“Just-in-Time”: Why is the US defence industrial base capacity declining?

Following the difficulties the United States faced in mobilizing its economy for war during World War I‭, ‬Congress established the Army Industrial College‭ (‬now Eisenhower School for National Security and Resource Strategy‭) ‬which began operating in 1924‭. ‬The‭ ‬aim was to mobilize the US defence industrial base to prepare for any future war‭.‬

This college proved effective during World War II‭, ‬mobilizing the American economy for the war effort‭. ‬However‭, ‬after nearly a century since establishing this college‭, ‬it appears the United States urgently needs to relearn its lessons on industrial mobilization for the great power competition‭.‬

The Russia-Ukraine war has exposed many shortcomings regarding the United States’‭ ‬defence industrial capability‭. ‬Some analyses have blamed the‭ “‬Just-in-Time‭” ‬production strategy to explain this limitation and‭ ‬Washington’s reluctance to replenish its stockpiles after sending large quantities of weapons to Ukraine‭. ‬

This raises several questions about the nature of the‭ “‬Just-in-Time‭” ‬strategy and its actual implications for the US defence industrial base‭, ‬not to mention the limits of readiness for this base‭.‬

The Nature of the‭ “‬Just-in-Time‭” ‬Strategy

The Just-in-Time‭ (‬JIT‭) ‬strategy refers to a new philosophy in corporate management and performance‭, ‬primarily aiming to achieve‭ ‬efficient use of resources and reduce costs associated with supply‭, ‬storage and production functions‭.‬

This contrasts with the traditional mass production approach which involves suppliers accumulating large inventories of materials to be converted into final products pushed out to markets without a real understanding of customer needs and demand‭. 

Japanese automaker Toyota pioneered the use of this strategy to align with Lean Manufacturing and large-scale production lines‭. ‬The principle of this strategy is to deliver parts and raw materials to the factory just in time for their use on the production‭ ‬line‭, ‬without requiring any further modifications once received‭, ‬ready for assembly into the final product‭.‬

Accordingly‭, ‬this strategy is based on the idea of‭ “‬producing each part of the product components in one of the production stations at the same time it is required by the next station and is ready to receive it‭, ‬with customer demand being the starting point for all processes along the production line‭. ‬

This ensures a consistent‭, ‬streamlined flow of products tailored to customer demand while significantly reducing inventory levels‭”.‬

Key tenets of this strategy include reducing the supplier chain to enhance trust‭, ‬minimizing inventory storage during production‭ ‬stages‭, ‬reducing the need for a specialized labour force with various skills‭, ‬while reducing manufacturing time and production‭ ‬batch sizes‭, ‬and emphasis on preventive maintenance‭. ‬

Therefore‭, ‬the Just-in-Time strategy helps save costs by relying on less storage space for parts to be used in production‭, ‬fewer‭ ‬workers to handle and transport these parts‭, ‬and reducing wastage or parts needing maintenance‭.‬

The Dilemma of the US Defence Industrial Base‭ ‬

During World War II‭, ‬the American defence industry played a critical role in supporting the Allied war effort‭, ‬described by former US President Franklin Roosevelt as the‭ ‬“Arsenal of Democracy”‭. ‬It took Washington over five years to build up its defence industrial base to full readiness for the war effort‭, ‬but reaching‭ ‬this level now represents a major challenge for the United States‭.‬

In this context‭, ‬US Defence Secretary Lloyd Austin told the Senate Armed Services Committee last March that the Pentagon is seeking to inject massive investments worth over‭ $‬30‭ ‬billion to expand the US defence industrial base‭. ‬

Insufficient stockpiles of precision American weapons have long concerned the Pentagon and Congress‭, ‬even before the Ukraine-Russia war‭, ‬but current dynamics have exacerbated these concerns among US policymakers‭. ‬

Although the 2023‭ ‬National Defense Authorization Act allows for increased procurement of new munitions‭, ‬reaching the desired numbers could take years at current production rates‭. ‬This has led many analyses to re-propose the idea of increasing production levels as a way out of this dilemma‭, ‬and the US Department of Defense is in fact taking steps to support this move.However‭, ‬these‭ ‬moves face another predicament‭, ‬mainly concerning the limited capacity of the US defence industrial base‭, ‬especially amid declining investment in recent years‭. ‬

This makes any attempt to increase production and replenish reserves extremely difficult and unable to meet allies‭’ ‬requests within the required timeframe‭. ‬

This argument may be supported by reports from the US-based National Defense Industrial Association‭ (‬NDIA‭), ‬which revealed in its latest 2022‭ ‬issue a wide gap between the aspirations of the US National Defense Strategy and the current state of Washington’s industrial base‭. ‬This is steadily shrinking with increasing obsolescence‭, ‬thus becoming less capable of increasing production‭.‬

The report noted that the flexibility of the defence industrial base was sacrificed from the 1990s onwards‭, ‬resulting in the loss of strengths that previously distinguished this base‭, ‬including stable budgets‭, ‬skilled workforce‭, ‬diverse modern infrastructure‭, ‬ongoing manufacturing innovation‭, ‬and adequate capacity‭. ‬

This was replaced by a Just-in-Time strategy providing little depth and agility to reshape in case of any unexpected conflict‭, ‬conflicting with the current US National Defense Strategy stipulating that the US must be able to deter China or win any long-term conflict if deterrence efforts fail‭.‬

Several other factors affect the ability of the United States to increase its required military production for a protracted major war‭, ‬perhaps most notably is the decline in the number of skilled workers employed in the defence industry‭, ‬dropping to 1.1‭ ‬million compared to about 3‭ ‬million in 1985‭. ‬

The same applies to companies operating in this industry‭, ‬which lost over 17,000‭ ‬firms just in the past five years alone‭. ‬The US‭ ‬Department of Defence estimates the number of small businesses working for it has shrunk by 40%‭ ‬over the past decade‭, ‬despite growing incentive packages designed to attract and retain these companies‭. ‬

Moreover‭, ‬defence spending has decreased from 5.8%‭ ‬in 1985‭ ‬to about 3.2%‭ ‬of total GDP today and is projected to further decline‭ ‬to around 2.7%‭ ‬by 2036‭.‬

Furthermore‭, ‬the decline in purchasing power and delays in necessary modernization‭, ‬as well as a lack of adequate investment in‭ ‬infrastructure and capabilities‭, ‬and over-reliance on single-source supply‭, ‬have all contributed to the problem‭.‬

The Pentagon’s fluctuating demands between peacetime and war constitute another problem‭. ‬For instance‭, ‬production of the M142‭ ‬HIMARS system stopped during 2013-2017‭ ‬due to halting combat operations in Afghanistan and Iraq‭, ‬while Javelin production dropped‭ ‬from 1,300‭ ‬in 2009‭ ‬to just 400‭ ‬in 2013‭.‬

The US defence industrial base also faces another challenge in that many weapon parts‭, ‬ammunition‭, ‬ships and aircraft are manufactured abroad‭, ‬including in China‭. ‬Many components of solid rocket motors‭, ‬shell casings‭, ‬basic explosives and fuel elements‭, ‬valves and machine tools are made in China‭.‬

Therefore‭, ‬the idea of increasing production does not seem an easy task‭, ‬especially since some production lines have already reached maximum capacity‭. ‬This means any increase would require building new facilities and hiring more skilled workers‭.‬

Lean Manufacturing and US Defence Production‭ ‬

Some Western analyses have argued that the US Department of Defense’s reliance on the Just-in-Time strategy is one of the main constraints limiting America’s ability to increase defence production‭.‬

Maintaining adequate spare parts inventory could enhance companies‭’ ‬ability to expand output‭. ‬However‭, ‬another view is that such‭ ‬criticism reflects an overly simplistic understanding of the huge costs companies would incur to maintain a warehouse full of the materials needed to increase production‭.‬

In this context‭, ‬a report by the US Center for Strategic and International Studies‭ (‬CSIS‭) ‬pointed out that the defence industrial base relies on an incentive structure favouring lower-cost output over production capacity‭.‬

Although this incentive structure is primarily designed to ensure optimal allocation of taxpayer money‭, ‬it has led to a reduction in the capacity of the US defence industrial base to achieve increased production‭.‬

Today there 5‭ ‬major defence companies‭ (‬Boeing‭, ‬Lockheed Martin‭, ‬General Dynamics‭, ‬Raytheon and Northrop Grumman‭), ‬which handle most of the US Department of Defense contracts‭, ‬compared to about 51‭ ‬major companies in the 1990s‭. ‬

The Pentagon is technically the sole client for these companies‭, ‬and any foreign sales must be facilitated through the U.S‭. ‬federal government‭. ‬

These five companies accounted for about‭ $‬114‭ ‬billion in contracts‭, ‬while other major defence contractors account for‭ $‬122.2‭ ‬billion‭, ‬with medium contractors accounting for another‭ $‬7.9‭ ‬billion‭, ‬out of the total 2021‭ ‬US military expenditure estimated at‭ $‬711‭ ‬billion‭.‬

These five major defence contractors adopted the concept of Lean Manufacturing‭, ‬derived from the Just-in-Time strategy‭, ‬to reduce costs in capital-intensive production‭.‬

However‭, ‬many analysts argue that this strategy is not well suited to the defence industry‭, ‬as it makes it extremely difficult to even consider attempting to increase production‭, ‬especially with very few companies controlling supply chains‭. ‬This reduces options if one supplier fails to deliver any part‭, ‬which is further complicated by interlinks between the Pentagon’s five major contractors‭.‬

Ukraine and the Strain on the US Defence Industrial Base

Although the predicament of declining US defence industrial base capacity is not a novel issue‭, ‬the Ukraine war exposed the limits of the problem due to the depletion of much of the US’s ammunition stockpile and the resulting pressure on the defence industrial base‭, ‬especially amid rising tensions between the US‭ ‬and China over Taiwan‭.‬

The Russia-Ukraine war has underscored the importance of maintaining large stockpiles of weapons‭, ‬negating any future operational plans assuming a short war‭. ‬

Moreover‭, ‬Pentagon top weapons buyer William LaPlante has hinted at the urgent need for the Department of Defense to pay more attention to the idea of increasing defence production levels‭, ‬consistent with reports pointing to a noticeable decline in US stockpiles due to the huge quantities of weapons Washington has sent to support Ukraine‭.‬

These reports indicate that Washington’s stockpiles of 155mm M777‭ ‬Howitzers‭, ‬Javelin anti-tank systems‭, ‬Stinger anti-aircraft missiles‭, ‬and counter-artillery radars are suffering severe shortages‭, ‬while stocks of the Harpoon coastal defence system‭, ‬critical for supporting Taiwan‭, ‬are moderate‭.‬

Moreover‭, ‬a report published by the US-based Center for Strategic and International Studies warned that the next war the United‭ ‬States may fight will not give Washington a clear advantage in capabilities over its adversaries‭. ‬Therefore‭, ‬the US will need to‭ ‬wage a long war against a more capable opponent‭, ‬which will make it desperately reliant on its industrial base‭. ‬

The report noted that US military support for Ukraine‭, ‬which relies on Washington’s stockpiles‭, ‬has pushed many politicians to call for reviving the‭ ‬“Arsenal of Democracy”‭ ‬to refill empty warehouses and push the manufacturing sector to increase long-term production‭, ‬but this still requires a comprehensive operational plan‭.‬

While the Russian-Ukrainian war gave defence contractors in Washington a strong financial boost‭, ‬which left them looking forward‭ ‬to long-term contracts‭, ‬these ambitions are tempered by growing fears of declining demand‭, ‬which could hinder any moves to build new facilities and expand production capacity‭.‬

Similarly‭, ‬some estimates have indicated that the Russian-Ukrainian war revealed that the United States needs a new policy for its defence industrial base‭, ‬especially since Washington needs to provide its allies with supplies if a major conflict erupts while the ongoing conflict with Ukraine continues‭. ‬

This would constitute a huge dilemma for the United States and jeopardize its ability to defend itself‭, ‬particularly amid talk of a potential direct confrontation between China and the US over Taiwan in the coming years‭, ‬which is causing growing concern in‭ ‬Washington about its ability to wage such a war‭.‬

Supply Chain Diversification‭ ‬

Supply chain constraints pose a fundamental challenge to any attempt at increasing production‭, ‬which may be impossible under such restrictions‭. ‬

For some subcontractors‭, ‬defence production constitutes only a small portion of their total output‭, ‬thus they may be unwilling to sacrifice more profitable relationships with other clients in favour of increasing the percentage of output shipped to defence‭ ‬contractors‭. ‬

Given that investing to increase the supply of manufacturing inputs is essential to successful production growth‭, ‬it is vital for the US to expand defence supply chains‭.‬

Furthermore‭, ‬the Pentagon needs a comprehensive overview of different supply chains to enhance future problems predictability‭, ‬akin to the Pentagon’s moves last September to halt delivery of an F-35‭ ‬fighter jet to Lockheed Martin for one month after it was‭ ‬discovered that some components in the jet’s engine‭, ‬made by China’s Honeywell‭, ‬were unauthorized‭.‬

The US Department of Defence also needs effective coordination with defence contractors regarding the future scale of defence production‭, ‬so these companies are not affected by the increase currently required for the Russian-Ukrainian war and the inevitable production reduction when the war ends‭.‬

This is to avoid a repeat of the scenario with the war on ISIS when the Pentagon invested in producing about 10,000‭ ‬Hellfire missiles annually before suddenly declaring it no longer needed them‭.‬

Some estimates floated the idea of co-production as a solution to address current constraints on increasing US defence production‭. ‬This entails training companies and defence contractors in US-allied nations to manufacture weapons systems or components‭, ‬potentially providing additional‭, ‬trusted supply chains and enhancing joint capabilities to produce these items‭, ‬besides enabling‭ ‬stockpiles near theatres of operation‭. ‬

However‭, ‬some existing challenges may limit the chances of this proposal’s success‭, ‬most notably restrictions on sharing military technology and information‭.‬

In conclusion‭, ‬replenishing or increasing US weapons stockpiles within a reasonable timeframe requires massive investments to boost production capacity and output‭. ‬But first‭, ‬the capabilities of current facilities and factories must be assessed‭, ‬and whether they have the necessary capabilities to expand domestic production‭. ‬Increasing production capacity within existing plants also‭ ‬requires boosting various production inputs‭, ‬including the size of the skilled labour force‭.‬●

‮ ‬By‭: ‬Adnan Moussa‭  ‭(‬Assistant Lecturer at the Faculty of Economics and Political Science‭, ‬Cairo University‭)‬

Al Jundi

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