Manufacturing’s enduring relationship with America’s defense establishment has again reached a pivotal moment. Against the backdrop of recovering supply chains, cyber threats, and a ground war in Europe, today a crisis in attracting qualified, capable suppliers into the defense ecosystem threatens to substantially degrade America’s ability to arm and sustain its service branches and allies.

But this perfect storm has awakened the beast. Those charged with developing and maintaining the sprawling, trillion-dollar defense ecosystem seem clear-eyed about the challenge. The National Defense Logistics Agency’s (NDIA) recent Vital Signs report — Posturing the U.S. Industrial Base for Great Power Competition — begins with this gloomy assessment:

“There is a mismatch between what our national strategies aim to achieve and how our defense industrial base is postured.”

It’s downhill from there.

“Key industrial readiness indicators for great power competition are going in the wrong direction,” the report concludes, citing lower budgets and less predictability in how dollars are allocated.

But the report makes clear the Department of Defense’s (DoD) seminal challenge: industrial readiness measured by participation in the defense supply chain. The numbers are eye-opening:

  • Fewer People. In 1985, the U.S. had 3 million workers in the defense industry. By 2021, the U.S. only had 1.1 million workers in the sector.
  • Fewer Companies. In the last five years, the defense ecosystem has lost a net 17,045 companies, and the Department of Defense estimates the number of small businesses participating in the defense industrial base has declined by over 40 percent in the last decade.

There’s also consensus for what’s needed to reverse the trend: make it easier for small manufacturers to participate in defense contracting. Full stop.

NDIA member surveys drive home the point: companies make it clear that it’s “easier to work with non-government customers than DoD,” and, that “defense companies find it harder to do business with DoD than other federal customers.”

 

And if perception is reality, companies don’t see the situation improving:

 

If part of the solution is understanding the problem, mission accomplished. That said, what’s the path forward?

“I don’t think there are any silver bullets here,” says Sustainment president and retired Brigadier General Chris Hill. (Read more from Chris Hill in Part I of this series.) Hill’s job today is, in part, to help the government tap the untapped potential of small- and medium-sized manufacturers.

“For companies, the truth is that they’re going to have to put more into it the first three to five years than they’re going to get out of it,” Hill says. “That’s a tough order for somebody to do. Even given the scale of the challenge, the Defense Department is not going to come knocking on their door.”

Hill’s thinking is shaped by several years managing the largest repair station in the DoD and United States Air Force at the Oklahoma City Air Logistics Complex. And for every step companies can take to improve their operational posture relating to DoD opportunities, many more must be taken at the federal level.

“What we’re really talking about here is a whole-government approach to supporting SMMs,” adds Hill. “This is bigger than just the DoD, and there are more tentacles [within the federal government] that may be better positioned to support this. For example, it’s not really the DoD’s sole job to support small business — that’s the role of the [Small Business Administration centers]. MEPs, [which are NIST-sponsored manufacturing extension partners], are out there supporting manufacturing through the Department of Commerce in more of a functional role. All that is to say that I think the imperative is to knit together the disparate government resources to help SMMs.”

And to reform others. One significant change currently underway is the relaunch of the national network of PTACs — Procurement Technical Assistance Centers — to the APEX Accelerator network. Lori Haozous is program manager at the Arizona APEX Accelerator and is already seeing an improvement in the program’s ability to partner with appropriate resources to better serve SMMs, along the lines of Hill’s suggestion.

“Going to the DoD Office of Small Business (OSB) program gives us more flexibility,” says Hazous. “Now, I can partner with the Arizona Commerce Authority and have autonomy in creating programs to fit Arizona companies.” (Illinois manufacturers can find more information on local PTACs through the Illinois Department of Commerce and Economic Opportunity (DCEO). California manufacturers find your local PTAC here.)

She continues, “Today, we need to increase participation in the Defense supply chain. And I know we have clients we can get involved. We can now do what’s necessary to find the resources to get these clients up to that level — or refer them to a reliable resource partner that can help in this area. It’s just educating them and letting them know that we’re here to help them through those parts that they are unsure of or they think is a barrier for them.”

In the end, defense contractors will decide who’s qualified and who’s not, and it would seem that any meaningful reform would include primes and tier-ones that ultimately control the DoD supply chain. They’re on Hazous’ radar — but not yet engaged. “We actually don’t have those strong relationships, yet. I know that moving forward, we need to incorporate these voices to discover processes or whatever requirements our clients need. That’s where we’re headed.”

It’s good news for an ecosystem that needs it. Sustainment’s Hill sees another precedent that bodes well. “There are organizations like the National Security Council, for example, that coordinate these whole-government approaches,” he says.

But as we await the systemic, overarching change in how the government does business, industry has a responsibility as well.

“There has to be some sort of meeting in the middle,” says Hill. “The nation recognizes that we have a gap. We’ve heard about it the last two years since COVID, and through the supply chain woes, inflation, and now geopolitical trade, tariffs, and all the different instruments that are putting pressure on supply chains.”

How, then, to meet a calling that private business has met for years? “The companies I worked with that are successful, they hustle,” says Hill. “That’s how they get it done. Just like every SMM in the country, does. They work their tail off trying to be competitive, agile, and build relationships.”

There’s an indication that in the future, they’ll be rewarded by more receptive DoD suitors. We’ll explore more changes being contemplated at their level in Part III of the series.

Bart Taylor is publisher of CompanyWeek. Email him at btaylor@companyweek.com.

The Arizona APEX Accelerator program (formerly Arizona PTAC) is hosted by Maricopa Community Colleges and funded in part by the DoD Office of Small Business Programs (formerly under the Defense Logistic Agency).

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