaves exporters with less funding to invest in product development and marketing, fewer skilled workers who might have contributed to overseas sales, and higher prices as fixed costs must be spread across a smaller range of activities. The net effect is to diminish the export competitiveness of companies that contribute significantly to America’s trade balance. Sikorsky sells fewer helicopters overseas, Lockheed Martin sells fewer fighters, and Raytheon sells fewer missiles. This is not a concern for military depots, who play almost no role in overseas trade, but by taking business that might otherwise have gone to some of the nation’s biggest exporters, they contribute to the weakening of an economy that provides the resources necessary to sustain America’s global military posture.

Finally, the current practice of repairing and modifying military equipment in government depots removes it from the mainstream of global innovation and isolates it in facilities that trail market sources in cutting-edge industrial capabilities. In other words, public-sector depots are a drag on innovation at a time when that is a key discriminator in national economic success. While it is possible for depots to stay abreast of processes and practices in the commercial world, they seldom install capital equipment or assimilate new skills at the rate that private companies do, because federal funding mechanisms lag the pace of private-sector investment. The depots are thus always playing catch-up, and meanwhile the sustainment of military equipment is doing little to contribute to innovation in the marketplace. The economy would benefit more — as would taxpayers and warfighters — if military equipment was maintained by companies continuously engaged in market-driven innovation that feeds into national competitiveness, rather than being consigned to public-sector backwaters.