The National Defense Industrial Strategy: Enabling a Modern Defense Industrial Ecosystem

With the publication of the 2022 National Defense Strategy (NDS), Secretary of Defense Lloyd J. Austin III charted the Defense Department’s way forward through today’s “decisive decade”. Increasingly coercive actions taken by the People’s Republic of China demonstrate its intent to reshape the Indo-Pacific region and broader international system to fit its authoritarian preferences, and the Russian Federation’s invasion of Ukraine underscores the acute threat it poses. These threats, along with transboundary challenges like COVID-19, demonstrate the imperative for increased and improved defense capabilities for both the United States and our allies and partners.

The NDS states that the US will prioritize coordinated efforts with the full range of domestic and international partners in the defense ecosystem to fortify the defense industrial base, our logistical systems, and relevant global supply chains against subversion, compromise, and theft. To do this, the Department of Defense (DOD) has released its first-ever National Defense Industrial Strategy (NDIS). The NDIS will catalyze generational change from the existing defense industrial base to a more robust, resilient, and dynamic modernized defense industrial ecosystem.

PRIORITY 1 | Resilient Supply Chains The DIB can securely produce the products, services, and technologies needed now and in the future at speed, scale, and cost.

The NDIS lays out four long-term strategic priorities to serve as guiding beacons for industrial action and resource prioritization in support of the development of this modernized defense industrial ecosystem.

The NDS defines resilience as the ability to withstand, fight through, and recover quickly from disruption. Dynamic production is primarily concerned with managing production processes and capacities to meet the changing demands of our warfighters, allies, and partners at speed and at scale. Resilient supply chains and dynamic production share the goals of adaptability, responsiveness, and scalability. The near-term efforts of the interagency Supply Chain Disruptions Task Force have helped to break down silos and achieve new forms of collaboration between Federal departments and agencies and with allies and partners, enabling timely action to address supply chain disruptions. Long-term efforts, however, require further steps to institutionalize supply chain resilience throughout the DIB, DOD, and extend through the USG and our allies and partners.

The DOD must balance the needs for speed and scale with cost and requires resilient, healthy, diverse, dynamic, and secure supply chains to ensure the development and sustainment of capabilities critical to national security. Currently, the health of sub-tier suppliers, manufacturing capacity, and lack of visibility into our critical supply chains create unique challenges that must be addressed to meet national security objectives. This is a particularly acute issue for small businesses that face various obstacles in helping DOD meet its challenges. Unreliable cash flow to small businesses makes the DIB more fragile and less secure, and this is driven by a range of issues from appropriation delays to commonly used contracting practices. Regulations and business practices can be difficult to understand, costly to implement, and in a myriad of ways often create barriers to doing business with DOD. Some of these barriers include confusing points of entry into defense markets, improper bundling and consolidation of contracts, and convoluted regulations. These barriers strain the relationship between the DOD and small businesses. By working with both large and small businesses and more strategically utilizing the Organic Industrial Base (OIB), the DOD will achieve a more resilient, modernized industrial ecosystem that is economically and environmentally sustainable, receives predictable demand signals, and does not depend on adversarial foreign sources of capital, technology, raw materials, and critical inputs.

Ensuring the health of sub-tier suppliers is crucial to a healthy, diverse, and modernized DIB. The DOD must explore ways to better assess the health of the subcontractor industrial base, while at the same time applying the full range of authorities and opportunities available to develop innovative acquisition techniques that strengthen mechanisms to ensure prime contractors are accountable for meeting their small business subcontracting plans. The DOD will continue accelerating payments to small businesses and seek ways to incentivize large prime contractors to do the same with small business subcontractors, to include assessment of ways to address slow cash flow through existing accounting practices and business systems.

In addition to enabling integration of small businesses, the DOD must leverage the USG-owned OIB, which complements the commercial DIB by providing a ready and controlled source of technical competence to support the force structure and requirements identified by strategic and contingency plans. These core logistics capabilities are those necessary to support reconstitution in a national emergency or contingency requirement. The OIB performs a wide range of important roles from manufacturing items such as gun-tubes, to producing explosives, propellants, and munitions, to providing depot-level maintenance for complete rebuilds on such items as aircraft, ground vehicles, and engines, to major overhauls on nuclear-powered submarines and aircraft carriers. The OIB also sustains older platforms that are not profitable to the private sector. The OIB further provides rapid surge capability and capacity to support contingencies, and it is revitalized and enlarged when greater sustained commitment is called for, as in the present threat environment. OIB infrastructure has gradually degraded over time, with many critical facilities dating to World War II or before, and depot equipment often becoming obsolete. This lack of modernization has impacted cycle times, depot efficiency, and capacity. While the Military Services are modernizing OIB facilities and tools, these efforts will require substantial resources to meet future warfighter needs. For example, the Army is preparing to invest $4.5 billion over the next 15 years to modernize its OIB capabilities. This will be similar and complementary to the substantial investments required to modernize commercial DIB facilities and capabilities.

To address this priority, the DOD will incentivize industry to improve resilience by investing in extra capacity; manage inventory and stockpile planning to decrease near term risk; continue and expand support for domestic production; drive investment in the organic industrial base and production accelerators; diversify the supplier base and invest in new production methods; leverage data analytics to improve sub-tier visibility to identify and minimize strategic supply chain risks and to manage disruptions proactively; engage allies and partners to expand global defense production and increase supply chain resilience; and improve the Foreign Military Sales process.

PRIORITY 2 | Workforce Readiness A skilled and sufficiently staffed workforce that is diverse and representative of America.

Labor continues to be a major challenge for industry as baby boomers retire and younger generations generally show less interest in pursuing manufacturing careers or lack the science, technology, engineering, and math (STEM) skills needed for industrial work. The labor market lacks sufficient workers with the right skills to meet domestic production and sustainment demand. This directly affects military readiness. For example, labor shortages are a major reason why ship maintenance timelines routinely exceed their schedules. These shortages extend from skilled laborers to engineers and other STEM fields needed to drive innovation and capacity development. This will be a challenge as the United States invests in onshoring domestic production through initiatives such as the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, the Bipartisan Infrastructure Law, and the Inflation Reduction Act. By fostering workforce development programs, both academic and occupational, the DOD aims to work aggressively to renew interest in industrial jobs and maintain a well-trained and sufficiently staffed workforce to achieve our national defense goals. To improve forecasting, trend analysis, and the capture of best practices, the Department will engage our international partners to share workforce training and management lessons learned and identify opportunities for enhanced partnerships to meet the industrial demand of a dynamic threat environment. Over the coming months, the Department will also develop a framework that integrates the acquisition and sustainment workforce strategies, building a community of practice that delivers a ready and capable workforce needed to meet and address the challenges identified in this strategy. This will complement and enable the DIB workforce to ensure there are pathways and partnerships between these critical communities to implement the NDIS objectives.

To address this priority, DOD will work to prepare the workforce for future technological innovation; continue targeting critical skill sets in science, technology, engineering, and math; increase access to apprenticeship and internship programs; and reduce stigmatization of industrial careers while expanding recruitment of non-traditional communities.

PRIORITY 3 | Flexible Acquisition Acquisition strategies that strive for dynamic capabilities while balancing efficiency, maintainability, customization, and standardization in defense platforms and support systems. Flexible acquisition strategies would result in reduced development times, reduced costs, and increased scalability.

The Russian Federation’s full-scale invasion of Ukraine highlights how protracted attritional conflicts can rapidly deplete military resources. The DOD seeks to use a flexible acquisition approach to industrial planning where the DOD will strive to balance customization, production efficiency, and timing. Properly executed, flexible acquisition is crucial for scaling production swiftly and adjusting the production mix to achieve and maintain enduring advantage. A shift to flexibility will allow the DOD to optimize for dynamic production and capabilities that strengthen defense supply chains and bolster a modern industrial ecosystem.

Prioritizing flexible acquisition strategies addresses inappropriate customization, which occurs when product acquisition requirements are insufficiently defined. This is often associated with design changes that increase capability or overcome perceived design flaws. Other causes can include mission or technology creep during protracted development cycle times and underestimating the difficulty of change requests.

Delivering effective capabilities to the warfighter requires the development and maintenance of customized systems and platforms maintained by both the commercial sector and DOD’s organic industrial base. Inappropriately customized systems have lower battlefield and operational utility and are more expensive and difficult to maintain. Therefore, the DOD seeks an appropriate level of customization that can balance efficiencies and speed of fielding from commercial off-the-shelf (COTS) capabilities with resilience, scale, and effectiveness through the life cycle of platforms. It also could contribute to better adaptation to emerging threats, protection against the obsolescence of specific systems or parts, along with better logistics and maintenance capabilities.

Flexible Acquisition relates strictly to DOD aiming to acquire an intelligent, balanced mix of platforms and systems, together with the benefits that accrue. It is vital to establish that the term Flexible Acquisition does not directly call for broad-based acquisition reform, which, while there is a periodic need for it based on shifting exigencies, is beyond the scope of this strategy.

To address this priority, DOD will work to broaden platform standards and interoperability; strengthen requirements to curb “scope creep”; prioritize off-the-shelf acquisition where applicable and reasonable; increase DOD access to intellectual property and data rights to enhance acquisition and sustainment; consider greater use and policy reform of contracting strategies; continue to support acquisition reform; and update industrial mobilization authorities and planning to ensure preparedness. 

PRIORITY 4 | Economic Deterrence Fair and effective market mechanisms that support a resilient defense industrial ecosystem among the US and close international allies and partners and contribute to economic security and integrated deterrence. Fear of materially reduced access to US markets, technologies, and innovations sows doubt in the minds of potential aggressors.

After World War II, the United States and its allies adopted a global order based on fair trade and free markets enshrined in the General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organization and the European Union. Today, the PRC, the Russian Federation, and others are challenging this system, flouting international legal and trade standards. Since the 1980s, the PRC has run massive trade surpluses against the US and our allies and partners. Initially, this was the result of differences in labor costs, exchange rates, trade policies, and relative consumer demand, but increasingly because the PRC engages in a host of market-distorting activities. The sustained imbalance in trade weakened our domestic industries, displaced workers, hollowed out heavy industry, and contributed to the rapid increase in the US national debt.

The DOD is deeply concerned about the PRC’s domination of critical markets. Such domination allows it to control commodity pricing and access to materials in strategically critical areas, and to erode the health of the heavy industries that the defense sector historically leveraged. Meanwhile, the traditional DIB has been contracting and consolidating because of post-Cold War defense budget cuts. Much of the civilian manufacturing sector and some of the defense sub-tier supply chain has moved offshore into a range of foreign producers, some of whom have become adversarial states. The DOD is also concerned that predatory adversarial investment and acquisition strategies, often focusing on critical or innovative technologies, further weaken US industrial supply chains and the defense industrial ecosystem’s ability to provide capabilities and secure sensitive technologies.

The compounding effects of unfair trade practices and predatory investments, combined with consolidation of certain defense markets, have significantly increased the risk and cost to US and allied defense supply chains. The United States and our allies and partners now recognize that by continuing to adhere to the adversary-designed trade system with predatory and unfair practices without implementing appropriate safeguards, we put ourselves at a disadvantage.

The United States supports a rule-based international system that allows for the free flow of goods and materials and assures access to advanced technologies, expertise, and materials vital to our national defense. The DOD will seek to advance policies aimed at deterring and countering adversaries from using economic means to weaken US national security. DOD policy will catalyze a modernized defense industrial ecosystem—both domestic and international and vibrant defense-related supply chains with mechanisms to guard against unfair trade practices, pilfering by adversaries, and generally heightened global competition.

To address this priority, DOD will work to strengthen economic security agreements; enable international interoperability standards through active participation in standards-setting bodies; fortify alliances to share science and technology; strengthen enforcement against adversarial ownership and against cyberattacks; and strengthen prohibited sources policies to protect the DIB from adversarial intrusion.

The United States and its allies and partners require modernized defense industrial capacity that strengthens national defense, and that reassures and supports those countries in the direct path of adversarial influence and aggression. This position of modern industrial strength is a core enduring advantage that will contribute substantially to Integrated Deterrence not just for the Department but across the US government and with allies and partners.

The NDIS addresses that imperative to mitigate and remedy critical vulnerabilities with intentional action, guided by a strategic vision and framework for how to revitalize, modernize, and expand the DIB. The actions proposed by this strategy lay out the generational changes needed to catalyze a modernized defense industrial ecosystem. This will require real and meaningful cooperation and participation of new domestic and international entrants into the defense industrial fold. We must transform our DIB into a robust, resilient, fully capable 21st-century defense industrial ecosystem.

As we execute the provisions of this strategy, we will remain mindful of—and overcome the real impediments to our success. Within the Department, we will establish the conditions for success including by promoting appropriate, consistent, and predictable funding where possible. Additionally, the Department will improve information integration, workforce training, and adequacy, and address manufacturing capacity and economic threats to supply chains.

The nation needs to rally to the common defense. This NDIS is a call to both the public and private sectors for focused, dedicated efforts to build and secure the industrial capability and capacity necessary to ensure our military has the materiel available to deter our potential adversaries and if necessary, defeat them in battle. This call to action may seem a great cost, but the consequences of inaction or failure are far greater. DTJ