Executive Summary

In 1992, the U.S. Department of Defense (DoD) spent over $75 billion on manufactured products (mainly weapon systems and other military equipment), more than 25 percent of the total defense budget of $290 billion. Although the defense budget will decline in real terms over the coming years, funding for procurement of manufactured items for defense will remain a significant proportion of the budget. While procurement budgets decline, however, weapon system performance, unit costs, and operation and support costs can be expected to increase along historical trends. Given these conflicting pressures, the predominant characteristic of the defense procurement environment in the 1990s will be "do more with less."

Arguably, this situation pervades defense acquisition, particularly if judged by the attention paid to improvement of the procurement system. Dozens of reports, including those from the Packard Commission, the General Accounting Office, and DoD itself, have urged shifts in weapon acquisition policies and procedures. (See Appendix B for summaries of a few.) Panels of this committee have made similar observations. (See Appendix A.) Despite substantial consensus among these various panels and committees on what DoD needs to change, their reports have made little impact, not because the recommendations were wrong—on the contrary, most of the recommendations make sense—but because they offered little guidance on how to achieve change. This committee has concentrated on the change process, for it is the manufacturing management process that has changed most during the past decade.

The approach, so far adopted by a small but growing number of compa-



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Breaking the Mold: Forging a Common Defense Manufacturing Vision Executive Summary In 1992, the U.S. Department of Defense (DoD) spent over $75 billion on manufactured products (mainly weapon systems and other military equipment), more than 25 percent of the total defense budget of $290 billion. Although the defense budget will decline in real terms over the coming years, funding for procurement of manufactured items for defense will remain a significant proportion of the budget. While procurement budgets decline, however, weapon system performance, unit costs, and operation and support costs can be expected to increase along historical trends. Given these conflicting pressures, the predominant characteristic of the defense procurement environment in the 1990s will be "do more with less." Arguably, this situation pervades defense acquisition, particularly if judged by the attention paid to improvement of the procurement system. Dozens of reports, including those from the Packard Commission, the General Accounting Office, and DoD itself, have urged shifts in weapon acquisition policies and procedures. (See Appendix B for summaries of a few.) Panels of this committee have made similar observations. (See Appendix A.) Despite substantial consensus among these various panels and committees on what DoD needs to change, their reports have made little impact, not because the recommendations were wrong—on the contrary, most of the recommendations make sense—but because they offered little guidance on how to achieve change. This committee has concentrated on the change process, for it is the manufacturing management process that has changed most during the past decade. The approach, so far adopted by a small but growing number of compa-

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Breaking the Mold: Forging a Common Defense Manufacturing Vision nies such as General Electric, Motorola, Ford, and Xerox, requires an iterative process for developing a new vision of manufacturing and its role in the corporation. Top executive commitment to the change process, deployment of adequate resources, continual action, reinforcement, and feedback are required. All, or nearly all, employees are involved, both in making the process work and in finding ways to improve it. Successful corporations have discovered that, contrary to conventional wisdom (which stimulates significant investment and management attention) technology is not the problem; application of technology by people is the problem. These organizations formerly suffered from the same inertia and active resistance that must be overcome to produce meaningful improvement in defense; but, with assertive leadership, effort, and time—and the recognition that it had to be done—these corporations achieved major gains in cost, quality, and time to market. Their results prove that it is possible for the DoD to make the same sort of transformation. Already within the uniformed services, and within defense contracting firms, small units have applied these new techniques successfully. For instance, the Air Force Logistics Command received the President's Award for Quality and Productivity in 1991 as a result of the operational improvements from its total quality initiative. Rockwell Missile Systems Division in Duluth, Georgia is one example of a defense contractor that has pursued total quality aggressively with impressive results. Unfortunately, such examples remain isolated and are not as effective as they could be because they are so inconsistent with the surrounding web of DoD procedures and requirements. Technology is not the problem. Clearly, new technologies are required, and can help significantly in making improvements. Much of this technology now exists and the rest can be developed, as long as the DoD is willing to make a significant reallocation of its resources—from an almost total focus on "product R&D" to a significant balance with "process R&D"—as has been the case in successful world-class corporations. In addition to ''hard" investments in process technology, major investment in "soft" technology (e.g., training) also is required. This shift of resources and management focus to manufacturing is needed to implement the required changes successfully. The committee recognizes that the change process unfolding at many commercial manufacturers is not strictly analogous to the process needed for DoD. While learning as many lessons as possible from commercial successes and failures, DoD must invent its own unique change process. Accordingly, this report describes a process for change in defense acquisition that the committee believes must occur sooner or later, driven by the rapid changes in industry and by DoD's need for lower cost, high-quality weapons during the next decade and beyond.

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Breaking the Mold: Forging a Common Defense Manufacturing Vision IMPLEMENTING A NEW DEFENSE MANUFACTURING STRATEGY: AN ILLUSTRATIVE MODEL Changing the DoD's approach to acquisition of manufactured goods will require substantial effort at all the levels of the hierarchy within defense production and acquisition organizations, including the Office of the Secretary of Defense, the military services, the contractor and supplier base, and the Congress. Although the specific mechanisms for effective cooperation among these major constituencies are impossible to define and will evolve over time, the committee offers the following model to illustrate in specific terms how such cooperation in an effective change process might occur. The model includes four major phases of effort. To ensure the appropriate senior level of involvement, these phases would be managed from the Office of the Secretary of Defense, with the Deputy Secretary serving as Chief Executive Officer (CEO) and the Under Secretary for Acquisition serving as Chief Operating Officer (COO). Create a Vision of Manufacturing A widely shared vision of how defense procurement should be conducted several years from now must be developed. To be effective, the view must be shared by Congress, the White House, the Department of Defense, and defense contractors. To create such a shared vision, a senior group of officials, including the Secretary of Defense, the Deputy Secretary of Defense, the Under Secretary of Defense for Acquisition, the Chairman of the Joint Chiefs of Staff, the military service secretaries, the chairmen of the House and Senate Armed Services Committees, the director of the Office of Management and Budget (OMB), and a few chief executive officers from the defense industry and from companies with successful change processes, must achieve a consensus on issues such as: improvement goals for cost, quality, time, and technical performance over the next decade, and how to manage inevitable trade-offs among these goals; control mechanisms to ensure effective and efficient procurements without onerous regulatory requirements; rate and sequence of change sought in the myriad of procedures, procurement policies, technical specifications, and practices that currently exist; and personnel policies regarding responsibilities, training, teamwork, performance review, and promotion.

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Breaking the Mold: Forging a Common Defense Manufacturing Vision Create a Working Cadre A working cadre should be formed to address the operational details of achieving the vision. For a task of this magnitude, the working cadre will probably consist of 200 to 300 uniformed officers and civilians. The cadre will work for 5 to 10 years helping to lead the change. Tours of duty will range between 2 and 4 years for individuals. Types of personnel represented within the working cadre should include: program managers from the military services and contracting firms, line officers, finance and contract administrators, engineers and manufacturing experts, and personnel and civil service experts. Individuals who are likely to be leaders of their organizations in 5 to 10 years should be selected. Current or former congressional staff members from both parties who have recognized competence and understanding of both the political process and the weapon systems procurement process should be included. Substantial training of the cadre is essential. Three months of full-time training in organizational change will be necessary, using facilitators and experts. Several days should be spent with the vision team during this period to understand their interests, commitment, and objectives. Select a Change Strategy The choices facing both the vision team and the working cadre include: Should the change be introduced broadly across all of DoD, or more narrowly? Should significant change be undertaken in those organizations that are "change ready," or in those organizations that need it most urgently but may resist strongly? In order to break the old system, should change be undertaken where it is easiest, or most significant, or most disruptive? Should change be attempted only for new, rather than existing, weapon systems, on large systems rather than small, or on systems that have a simpler customer/supplier relationship? Should change be undertaken where it can be accomplished by DoD directive alone, or is it more useful to address problems that will require Congress, OMB, contractors, and DoD to arrive at a new operating method?

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Breaking the Mold: Forging a Common Defense Manufacturing Vision Can the mechanisms chosen to implement the change process accommodate the existing promotion system, or must amendment or exception be taken for those officers in the promotion zones that are assigned to this initiative? Early in the process, the vision team and the working cadre need to answer these questions, defining the approach or strategy for change. Communicating The Initiative Communicating the vision and the commitment of senior executives and managers will be difficult. Listeners within DoD and industry will be cynical; they will be unlikely to believe that this is a serious effort or that it will last beyond a few months or a few incumbents. "Real" communication will take place through actual change, but that will not happen quickly, so major communication programs in the beginning can lead to more cynicism rather than build conviction. A strong message of senior level commitment would include: Direct involvement of the Secretary, Deputy Secretary, and Under Secretary of Defense for Acquisition. They must spend time, participate, and demonstrate commitment to change. A clear statement that change of this magnitude is required to free dollars for adequate procurement of weapon systems. Selection of a team including some of the most promising officers in the armed forces. Congressional support of change. Early decisions on requests to amend existing practices transmit a powerful message. An effective approach would be to create pilot projects in which units are given greater freedom, with the concurrence of financial auditors and contract administrators. The results could then be monitored and communicated broadly to accelerate replication and further progress. LATER IN THE CHANGE PROCESS If this (or a similar) model of a change strategy is undertaken, the vision team and working cadre will make scores of decisions and choices during the early stages of the process. Once the essential commitment to the change process is achieved, the on-going activity might include: Managers of 10 to 20 existing weapon programs doing as much as possible to operate in a direct, simple manner within existing procurement regulations.

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Breaking the Mold: Forging a Common Defense Manufacturing Vision A legal task team proposing amendments to non-controversial laws to simplify reporting and remove difficult and irksome requirements. A second legal team would be examining the more fundamental balance among oversight, financial control, equal employment opportunity, waste, fraud, and abuse. Some teams working on a shift to commercial products on fixed priced procurement, pointing out the simplification that such a shift entails for a substantial percentage of purchases. Other teams working on the difficult question of simplifying existing specifications and searching for ways to increase use of functional specifications. In each of the services the process would diffuse through the organization, with new teams forming to examine how they might procure and manufacture weapon systems better. A team of contractors working with engineering specialists from DoD would clarify inspection and testing standards, modify those standards that could be converted to commercial standards, and simplify complex military standards. This partial picture conveys some of the activity that would take place during the early stages of the change process. Perhaps most importantly, there would be a belief among the top 10,000 people in the defense manufacturing community that the process would continue even through a change in senior officials. Although the Secretary, the Deputy Secretary, the Under Secretary for Acquisition, and congressional leaders would have spent more time on this change process during those early stages than they would have predicted, the normal conflicts between Congress, the White House, and DoD would still exist and would be far from resolved. However, the potential gains in quality, cost, and responsiveness would be clear by that time to those individuals, and there would be substantial commitment to achieve greater progress. SUMMARY In summary, this committee believes that: The need for change is clear. Now is an appropriate time to start, given the major change occurring in defense budgets, global defense needs, and the public pressure for improvement of defense procurement procedures. The proposed approach has worked well in large institutions. Technology is not the problem; application of technology by people is the problem. Consistent commitment and leadership over time are essential.

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Breaking the Mold: Forging a Common Defense Manufacturing Vision The time to act is now. Because the process of change is a multiyear effort (at least 3 to 8 years will be required), the ideal time to initiate such an activity is at the beginning of a new administration. Therefore, the beginning of 1993 represents a unique opportunity to initiate this process. New leaders can launch such a major initiative and see it into implementation. Each new administration has one or two main initiatives toward which energy, time, and interest are devoted, and for the new administration, this must be one of those priority initiatives. Four years from now will be simply too late. By that time, consolidation in the defense industry and continued changes in commercial industry's management and technology will have made any cost-effective revitalization of defense manufacturing even more difficult. The process of change must be initiated at the beginning of the incoming administration if there is to be any chance of success. This is truly a case in which the DoD must seize opportunity. Dramatic and positive results can be expected. If the proposed changes permeate the government, the prime contractors, and lower tier suppliers, by the end of the Clinton administration the DoD should be in a position to obtain high-performance, high-quality weapon systems at far lower costs and much more rapidly, from a defense industrial base that is far broader and more efficient, effective, innovative, and responsive. The "way of doing defense business" will have been totally transformed, and the DoD will be a world-class buyer, dealing with world-class suppliers. The United States can and must be able to change the way it does defense business. With a declining budget and rising weapon costs, there is no choice. The way to make this change exists, and has been demonstrated effectively. If the nation is to remain strong economically and militarily, it must accept this challenge and move aggressively to implement the needed changes. Our greatness in the twenty-first century depends upon it...and the taxpayers deserve it.