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SUMMARY The U.S. defense industrial base is deteriorating. Long lead times to procure weapon systems, high costs, uncertain quality, and dependence on procurement of electronic components from other countries are symptoms of a decline in the capability of the U.S. defense industrial base. A primary cause of this decline is the failure of the Department of Defense (DOD) and its contractors in the U.S. defense industry to invest sufficiently in manufac- turing technology. The lack of investment reflects DOD's history of concentrating its resources and attention on product technology rather than process technology. As we described in our initial report, The Role of the Department of Defense in Supporting Manufacturing Technology Development existing procurement policies and regulations do not provide sufficient investment incentives to contractors. Therefore, direct funding for some manufacturing technology development will have to be provided by DOD. Specifically, direct DOD funding should support process technology that: requires long lead times for development, is too risky--either technically or economically-- for contractors to undertake on their own, is critical to meeting unique defense requirements, and is applicable to more than one supplier or weapon system. Only one program in the Department of Defense, the Manufacturing Technology (ManTech) program, focuses on the long-term basic strength of manufacturing. Compared to many other DOD programs, ManTech is small. At its highest 1

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2 level of funding--S204 million in fiscal 1982--ManTech represented just over O.1 percent of DOD's procurement budget. Its share has been shrinking rapidly since then. In fiscal 1987, funding had dropped to S124 million. The current ManTech program is vital and needs to be strength ened. Our suggestions for improvement should not be used out of context to weaken it further. Unless the trend of shrinking funding and diminished influence is reversed, the country will soon lose not only the ManTech program, but also the primary source of direct federal investment in defense manufacturing technology development. The ManTech program's potential leverage on defense manufacturing is enormous. Its impact has been sharply limited over the past decade, however, by the lack of a coherent DOD policy for manufacturing technology and the lack of attention to the role of ManTech in meeting DOD's strategic goals. If this strategic link were provited in the future, the improved manufacturing capability from a strengthened and newly effective ManTech program could: provide significantly more defense materiel for the same expenditure, accelerate the completion of new weapon systems by substantially decreasing the cycle times for development and production, create technologies that enable defense manufac- turers to provide more sophisticated performance features in new weapon systems, and reduce the dependence of the U.S. defense indus- trial base on the availability of certain key components or materiel from other countries. . The current ManTech program, however, under pressure to respond to operational needs at lower levels, has tended to fund small projects with narrow objectives. The pro- gram has emphasized projects with demonstrable short-term cost reductions because many within DOD and the Congress view cost reduction as the most valid measure of program effectiveness. This narrow view has driven the ManTech program toward short-range, low-risk projects rather than the major, strategic, and innovative objectives for which the program is most needed. The committee concluded that a redesigned, well- defined, and well-directed DOD ManTech program can produce major improvements in the capability and responsiveness of the defense industrial base. To gain the benefits of a strong program, we recommend that:

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J o the Secretary of Defense establish a clear mission for the ManTech program that links to DOD strategic goals and future weapon systems requirements; the Office of the Secretary of Defense (OSD) and the services work together to define priorities, so that projects will respond to defense needs; the OSD maintain some centralized control to coordinate the services in a unified program; the services, which already have the technical expertise and connection with the mission, retain control of project definition and management; and within each service, the program have centralized control in order to avoid fragmentation. A well-structured ManTech program, perhaps given a new name to emphasize these fundamental changes, should become a major part of a needed focus within DOD on manufacturing. Such a program can provide leverage by conveying DOD's intention to support meaningful progress in manufacturing capability and by communicating DOD's priorities to contractors. While a redesigned ManTech program is needed, it cannot be the entirety of DOD's manufacturing policy. A strengthened ManTech program can, however, become the cornerstone of a comprehensive DOD policy to enhance manufacturing capabilities.