Americanize the defense industry supply chain
Senior American officials and corporate executives have sounded the alarm for years: America’s national security is at risk because of our military’s reliance on foreign nations for raw materials, parts and products.
It’s time for leaders to speak up and fight back against the manufacturing and defense industrial base.
American corporations have outsourced more than 5 million jobs and 91,000 manufacturing plants since 1998, according to the Economic Policy Institute. The nation’s factory closings over the past 24 years have forced the U.S. military to increasingly rely on imports to keep forces armed and ready.
The Alliance for American Manufacturing has been calling attention to this precarious issue since 2013, when it released a report, “Remaking American Security,” that identified many of the weaknesses in military supply chains and overall defense readiness. The organization proclaimed that the health of the manufacturing sector is inextricably intertwined with national security, and it is vital to strengthen the sector.
Five years later, the situation had not improved. A Pentagon-led review ordered by then-President Donald Trump in 2018 identified hundreds of cases in which the US military relied on foreign countries, particularly China, for critical materials. For example, a US Geological Survey analysis at the time said the US produced no rare earth minerals in 2017, while China accounted for 81 percent of global mine production. Rare earth minerals are used in magnets, radars and other electronics critical to defense systems.
Four years later, the next administration raised the same concerns. A February report developed at the behest of President Joe Biden warned of the consequences of low industrial investment in the United States. The study noted that the United States’ share of the global goods market has continuously declined, and that manufacturing output as a percentage of GDP has similarly declined, from more than 25 percent in 1947 to 11 percent by the end of 2020. The report continued . to outline 64 recommendations as initial steps in a long-term effort to build a strong and responsive supply chain in the coming years.
Despite the warnings, the situation continues to worsen. The COVID-19 pandemic has highlighted the need to continuously boost the implementation and revitalization of North American manufacturing. When the outbreak began, supply lines needed to maintain production within the defense industry were frozen, drawing attention to the vulnerability of the defense industrial base to being cut. According to consulting firm McKinsey and Company, only 22 percent of automotive, aerospace and defense players had regionalized production to increase the resilience of their supply chain as of May 2020, although they previously indicated they had prioritized the approach.
After more than two years of disruptions due to COVID-19, there are new challenges. Rising trade tensions with China, exacerbated by Russia’s invasion of Ukraine, have led to further delays and higher prices for beleaguered companies that use global supply chains to move products around the world. No one knows whether the war in Ukraine will cause China to take a more aggressive stance toward Taiwan, but since the defense industry relies heavily on Taiwan’s semiconductor manufacturing capacity, it’s time to be even more vigilant.
What brought us here? It all boils down to companies chasing short-term profits to satisfy shareholders at the expense of loyalty to the United States, along with a fierce competitive landscape. Once a large manufacturer outsources, others in the industry have no choice but to follow suit to realize the same cost reduction.
This cost-cutting mentality was amplified by the well-publicized downsizing of the military of more than 35 percent in the 1980s and 1990s, the relative ease of outsourcing, including the relaxation of oversight requirements, and the increased role of technology in warfare. modern
However, due to an all-too-common “kick the can down the road” attitude, neither the military nor the private sector considered the long-term consequences of offshoring production. The reality of the exchanges is now all too apparent. Once a new product or technology is manufactured outside the United States, the process engineering, tooling, and control of supply chain sources go with it.
Such hard-to-quantify consequences are often overlooked, but intellectual property can be invaluable. There are deep connections between research, development, and manufacturing, and because of their close interdependence, US cooperation with foreign suppliers is necessary to manufacture compatible products. This cooperation includes the search for engineering talent internationally and the expansion of the footprint of a company’s most confidential and proprietary data. Knowledge sharing can lead to an unintended transfer of critical intellectual property that can be difficult to protect. Although there has been a worldwide strengthening of IP rights abroad, producing abroad is still more likely to result in theft and competition from infringing goods.
By offshoring manufacturing, there is also the consummate risk that a foreign power could cut off the vital supplies needed to keep the US military running. Unprecedented and unpredictable global shocks such as the pandemic or the war in Europe are examples of how the continuity of supply chains can be disrupted. We need to build domestic production capacity to ensure reliable access within our defense industrial base so that the supply chain can withstand such disruptions.
Other risks include the threat of sabotaged equipment or espionage. The Pentagon has long been concerned that “kill switches” could be embedded in transistors that could shut down sensitive US systems in a conflict. This kind of sabotage could endanger everything from satellites and cruise missiles to drones and cellphones.
The 2018 Pentagon review noted that 90 percent of the world’s printed circuit boards were produced in Asia, with more than half produced in China. Only 12 percent of the world’s semiconductor manufacturing now takes place in the states, according to Intel CEO Patrick Gelsinger. Outsourced production of these vital electronic components presents a risk to US defense. Consequently, Congress passed the CHIPS and Science Act to stimulate increased domestic chip production.
After decades of allowing Chinese dominance, transitioning the supply chain back to local sources is essential. How do we achieve this while controlling costs?
First, we have to keep in mind that the cost savings of offshoring aren’t what they used to be. It’s no secret that offshoring has become more expensive. As living standards improve in Asian countries, so do demands for higher wages.
Sudden trade wars or disruptions caused by natural disasters or health problems also have the potential to increase the prices of outsourced systems and components.
In addition, relocation offers potential cost savings of its own. By bringing more production to land, shipping costs can be controlled and America is less vulnerable to geopolitical factors. Costs can also be controlled by relying on standard commercial technology that is customized to meet military specifications and keeps pace with system demands, maintaining control and configuration of all components of a system.
For DoD customers, revision control is vital, as many cannot change their software or must maintain the exact configuration of components for the life of the program.
Recent developments in automation, robotics and analytics offer another attractive cost-cutting proposition for US manufacturers. Although factory workers do their best, they are prone to making mistakes due to fatigue and distractions. Automation can save manufacturers money by reducing these costly errors.
And while automation may displace human labor for repetitive, low-skill jobs that need speed and precision, the long-term net effect on the US workforce is positive.
Automation tends to create as many jobs as it destroys over time. By automating a manufacturing facility, highly skilled opportunities are created to control and connect smart machines, automated warehouses, and develop artificial intelligence. This transition to highly skilled workers leads to an increase in the standard of living within the country due to higher wages and a lower cost of goods.
Automation also makes it easier for manufacturers to analyze valuable data that is not available when humans perform manual tasks. In today’s modern manufacturing environments, data is the lifeblood of making informed decisions and maintaining an efficient operational strategy. Automation can also increase overall production by making machines run for longer periods. The net effect is increased profits while controlling costs.
It’s time for the nation’s leaders to heed the alarm bells, adopt the suggestions to Americanize the supply chain in a hurry, and not let political obstacles hold us back. We cannot afford to be held back by shortages, shipping delays, security threats, natural disasters or pandemics. With today’s modern technology, we can control costs and elevate our workforce into jobs that will spur even greater innovation.
An over-reliance on foreign suppliers for the defense industry makes the nation vulnerable. Fighting gear is simply better made in America.
Mike McCormack is currently the President and CEO of CP North America. He also serves on the board of directors of the Arizona Manufacturers Council and the Center for the Future of Prescott.
Topics: Manufacturing, Industrial Base