1
Overview: Observations, Conclusions, and Recommendations

Since ancient times, governments and private firms have kept stockpiles of essential goods such as foodstuffs, materials essential for industry, drugs in case of epidemics, and military supplies in case of conflicts. Since 1939 the U.S. government has been stockpiling “critical strategic materials for national defense purposes.”1 Operated by the Defense National Stockpile Center (DNSC), a field activity of the Defense Logistics Agency, as of May 2007 the National Defense Stockpile (NDS) stored 21 materials at locations throughout the United States (Box 1-1). Examples of commodities are platinum, used for chemical catalyst applications, including catalytic converters to treat automotive emissions, and for many other purposes; germanium, used for detectors, fiber-optic systems, and infrared optics; and ferrochrome, a metal additive used in stainless steel and other specialized alloys. The NDS is mandated by law to hold strategic and critical materials in the interest of national defense to preclude a “dangerous and costly dependence” on foreign sources of supply in times of national emergency.2 However, the purpose of the NDS is not just military; rather, it is mandated by law to hold materials for all essential civilian and military uses in times of emergency.3

1

Operating under the authority of the Strategic and Critical Stock Piling Act (50 U.S.C. 98a et seq.), the stockpile was created shortly before World War II (June 7, 1939).

2

Chapter 6 of this report gives details of the materials requirements reporting process and criteria used to determine which strategic and critical materials should be held by the stockpile.

3

As discussed later in the report, today the stockpile’s allowed use does not extend to releasing materials solely for economic purposes, such as to control prices in peacetime.



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 7
1 Overview: Observations, Conclusions, and Recommendations Since ancient times, governments and private firms have kept stockpiles of essential goods such as foodstuffs, materials essential for industry, drugs in case of epidemics, and military supplies in case of conflicts. Since 1939 the U.S. govern- ment has been stockpiling “critical strategic materials for national defense pur- poses.”1 Operated by the Defense National Stockpile Center (DNSC), a field activity of the Defense Logistics Agency, as of May 2007 the National Defense Stockpile (NDS) stored 21 materials at locations throughout the United States (Box 1-1). Examples of commodities are platinum, used for chemical catalyst applications, including catalytic converters to treat automotive emissions, and for many other purposes; germanium, used for detectors, fiber-optic systems, and infrared optics; and ferrochrome, a metal additive used in stainless steel and other specialized alloys. The NDS is mandated by law to hold strategic and critical materials in the interest of national defense to preclude a “dangerous and costly dependence” on foreign sources of supply in times of national emergency.2 However, the purpose of the NDS is not just military; rather, it is mandated by law to hold materials for all essential civilian and military uses in times of emergency.3 1 Operating under the authority of the Strategic and Critical Stock Piling Act (50 U.S.C. 98a et seq.), the stockpile was created shortly before World War II (June 7, 1939). 2 Chapter 6 of this report gives details of the materials requirements reporting process and criteria used to determine which strategic and critical materials should be held by the stockpile. 3As discussed later in the report, today the stockpile’s allowed use does not extend to releasing materials solely for economic purposes, such as to control prices in peacetime. 

OCR for page 7
m a nag i n g m at e r i a l s twenty-first century military  for a BOX 1-1 Materials Being Held by the National Defense Stockpile (May 2007) At the time of writing, the NDS stored 21 materials. Two were being held against a na- tional emergency: quartz crystal and beryllium metal hot pressed powder (HPP). The NDS had 171 short tons (ST) of beryllium HPP in inventory of which 121 ST had been authorized for sale but which were being held pending a determination of whether the HPP should continue to be held for DoD needs or Department of Energy needs. Twenty-five commodities are available for sale: Aluminum oxide Manganese ore, metallurgical grade Beryllium-copper master alloy Manganese ore, battery grade Beryllium, vacuum cast Mica Chromium metal Platinum Cobalt Talc, block/lump Columbium metal ingots Talc, ground Diamond stones Tantalum carbide powder Ferrochromium, high carbon Tin Ferrochromium, low carbon Tungsten metal powder Germanium Tungsten ores and concentrates Iodine Vegetable tannin Iridium Zinc Manganese ferro, high carbon The NDS also stores mercury, which is not for sale and is expected to be shipped to the Hawthorne Army Depot in Nevada during 2007. At the time of writing, DNSC operates 17 active storage sites having material available for sale or sold and awaiting shipment, with 8 additional sites awaiting environmental restora- tion or certification before being turned over to the property owner. By the end of FY2007, only three staffed sites will be operating. Beginning in 1992, the U.S. Congress directed DNSC to sell the bulk of the commodities in the stockpile. Since 1993, DNSC sales have totaled approximately $6.6 billion. Over the same period, the world economy has become increasingly global as have the supply chains that feed the industries supplying the national defense system and the essential civilian industries that the stockpile was meant to protect. Against this background, the geopolitical situation has changed radically not only since World War II but also more recently with the emergence of new economic powers such as China and India, the demise of the Soviet Union and the emergence of a new Russia, and the rise of international terrorism as a sustained threat to the national security of the United States. With all these changes a question arises: Should the United States continue to maintain a stockpile of critical materials and, if it should, what might be the general

OCR for page 7
o v e r v i e w : o b s e r vat i o n s , c o n c l u s i o n s , r e c o m m e n dat i o n s  and principles for its operation and configuration? With the changing nature of U.S. manufacturing against a backdrop of increasingly global and fragmented supply chains for materials, products, and systems and the trend in the defense establish- ment’s acquisition of systems, subsystems, and components increasingly from for- eign suppliers, assessing the future need for a national stockpile only becomes more complex. In addition, the materials needed for the nation’s security and defense are considerably different from those needed 70 years ago, when the stockpile was established. It is for these reasons that this study has been undertaken. This report examines the history of the stockpile so as to understand the ratio- nale for its operation over the last seven decades. It considers how the world has changed in the same time frame and how military planning and the global sourcing of materials for defense systems have evolved. It looks at the way the Department of Defense (DoD) currently forecasts the materials the stockpile needs to hold. Finally, the report draws some conclusions about the need for a mechanism that assures the supply of materials critical to U.S. defense systems. This chapter serves as an overview of the main observations and findings of the committee during the course of this study and presents the committee’s conclusions and recommendations. The chapters that follow present the data gathered and the committee’s findings in more detail. In some instances appendixes provide greater detail. GENESIS OF THIS STUDY A report by the Committee on Armed Services of the U.S. House of Repre- sentatives (HASC) on the FY2006 National Defense Authorization Act noted that over 95 percent of the materials in the NDS at that time had been determined to be in excess of DoD needs and was being sold off.4 The HASC report also noted the then-current market conditions, particularly with respect to titanium, and the increasing reliance on foreign sources of supply for defense programs. In response, HASC expressed its concerns about DoD’s ability to ensure the timely availability of materials to meet the current needs of the military services. It directed the Secretary of Defense to “review the DoD’s current policy to dispose of material and determine whether the NDS should be re-configured to adapt to current world market condi- tions to ensure future availability of materials required for defense needs.” The DoD report submitted to the Congress in response to this request noted that material shortages arise for a variety of reasons, not just cyclical surges in sup- ply or demand (DoD, 2006). It concluded that while a stockpile was a valid option when shortfalls for critical applications could not be resolved using other tools, it was not clear that a reconfiguration of the stockpile would be of “net benefit to the 4 For the text of the report, see http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?IPaddress=162.14 0.64.21&filename=hr089.pdf&directory=/diskb/wais/data/109_cong_reports. Accessed June 2007.

OCR for page 7
m a nag i n g m at e r i a l s twenty-first century military 0 for a nation” or what the appropriate format should be. The report noted that informa- tion was lacking on topics such as materials forecasted to be required for future weapons systems and other defense production; domestic production capacity for critical materials; and alternative suggestions for addressing particular shortages. It suggested that further research was needed to understand better the following: • Materials shortages and resulting consequences. • Impacts on the delivery of end items for critical defense systems. • Use of nonstockpile tools to mitigate problems and the limitations of such use. • For the stockpile option, how it should be configured, including the form and quantities of materials to be stockpiled and the conditions under which materials would be released (and to whom) or replenished. • A comparison of stockpile and nonstockpile solutions, including relative costs and effectiveness. • What new legal authority would be required to reconfigure the stockpile? The DoD report recommended the NRC be asked to undertake a study on the future of the NDS and to recommend a path forward. OBSERVATIONS The committee approach to this study was to review the NDS as currently con- figured, to assess its value and whether or not it is effective, and to develop some general principles for any future operation and configuration. In conducting its work, the committee reviewed previous government-sponsored studies as well as the legislation pertaining to the stockpile. It analyzed the output of years of work by the DNSC, reviewed the methodologies used to develop stockpile materials requirements, and compared the results of those studies with data on actual sales and purchases. The committee investigated current defense materials needs, the changes in defense requirements and system requirements, and the dramatic global changes in materials supply. Other policies relating to defense industrial base needs were considered, as well as other tools available to assure a continuing supply of materials. Based on the information gathered during the course of this study and based on its collective expertise, the committee has developed a set of observations and conclusions about the configuration of and continued viability of the National Defense Stockpile. The committee wishes to note that this study was conducted on a very com- pressed schedule—with less than 6 months between the first committee meeting and the report entering NRC review. In this regard the committee stresses that a detailed analysis of specific materials needs—their forms, costs, effectiveness, and so on—would require further and more deliberate study.

OCR for page 7
o v e r v i e w : o b s e r vat i o n s , c o n c l u s i o n s , r e c o m m e n dat i o n s  and Government Inaction on Previous Study Recommendations While this report places the question of the NDS in a more current context and addresses some new topics, the committee was struck as it read previous reports that much of what it debated and indeed many of its conclusions are remarkably similar to the outcomes of many earlier studies by various entities. A selection of these reports is summarized in Chapter 2, which also looks at the history of the NDS. Some of the more pertinent conclusions and recommendations from those reports are summarized here. The final report of the National Commission on Materials Policy (NCMP) (NCMP, 1973) stated that U.S. materials demand on the rest of the world’s supply was growing at a time when other nations’ demands were growing even faster. The report noted that in the past the United States had had little difficulty importing the minerals necessary to satisfy its demands but that the situation might change, for two reasons: (1) increasing competition for scarce resources and (2) the possibility of actions to restrict supplies and/or increase prices. In 1974 the Government Accounting Office (GAO) issued a report titled U.S. Actions Needed to Cope with Commodity Shortages (GAO, 1974). The report noted that shortages of basic com- modities had begun to cause serious economic, social, and political problems for the United States and other countries. Another GAO report, Stockpile Objectives of Strategic and Critical Materials Should Be Reconsidered Because of Shortages (GAO, 1975), noted that stockpile policy at that time assumed that the United States could import from all countries except communist countries and those involved in a conflict. The GAO opined that this assumption conflicted with the world resources outlook and that long-range planning was necessary due to the increasing demand for resources. The report noted that the United States relied heavily on imports of some of the materials that had been authorized to be sold off and questioned whether enough thought was being given to the nation’s future supplies of these materials. If long-range planning for these materials had been in effect earlier, it said, the disposals might never have been authorized. A 1983 Congressional Budget Office (CBO) report noted that diversifying sources of supply offers both U.S. metal-using industries and the economy as a whole greater assurance that the ill effects of supply contingencies could be contained (CBO, 1983). Diversification, the report said, would provide alternative supplies during a disrup- tion and lessen the chance of a cartel manipulating minerals markets. The CBO report also noted that research and development (R&D) in minerals exploration and production and materials applications could limit U.S. vulnerability to shortages of imported minerals. The CBO suggested that the Congress might wish to consider legislation to promote R&D for minerals and metallurgical science. While many earlier conclusions and recommendations made in one forum or another are similar to those developed by this committee and reported below, the

OCR for page 7
m a nag i n g m at e r i a l s twenty-first century military  for a recommendations outlined above largely were never acted on or implemented. The committee also found striking the fact that much of the writing on this subject was at least a decade old. The committee concludes that the operation and future of the National Defense Stockpile had never been high on the agenda of the DoD leadership, nor does it seem to be now. Fundamental Shift in Global Materials Supply and Demand The global backdrop of materials production and supply against which NDS policies and decisions have always been made has changed in fundamental and dramatic ways. Other nations’ economies are growing rapidly, with a concomitant and explosive increase in demand for the same raw materials that are needed by U.S. defense and civilian industries. There has also been a marked increase in the foreign supply of manufactured goods to the U.S. civilian and military sectors. The United States faces serious global competition for materials and, often, significantly higher commodity prices than in recent years. These issues are discussed in Chapter 3, which also notes that the situation is compounded by a much-reduced domestic supply and a seriously diminished materials processing industry. The ability, from the standpoint of both technical know-how and physical infrastructure, of U.S. sources to process raw materials has lessened dramatically. In many cases, raw materials must be shipped offshore for processing into usable form. The committee notes that the United States is heavily reliant on one or two countries for many of its most important materials resources and processing capabilities. This reliance has steadily and rapidly increased in recent years. Thus, the ways in which the U.S. supply of essential materials for national defense is vulnerable to disruptions are different and more varied than in the past and will require different remedies. Changing World, New Context In the face of the dramatically changed world and national situations since World War II and the establishment of the NDS, the DoD and the U.S. military have adapted, at times more readily than other countries have, their weapons and strategies. Since the end of the Cold War and even more recently, there has been a revolution in military affairs and a significant transformation in the nation’s military forces. These issues are discussed in Chapter 4, where the committee notes that while there have been frequent changes in law and policy governing military planning and operations, concomitant changes have not been made in the design or operation of the NDS. Stockpile management, discussed in detail in Chapter 6, and defense industrial policy, discussed in Chapter 5, continue to reflect thinking from past eras and

OCR for page 7
o v e r v i e w : o b s e r vat i o n s , c o n c l u s i o n s , r e c o m m e n dat i o n s  and appear to remain tied to old constructs. While the demand models and availability estimates used to estimate materials requirements for the stockpile may have been modified, the changes have occurred at the margins. The committee observed that the conceptual framework and modeling are gross estimates that do not capture specific information relevant to twenty-first century military needs. While high-level studies have been conducted for the DoD concerning future materials needs—one such is Defense Materials Needs for the st Century (NRC, 2003)—and are summarized in Chapter 4 and discussed in more detail in Appen- dix C, it is not apparent to the committee that any effort has been made to incor- porate the findings of these reports into materials planning processes. Table 4-3 in Chapter 4 shows the uses of selected strategic and critical materials and their import reliance. The information there shows the diversity of materials that are used in both specialized and nonspecialized systems and subsystems. The commit- tee notes that in 1937, when the stockpile was established, the United States only had to be concerned about maintaining a supply of raw materials since it had the technology to both process the raw materials and manufacture any engineered product as long as the raw materials were available. Today, however, it needs to be concerned about whether it has the capacity to produce or obtain sophisticated engineered materials. The committee observed that the modeling process used to assess stockpile requirements and goals, discussed in Chapter 6, does not generate defense-specific requirements. Further, the materials currently identified as needing to remain in the stockpile were not identified by the modeling process at all: Indeed, they have been identified consistently for more than 15 years through a separate interagency process. The committee questions why DoD continues to execute the very detailed and complicated modeling process if that process does not influence the stockpile requirements or configuration. Even disregarding changes in how the U.S. government assesses the reliability of worldwide suppliers of materials, there has been little or no recognition of the dramatic change in global supply and demand. Modeling still assumes that disrup- tions will be only temporary and that short of a physical impediment, the United States will ultimately be able to get what it wants. The committee believes that the current materials supply situation is radically different from what it was 20 years ago and that this difference warrants a serious reevaluation of this assumption. In the past, the United States was heavily dependent on foreign sources but, since it was at the time the leading world consumer, the country could presumably overcome problems of unstable or marginally reliable sources. With the explosive growth in the economies of other nations, most notably China, and the increasing share of world output of critical materials produced in other nations, again nota- bly China, the United States is no longer the main factor in either world supply or demand.

OCR for page 7
m a nag i n g m at e r i a l s twenty-first century military  for a CONCLUSIONS Paraphrasing the charge for this study, the committee 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 national need for the stockpiling of strategic and critical defense-related materials and, if needed, to develop some general prin- ciples for any future operation and configuration. In response the committee offers the following conclusions. Continuing Need for and Value of the National Defense Stockpile The NDS as originally conceived was designed to ensure support for large-scale mobilization during a national emergency and for reconstitution thereafter. How- ever, the committee believes that this NDS mission is disconnected from current national defense strategies and operational priorities. Today’s pressing task is to support a military in transformation that is conducting expeditionary operations against changing threats around the world without the benefit of national mobiliza- tion. The committee is troubled by the inability of the NDS to adapt to this changed context, as manifested by the serious lag between the evolved U.S. defense strategy and any associated updating of the NDS analysis. There is also a disconnect between the transformation of DoD force planning to a capability-based process and the obsolete analytical methods used to specify materials requirements for the NDS. The committee is concerned that while there have been some attempts over the years to make the assumptions underlying the conflict scenarios used to set mate- rials requirements more relevant, the models themselves are based on economic factors and do not account for changes in either the types of materials used or the ways they are used. In short, the committee believes that the current modeling methodology, while technically sophisticated, lacks the specificity to identify actual military materials needs and is a carryover from a previous era. While defense strategy and planning broadly have adjusted to take into account the changing global political and economic environment, the role of the NDS in this strategy and in DoD’s added mission of homeland defense is unclear. The NDS is not configured to be responsive to the current, pressing logistical needs of the military, where new military systems are dependent on very different materials and where surge requirements for high-priority systems may be unmet because of shortfalls in materials and industrial feedstock. There have been some changes in the law over the years as well as frequent changes in the policy for the stockpile’s management and operation. However, it is not clear that any of those changes were based on a structured and deliberate look at weapons-specific materials needs and estimates of their availability. As currently configured, the DNSC has little or no flexibility to make sound materials decisions

OCR for page 7
o v e r v i e w : o b s e r vat i o n s , c o n c l u s i o n s , r e c o m m e n dat i o n s  and and implement them. In fact, it is clear their primary activity is to complete the congressional mandate to sell off excess materials in the stockpile and to generate revenue. The committee is concerned that the national materials stockpile system and its operation are neither timely nor based on current information. There is a lack of precision in translating specific defense demands into particular materials requirements, and the episodic nature of the process is problematic. It was not clear how decisions are made after the models have been run and the results presented to the Office of the Secretary of Defense. It is also unclear how these results are employed. The NDS does not appear to be integrated into the force structure planning of the DoD. Neither the legislation governing the stockpile, nor the modeling that is conducted to develop stockpile goals, nor the DoD structure for stockpile manage- ment are appropriate given today’s global and domestic materials sectors or current defense needs. As structured, the NDS does not provide the type of insurance that may be needed in future emergencies, and as a result it is not capable of meeting the pressing needs of the twenty-first century U.S. military. Conclusion 1: The design, structure, and operation of the National Defense Stockpile render it ineffective in responding to modern needs and threats. Current Defense Materials Needs Because this was such a quick study, it was impossible for the committee to specify national defense materials. Neither did the committee, under its charge, ana- lyze the current NDS inventory or the decision that all but two NDS materials should be sold. The committee did, however, discuss—and reports on—materials needs based on the following: its members’ own knowledge of global materials availability and demand; the outcomes of previous reports on defense materials needs; and interactions with the defense and materials communities. The committee believes that, no matter if the NDS remains configured as is, evolves, or shuts down, DoD would benefit from a serious near-term effort to capture specific defense materials needs. This effort would not use the approach currently used to set NDS stockpile requirements and goals. Conclusion 2: The Department of Defense appears not to fully understand its need for specific materials or to have adequate information on their supply. Ensuring against disruptions to the supply of materials of defense interest would benefit from a well-defined and dynamic model of defense needs that allows identification of critical materials. The committee suggests that this model

OCR for page 7
m a nag i n g m at e r i a l s twenty-first century military  for a be based on annual reporting from the services and defense agencies, starting at the procurement level, which identifies strategic and critical materials and the potential vulnerabilities in their supply. It believes the expertise of procurement officers throughout DoD could provide a more useful and pertinent assessment of materials needs than the current reliance on economic modeling alone. In addition, there remains an urgent need to improve the collection of informa- tion—both domestic and offshore—on the availability of these materials. Without such supply information there is no way to develop a rationale credible enough to motivate government intervention in the supply of these critical materials. The cur- rent efforts of the U.S. Geological Survey’s minerals information team are essential, but the committee believes that further investment may be needed to expand data collection capabilities. Conclusion 3: A lack of good data and information from either domestic or offshore sources on the availability of materials impedes the effective man- agement of defense-critical supply chains. National Need for the Stockpiling of Strategic and Critical Defense-Related Materials Although the NDS as configured is ineffective, what about the more general need for stockpiling that the committee was asked to consider? Is there a role for the government? As this report notes, the U.S. government does stockpile critical supplies in pursuit of public-good objectives ranging from economic stability to public health as well as national security. But what about stockpiling the kinds of raw materials the NDS has traditionally held? When the NDS was begun, the suppliers of weapons, munitions, and the like predominantly worked with raw materials from stock. From a supply chain per- spective, bulk materials were “near” the manufacturing process. Today’s weapons and munitions suppliers are increasingly integrators of systems, as opposed to fabricators, and the supply chain that feeds them has become a network of global and “distant” suppliers and manufacturers. The supply chains themselves have become increasingly interconnected, with supplier and vendor networks spanning the globe. This kind of diversification of suppliers can reduce risk by introducing redundancy into the supply chain. It is a reasonable policy position that the advent of global supply of materials—and even parts—to industries manufacturing DoD systems reduces the risk of “dangerous and costly dependence,” the term used in the law defining the purpose of the NDS. Indeed, the committee heard from DoD that in the 1990s the Department believed the more globalized supply for defense systems, components, and raw materials would mitigate the risk of danger- ous and costly dependence, in comparison with reliance on an entirely domestic

OCR for page 7
o v e r v i e w : o b s e r vat i o n s , c o n c l u s i o n s , r e c o m m e n dat i o n s  and market, especially when there was a stated willingness to pay any price required for defense-related raw materials.5 Such a policy position seemed to be justified as raw materials became more available in the 1990s. However, the committee became convinced during the course of the study that the emerging greater demand from large developing economies, the recent decline in the capacity of U.S. industry to supply and process raw materials for defense systems, and the continuing increase in the nation’s dependency on foreign sources for materials call for a fresh assess- ment of the risk and a new policy response. The committee also became convinced that notwithstanding the ineffectiveness of the current configuration of the NDS, there remains a role for the federal govern- ment in the active management of the supply of materials for defense systems. Having considered which tools, in addition to or instead of a stockpile, could help to assure a continuing supply of materials, the committee concluded that a whole new approach was required. It found that the private sector—focused as it is on agility and efficiency, and having been directly impacted by global materials avail- ability—has embraced the concepts of supply-chain management. Where private sector stockpiles of industrial materials, or parts, are deemed absolutely necessary, they are used, but only sparingly. In contrast, the committee made the following observations about the current system for assuring supply for the military, which is centered on the NDS: • What appears to be missing from the current approach is an ability to apply modern supply-chain management techniques to the supply of defense- critical materials using adequate data on both specific defense materials needs and their global availability. • Identifying and quantifying the potential risk of a supply chain disruption is complex and requires a much more sophisticated analysis capability than the present approach to modeling NDS materials requirements. • While DoD has begun to use a logistics system that embraces modern supply chain concepts for warfighting items, the committee found no evi- dence that such an approach extends beyond the component level to the level of the strategic and critical materials identified by analyzing the needs of specific military systems. 5 In the case of materials, the issues surrounding price and supply are interesting. The committee notes that the dynamics of the availability of a material are much different, depending on whether it is a primary product of a mineral deposit (such as copper); a by-product (such as molybdenum); or a tertiary product (such as rhenium). The prevailing philosophy, in the commercial world, is that as prices rise, more supply is created. While generally accurate for primary products, it is not the case for secondary and tertiary products.

OCR for page 7
m a nag i n g m at e r i a l s twenty-first century military  for a • As the worldwide stock of raw materials decreases and demand sharply increases, the current system fails to make better use of materials from recycling. • Policies to mitigate reliance on foreign sources—including import restric- tions, Buy-American statutes, and so on—assume that alternative domestic sources of materials are available. Where they are not, these policies may be counterproductive. • The current system is limited to holding a stockpile, despite the broader array of powers and policy tools that DoD could use to manage supply threats. At least some specific objectives might be addressed more effectively through use of one or more alternative policies, rather than relying on a stockpile. • Today, U.S. defense and commercial supply chains are mutually dependent on global economic dynamics, but the current stockpile system does not adequately take into account the reality of modern supply chains or their management. In summary, the committee’s analysis, outlined here and described in detail in the report, identifies a potential for disruption in the supply of materials and minerals critical to the U.S. military. In the committee’s judgment, foreign depen- dence is not, per se, a cause for concern. But it may become so when combined with concentration of supply, political instability in the source regions, and greater competition for mineral resources across the globe. The new threat environment includes threats against economic targets from nonstate actors. The risk of supply interruption arguably has increased or, at the very least, has become different from the more traditional threats associated with the more familiar ideas of war and conflict. The decrease in the U.S. percentage of world consumption calls into ques- tion our historical ability to command supply in times of shortage. The modern context calls for a modern response. Conclusion 4: Owing to changes in the global threat environment and changes in the U.S. industrial base, the emergence of new demands on materials sup- plies, the ineffectiveness of the National Defense Stockpile, and the resultant potential for new disruptions to the supply chains for defense-critical mate- rials, the committee believes there is a need for a new approach in the form of a national defense-materials management system. RECOMMENDATIONS There are several policy and supply chain management tools to assure the continuing supply of materials for defense needs. Indeed, for each material, a strategy to supply a need that becomes critical might rely on multiple tools either

OCR for page 7
o v e r v i e w : o b s e r vat i o n s , c o n c l u s i o n s , r e c o m m e n dat i o n s  and simultaneously or sequentially depending on the circumstance. Each tool is par- tially a substitute for the others, and this redundancy can better assure supply. The management of any supply chain system for critical materials must also be dynamic and based on knowing which materials are needed, how much of each, and whether substitutes are available for each material. In addition, 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. All of these issues interplay in a way that demands a systematic and coordinated policy response. Recommendation 1: To meet the national strategic objective of assuring the timely availability of materials necessary to maintain the national defense capabilities of the United States into the foreseeable future, the Secretary of Defense should establish a new system for managing the supply of these materials. The basis for the committee’s recommendation for a new systematic approach is that planning and action to build a robust supply chain can mitigate the risk of surges in requirements and unexpected shortfalls in inputs. It can also facilitate a response based on the rapid and effective insertion of new substitute materials and manufacturing methods. One significant vulnerability is the potential inability of the military to respond to shortfalls in supply, but a more detailed analysis of the materials supply chain for each military system would help to mitigate risks to mobilization. Developing a robust system is a considerable task as new materials and technology are developed and eventually introduced into military systems and old materials become obsolete and noncritical. The committee has concluded there are lessons to be learned from the pri- vate sector, lessons that are being applied elsewhere in DoD but, it appears, not to the management of raw materials supply, at least so far. Private corporations have adopted strategies giving them the flexibility to offset supply risks, including detailed risk analyses and contingency sourcing plans. Some of the techniques include developing multiple sources, deepening supplier partnerships, and invest- ing in research on recycled materials or substitute materials. Looking at the general case, the committee notes there are at least three com- plementary ways for mitigating risks: (1) assess the risks in order to make better informed decisions on managing 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. Weaknesses in the supply chain may not always be apparent, a priori; they often reveal themselves only when a system is exercised, such as in wartime.

OCR for page 7
m a nag i n g m at e r i a l s twenty-first century military 0 for a More active management could uncover supply chain risks by analyzing supply chain disruptions to gain insight into causal factors or systemic issues. Supply choke points or surge demand response issues may point to the need for holding greater inventory at various stages of the process. Holding a stockpile might be one of many tools available to a defense-materials management system, perhaps a tool of last resort. It is a tool that other governments are using but that industry uses only when absolutely necessary. When deciding which policy tools are appropriate for meeting the strategic objective for any material, if a stockpile is being considered it will be important to take into account (1) the quality of the material, how it may degrade, and if its usefulness could diminish over time; (2) how long it would take to get a material to where it is needed; and (3) the total costs of supplying, storing, and maintaining the material. An effective system to assure the supply of critical materials for defense would have to be a cross-service one. In this regard, the committee notes that a recent action of the U.S. Congress could help establish such a cross-DoD system. Section 843 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109-364) directed the Secretary of Defense to establish the Strategic Materials Protection Board (SMPB) to (1) Determine the need to provide a long-term domestic supply of materials designated as critical to national security to ensure that national defense needs are met; (2) Analyze the risk associated with each material designated as critical to national secu- rity and the effect on national defense that the nonavailability of such material from a domestic source would have; (3) Recommend a strategy to the President to ensure the domestic availability of materials designated as critical to national security; (4) Recommend such other strategies to the President as the Board considers appropriate to strengthen the industrial base with respect to materials critical to national security; and (5) Publish not less frequently than once every two years in the Federal Register recom- mendations regarding materials critical to national security, including a list of spe- cialty metals, if any, recommended for addition to, or removal from, the definition of ‘specialty metal.’ At the time of writing the Strategic Materials Protection Board (SMPB) is being established. The committee understands that the initial driver for the SMPB was the implementation of policies related to “specialty metals”—such as the mandate contained in the so-called Berry Amendment that titanium and the various steel and metal alloys used by defense contractors be made in the United States.6 Never- theless, there appears to be no reason why the Secretary of Defense could not take 6See http://thehill.com/business--lobby/specialty-metals-industry-clashes-with-defense-giants-pentagon- 2006-05-16.html. Accessed August 2007.

OCR for page 7
o v e r v i e w : o b s e r vat i o n s , c o n c l u s i o n s , r e c o m m e n dat i o n s  and a broader—and, indeed, very useful—view of the role of the SMPB. It could serve as the interservice mechanism for coordinating a materials management system. The committee is well aware that a new system at DoD, and presumably a new but related defense organization, might not solve this problem if it is not a higher priority for the department than the NDS has been in recent years. The commit- tee believes that while the need for a fresh approach is real, the new system will fail without adequate political and financial support for facilitating communica- tions between the various stakeholders within DoD and the services, including the defense planners. Notwithstanding any future decisions by the Secretary of Defense on how to implement a new system, the committee was asked to provide some general operational principles. With that in mind, the committee offers the following recommendation. Recommendation 2: The operation of a system for managing materials needed for national defense should be guided by the following general principles: • Establish an ongoing analytical process to identify materials that are criti- cal to defense systems. The analysis should include gathering information on short-term and long-term needs for primary and secondary (compo- nent) materials. The process could include a system of annual reporting from the services and defense agencies, starting at the procurement level, which identifies strategic and critical materials and the potential vulner- abilities in their supply. • Integrate the ongoing operation of the new system with current defense planning. • Set a flexible policy framework that is integrated with the full set of legis- lation and policies governing the procurement of defense-related systems from U.S. contractors. • Use all available tools to support and stabilize robust supply chains in the increasingly changeable and global environment for materials sup- ply, including the holding of a materials inventory that would serve as a flexible, continuously changing buffer stock with constant and timely management for restocking and balance. • Provide the option of partnering with private industry as well as options for outsourcing and offshoring. • Provide an appropriate and robust information system and forecasting tools. • Solicit advisory input from industry, academia, and other stakeholders, as appropriate, accompanied by communicating with stakeholders and the

OCR for page 7
m a nag i n g m at e r i a l s twenty-first century military  for a public on the general status and activities of the materials management system. • Evaluate recycling and substitution as additional sources of key materials. • Perform risk assessments that take into account present and future envi- ronmental constraints on some defense material availabilities. As discussed earlier, no matter what the future holds for the management of 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. Recommendation 3: The federal government should improve and secure the systems for gathering data and information—both at home and abroad—on the availability of materials for defense needs. It must be able to obtain accurate data on • The geographic locations of secure supplies of critical materials and of alternative supplies; • The potential for market and geopolitical disruptions as well as logistical and transportation upsets and the risks posed by them; and • The use of materials in defense applications, in the nondefense indus- trial sectors of the United States, and in the rest of the world’s large commodity-consuming nations. REFERENCES Congressional Budget Office. 1983. Strategic and Critical Nonfuel Materials: Problems and Policy Alternatives. Department of Defense (DoD). 2006. Report in Response to House Armed Services Committee Request on page 477 of Report 109-89. Washington, D.C. General Accounting Office (GAO). 1974. U.S. Actions Needed to Cope with Commodity Shortages. GAO. 1975. Stockpile Objectives of Strategic and Critical Materials Should Be Reconsidered Because of Shortages. National Commission on Materials Policy. 1973. Material Needs and the Environment Today and Tomorrow. NRC. 2003. Materials Research to Meet st Century Needs. Washington, D.C.: The National Academies Press.