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Defense Manufacturing on the Defensive

Defense manufacturing—the process that produces the most sophisticated, technically advanced weapons in the world—is one of the most complex enterprises in the nation. It encompasses not only the armed forces and the defense contractor base, but also the Congress, the White House, the Office of Management and Budget (OMB), and the Department of Defense (DoD) leadership. It requires constant mediation among political, economic, and military interests, between technology developers and implementers, between needs and desires. Effective management of the defense manufacturing enterprise is extremely difficult in the best of circumstances. Many involved in the defense manufacturing process believe that the overall management task has become too fragmented and complicated, leading to unnecessary sacrifices in the cost, quality, and timeliness of weapons.

Convergence of a broad array of forces over the next decade will make defense manufacturing management increasingly difficult, with results that are less and less satisfactory. (Appendix A contains a description of the economic, technological, and geopolitical forces that are redefining the environment for defense manufacturing.) Shrinking defense budgets, the pace of technological advance, and pervasive changes in commercial production practices threaten to limit severely DoD's ability to acquire next-generation weapon systems with the cost, quality, and timeliness necessary to meet future defense requirements.



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Breaking the Mold: Forging a Common Defense Manufacturing Vision 1 Defense Manufacturing on the Defensive Defense manufacturing—the process that produces the most sophisticated, technically advanced weapons in the world—is one of the most complex enterprises in the nation. It encompasses not only the armed forces and the defense contractor base, but also the Congress, the White House, the Office of Management and Budget (OMB), and the Department of Defense (DoD) leadership. It requires constant mediation among political, economic, and military interests, between technology developers and implementers, between needs and desires. Effective management of the defense manufacturing enterprise is extremely difficult in the best of circumstances. Many involved in the defense manufacturing process believe that the overall management task has become too fragmented and complicated, leading to unnecessary sacrifices in the cost, quality, and timeliness of weapons. Convergence of a broad array of forces over the next decade will make defense manufacturing management increasingly difficult, with results that are less and less satisfactory. (Appendix A contains a description of the economic, technological, and geopolitical forces that are redefining the environment for defense manufacturing.) Shrinking defense budgets, the pace of technological advance, and pervasive changes in commercial production practices threaten to limit severely DoD's ability to acquire next-generation weapon systems with the cost, quality, and timeliness necessary to meet future defense requirements.

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Breaking the Mold: Forging a Common Defense Manufacturing Vision THE DEFENSE BUDGET In 1992, DoD spent over $75 billion on manufactured products, mainly weapon systems and other military equipment.1 This figure is already significantly lower than procurement budgets in the mid-1980s, and estimates for further reductions range as high as 50 percent.2 Meanwhile, weapon costs have been rising astronomically. Individual airplanes cost hundreds of millions of dollars, some ships cost billions, and weapon systems procurement is in a spiral of rising costs, leading to decreasing quantities, leading to still greater cost increases. By cutting procurement quantities and stretching out deliveries, this growing conflict between available resources and costs also limits DoD's ability to benefit from improvements in commercial manufacturing products and processes. TECHNOLOGY In the last 10 to 15 years, global industrial competition has replaced global military competition as the impetus for technological advance in areas such as electronics, materials, information technologies, and telecommunications. Although DoD has the opportunity to benefit from the rapid pace of commercial technological improvement, the current defense procurement system is incapable of taking advantage of that opportunity. While global competition has inspired tremendous reductions in the development times and life cycles for commercial products, the trend is for weapon systems to take longer in development, be produced more slowly, and be kept in inventory longer. For example, while electronic advances are making many electronic systems technically obsolete in 6 months to 2 years, development of weapon systems now averages over 17 years from concept to first production. Since more than 50 percent of the cost of most sophisticated new weapon systems is in electronics, weapons development must be accelerated. COMMERCIAL MANUFACTURING RENEWAL Spurred by intense international competition, a growing number of American manufacturers are embracing a new concept of manufacturing and its role in competitive success. This new understanding is prompting companies to develop a process for changing manufacturing management, the role of employees, customer-supplier relationships, and investment strategies.3 This change process goes by many names (some misleading) and has many variants, including Total Quality Management, ''just-in-time," employee involvement, and concurrent engineering. Although few companies have mastered the management techniques and relationships necessary to benefit fully from

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Breaking the Mold: Forging a Common Defense Manufacturing Vision these changes, the process is under way and the results in cost reduction, quality improvement, and cycle time reduction have been impressive. Unfortunately, the techniques and procedures needed to achieve these changes are increasingly incompatible with the defense procurement environment. Manufacturers must change to compete in commercial markets and find it increasingly inefficient to use incompatible methods in their defense operations. Consequently, companies are leaving the defense business, citing the punishing environment, the onerous regulations, poor profitability, and the unnecessary uncertainty induced by political and administrative processes.4 Given these (and other) emerging conflicts in the current defense manufacturing enterprise, serious consideration must be given to fundamentally changing how DoD procures weapon systems. The way to ease the defense manufacturing dilemma is not through marginal adjustments to traditional ways of doing defense business but—as demonstrated by the commercial firms that have led the way—through a deliberate break with the past. It entails a shift from the traditional "command and control" style of defense manufacturing and acquisition to a modern, comprehensive defense manufacturing strategy that would govern procurement policies and practices. This strategy would apply modern management methods to weapons manufacturing and acquisition in order to achieve lower cost, more rapid product development, better performance, and higher quality. Just as commercial manufacturers are struggling to evolve strategies that will result in long-term improvement and increased competitiveness, the DoD must also identify the elements of an effective "change process" that will work in the unique defense manufacturing environment and achieve the long-term goals of affordable, high-quality weapon systems. Contrasting the requirements for success within such a "change process" with the current business environment in defense manufacturing may be helpful (see Table 1). This comparison illustrates the magnitude of the challenge involved in undertaking a "change process" for defense manufacturing. It will require significant modification in behavior by the most senior executives in DoD, Congress, and defense contractors. The experience of leading companies suggests that at least 5 to 10 years will be needed to achieve significant improvement. Unfortunately, few of the senior leaders needed to initiate and participate in an effective change process are likely to be in their positions that long. Few (if any) executives from OMB or DoD are incumbent for that length of time, and military officers are rotated on a far more rapid schedule. Turnover is a very serious impediment to improvement. Another equally critical impediment is that it is not in any single individual's interest to start this process, because initially it will create only difficulty. The benefits will not be evident for years, so the beneficiaries will not be

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Breaking the Mold: Forging a Common Defense Manufacturing Vision TABLE 1 Contrast Between the Attributes of a Successful "Change Process" and the Current Defense Manufacturing Environment A. Attributes of Successful "Change Process" B. Current Defense Manufacturing A common vision is held by the participants concerning the change needed. No common vision exists among the Congress, DoD, and corporations as to what defense manufacturing should be like in 5 to 10 years. (Many components of this vision do, however, exist.) There is substantial commitment among the powerful participants to undertake the long and difficult process of change. There is no commitment to the nature of change required, no consensus regarding who will invest the time, effort, and energy, or who will lead it. There is a widely felt need, even urgency, for change. There is a widely varying sense that change would be useful, but not an urgent sense of need. A willingness to work through resistance to change exists. Little willingness exists to work on decades-old relationships that impede change. Agreement exists on the values that the organization will observe during the change process, including openness, sharing of information, constant discussion, and problem resolution. There is no such agreement. Significant investment in training of people to work through problems and to solve them jointly. There is little or no training in the process of change. Consistency of purpose exists for several years. There is constant change, rather than constant purpose, in strategies to improve the defense manufacturing base, DoD, and the Congress, with single issues gaining and losing prominence in short times. those who will invest the time, effort, and energy, and fight the jurisdictional battles for improvement during the early days of the "change process." The pressure against change is strong. Current values are strong; these values reinforce the protection of existing charters, the perceived risk of changing when the outcome is not clear, and the risk that a new process will degrade control of weapon systems or technology.

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Breaking the Mold: Forging a Common Defense Manufacturing Vision So what should be done? This report outlines what must be done to start a process that could result in significant improvements in the cost, quality, and timeliness of weapon systems. It is a process that will involve pervasive and sustained changes in the way weapon systems are manufactured and procured; in short, a change in the culture that determines how DoD does business with its suppliers and administers its own procurement functions. The process itself will take 5 to 10 years. Improvement will be seen within 1 to 2 years if there is a constancy of purpose at the senior levels of DoD, the Congress, and private industry. The end of the Cold War provides an unusual opportunity, unparalleled in the past five decades, to effect such a change. NOTES 1.   Direct physical capital outlays by the federal government for national defense were estimated to be $82.3 billion in 1992. Almost all of this, an estimated $75.2 billion, was for the procurement of weapons and other military equipment, and the remainder, $7.1 billion, was primarily for the construction of military bases and family housing for military personnel. Other significant acquisition outlays include: $86.4 billion for operations and maintenance, and approximately $40 billion for research, design, test, and evaluation. See, Office of Management and Budget, Budget of the U.S. Government for Fiscal Year 1992, (Washington, D.C.: U.S. Government Printing Office, 1991), part 4, p. 4, Table A-2 and part 6, pp. 17–18. 2.   The Bush administration projected that defense budget decreases will continue, with real reductions of 13 percent between Fiscal Year (FY) 1991 and FY 1996, and a total of a 32 percent reduction below the rate of inflation between FY 1985 and FY 1996. Defense spending would fall from an estimated 5.3 percent of GNP in FY 1991 to a projected 3.8 percent by FY 1996. Procurement in real terms is projected to fall almost 50 percent between fiscal years 1985 and 1996, from $123.9 billion to $64.3 billion (both in 1992 dollars). See Stephen A. Cain, Analysis of the FY 1992–1993 Defense Budget Request, (Washington, D.C.: Defense Budget Project, February 7, 1991). 3.   In private corporations, the cultural changes taking place at Milliken, Xerox, General Electric, Motorola, Harley-Davidson, and Ford are good examples. In the DoD, the Willoughby templates are a good example. The templates were derived from a 1982 Defense Science Board Task Force (chaired by W.J. Willoughby, Jr.) report entitled, ''Transition from Development to Production," which generated a matrix of the most critical events in the design, test, and production phases of the industrial process. These events were then transformed into templates and are used by program managers to identify critical engineering processes and their control methods. See, DoD Directive 4245.7, "Transition from Development to Production," January 19, 1984. 4.   According to David V. Lamm, approximately 20 percent of firms surveyed refuse DoD business because of burdensome paperwork, government bidding methods, more attractive commercial ventures, and government attitudes. See, David V. Lamm, Analysis of Reasons Companies Refuse to Participate in Defense Business, (Monterey, CA: Naval PostGraduate School, March, 1987). In his book, Thomas L. McNaugher describes the complicated, bureau-cratically encrusted way the nation buys weapons as a procedural waste. He attributes the current weapon acquisition process as the result of a long process of political adoption in which Congress, DoD, and the defense industry all have participated. See, Thomas L. McNaugher, New Weapons, Old Politics, (Washington, D.C.: The Brookings Institute, 1989), p. 174.