Managing Materials for a Twenty-first Century Military (2008)

It is a different world from when the National Defense Stockpile (NDS) was established just before World War II. The nature of the global economy has changed, not only expanding U.S. access to the international market but also increasing competition from a growing list of other countries seeking access to sometimes scarce raw materials. In the twenty-first century, the United States is faced with several asymmetric national security threats that span the globe, requiring the military to be able to respond rapidly to sudden increased demands. Defense needs are now defined in a new context that is focused on capabilities-based planning rather than on threat-based planning. At the same time, the supply of defense systems has been transformed from a government-dominated military-industrial complex to a global, dual-use, civil-military industrial complex. The U.S. military is now more dependent on civilian industry than it was 70 years ago, when the NDS was established. Civilian industry, in turn, depends increasingly on global sourcing and on overseas R&D programs and other foreign assets. Meanwhile, industrial practice of inventory control has shifted from stockpiling and holding reserves to a just-in-time, or sense-and-respond, system for managing supply chains.

In this context, the Committee on Assessing the Need for a Defense Stockpile of the National Research Council (NRC) was asked to assess the continuing need for and value of the NDS. It was also asked to discuss current defense materials needs, to reassess the necessity of stockpiling of strategic and critical defense-related materials and, if called for, to develop some general principles for any future operation and configuration.

In response to this charge, the committee reviewed previous government-sponsored studies as well as legislation pertaining to the stockpile. It analyzed the outputs of years’ worth of work by the Defense National Stockpile Center and reviewed the methodologies used to develop stockpile materials requirements. Its report discusses current defense materials needs, the changes in ways of generating defense requirements and system requirements, and the dramatic changes in the global supply and availability of materials. Other policies relating to defense industrial base needs are considered, as well as other tools available to assure a continuing supply of materials.

The committee concluded based on the preponderance of evidence it considered that the operation of the current NDS is disconnected from actual national defense materials needs in the twenty-first century and from national defense strategies and operational priorities. While there have been frequent changes in law and policy governing military planning and operations, there have not been any concomitant changes in the design or operation of the NDS.

In the committee’s judgment, there remain three major threats to assuring the supply of materials critical to the national defense:

• Increased demand from around the world for mineral commodities and materials.

• Diminished domestic supply and processing capability along with greater dependence on foreign sources.

• Higher risk of and uncertainty about supply disruptions owing to the fragmentation of global supply chains.

Modern minerals supply chains to U.S. industry and indeed to global industry are characterized by outsourcing and offshoring. Reductions over time in U.S. mining operations, processing facilities, and metal fabrication operations have limited U.S. capacity for mining or processing ore, and in some cases the country is entirely reliant on foreign sources in some key minerals sectors. Much of the current content of the U.S. defense materials stockpile reflects history rather than current national security needs, and the process to assess stockpile requirements and goals does not identify specific materials needed to produce current or planned military systems and platforms. Consequently, there may be a demand for specific, high-priority, defense-related materials that is not being addressed because too little is known about materials usage.

Although in principle inventories of defense materials could be valuable in the current and future strategic and economic environment, the existing stockpile system is not properly designed to meet national defense materials. The system and its operation are neither timely nor based on up-to-date information. The process is episodic rather than dynamic, and the lack of data on demands for specific materials means the NDS cannot be responsive to changes in world markets in real time. There does not appear to be a strong relationship between stockpile policy and national security objectives nor is there an understanding of global supply chain management practice. The committee reports that many of the earlier conclusions and recommendations coming from one forum or another are similar to each other and to those coming from this committee. However, they were for the most part never acted on or implemented, leading the committee to the conclusion that the operation and future of the NDS have never been high on the agenda of the DoD leadership, nor do they seem to be now.

A system to ensure against disruptions to the supply of materials of defense interest would benefit from a well-defined and dynamic model that allows identification of critical materials. There remains an urgent need to improve the collection of information, both here and abroad, on the availability of these materials, without which there is no way to rationalize and motivate government intervention in the supply of these critical materials.

In the committee’s judgment, dependence on supplies from abroad is not per se a cause for concern. But it may become so when combined with other factors such as concentration of supply, political instability in the source regions, and greater competition for mineral resources across the globe. Twenty-first century threats to national security are different from those associated with the more familiar concepts of war and conflict of the last century. In the committee’s judgment, and notwithstanding the ineffectiveness of the current configuration of the NDS, there remains a role for the federal government in the active management of the supply of materials for defense systems.

The framework for a materials management system needs to reflect current geopolitics and take into account that U.S. defense and commercial supply chains are mutually dependent on one another and on global economic dynamics. Having considered which tools, in addition to or instead of a stockpile, could help to assure a continuing supply of materials, the committee concludes that a whole new approach is required. It found that the private sector—focused as it is on agility and efficiency and having been directly impacted by global materials’ availability—has embraced the concepts of supply-chain management. Where private sector stockpiles of industrial materials or parts are deemed absolutely necessary, they are resorted to, but only sparingly.

Identifying the materials needs of the twenty-first century military, understanding the risk of disruptions in the supply chains for those materials, and planning actions to mitigate the impact of surges in requirements and unexpected shortfalls in inputs demands a systematic and coordinated policy response.

The committee is recommending not just a new organizational construct or a bureaucratic answer but a totally new system approach, including appropriate policy, regulatory, and legislative changes. The new system would be based on a coordinated strategy designed to ensure the availability of critical materials to meet a well-defined and dynamic model of defense needs. Holding a materials inventory would be one of the many tools available to a defense-materials management system. More important, however, a new system would (1) assess the risks in order to make better-informed decisions on mitigating them (for example, deciding if stocks need to be held); (2) spot vulnerabilities in the supply chain and redesign it to eliminate or mitigate them before events occur; and (3) design and manage the supply chain to be more resilient to disruption. The new system will depend critically on the conduct of analyses that identify defense-specific materials needs.

Notwithstanding any future decisions by the Secretary of Defense on how to implement a new system, the committee provides some general operational principles.

As discussed earlier, no matter what the future holds for the supply of defense-critical materials, there is an urgent need to improve the collection of information—from both domestic and offshore sources—on the availability of materials for defense needs.