Defence production: is just-in-time just too late?

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The war in Ukraine is driving home a message that lean defence supply chains are far less attractive in a time of conflict than in peacetime. This may contribute to the largest re-evaluation of defence supplies in 30 years.

In peacetime, lean supplies promise lower budgets, tight inventory management and little excess production infrastructure. Coupled with supply-chain problems caused by the COVID-19 pandemic, however, the war in Ukraine is demonstrating to the United States Department of Defense (DoD) and other defence establishments that some additional costs in their associated industries may well be worth carrying – and indeed could be vital. This is particularly so for Washington when considering any potential confrontation with China. That prospect is adding further urgency to recent efforts to embrace new types of suppliers that appear more nimble, innovative and willing to take risks.

Calling time on just-in-timeWhat is unfolding may be the biggest reassessment of defence-industrial needs since the post-Cold War moment in 1993 when then-US deputy defense secretary William Perry hosted the ‘Last Supper’ of prime defence-contractor bosses and warned that defence cuts meant the industry would have to consolidate. That shaped today’s US defence-industrial base. With the end of the Cold War, the Pentagon moved away from maintaining costly stockpiles and embraced the just-in-time supply model of the corporate world to help generate a peace dividend.

But DoD Under Secretary of Defense for Acquisition and Sustainment Bill LaPlante says the Ukraine conflict and other factors have highlighted the weakness of some of that thinking, which can hobble efforts to boost production. As Pentagon acquisition chief, LaPlante has called shifting away from a just-in-time approach ‘something that is essential to the future fight’.

Similarly, US Air Force Lieutenant General Michael J. Schmidt, who runs the Joint Program Office for the Lockheed Martin F-35 Lightning II, said, ‘When you take a just-in-time mentality, which I think is kind of a business model in the commercial industry that works very well in terms of keeping cost down and those kinds of things, it introduces a lot of risk operationally.’ Speaking at a US Navy League gathering, Gen. Schmidt argued that the military needs to figure out what amounts to adequate resilience for a future conflict.

Building massAfter years during which Western governments at times talked with their suppliers about what the minimal production rate was that could keep manufacturing lines open without much equipment being bought, both are now scrambling to increase volume. The Pentagon this year set up the Joint Production Accelerator Cell to enable it to ramp up output more quickly and cheaply.

According to Lockheed Martin Chief Executive James Taiclet, the company is eyeing a boost in Patriot PAC-3 interceptor-missile output from 450 last year to 550 by 2026 – an increase of more than 20% in three years. Also by 2026, production of Javelin anti-armour weapons is due to top 3,500 units, up from 2,000 currently, while output of the Himars-fired Guided Multiple Launch Rocket System (GMLRS) would jump 40% to 14,000 rockets.

‘We want to get the fragility out of the system, so if this ever happens again, it’s six months instead of three years to get a meaningful improvement in capacity. And that's how you seem the government acting now,’ Taiclet said.

Rheinmetall, one of Europe’s biggest beneficiaries of the stepped-up demand for munitions as a result of Russia’s invasion of Ukraine, is also ramping up output. The German land-systems specialist is in talks with Ukraine to locate production capacity in that country.

US land-systems manufacturer General Dynamics says it is running more shifts to boost output, but it is also building new facilities and putting in place more modern equipment to enhance production. The Pentagon, meanwhile, estimates it has provided more than one million 155mm rounds to Ukraine over the past year.

Governments are also reaching across borders to address their supply concerns. The US and Denmark, for instance, signed an agreement in February to provide each other with priority support for defence-related goods and services. The accord is one of more than a dozen such deals the Pentagon has struck.

Higher production rates come with an upfront bill in terms of plants and tooling, and place a premium on skilled workers, but they also promise lower unit costs through economies of scale.

New horizonsThis year the US has also put more emphasis on its push to work with non-traditional suppliers, including start-up companies. It named Apple executive Doug Beck to lead the Defense Innovation Unit, which now also reports directly to the US defense secretary.

The US defence-budget request currently before Congress also includes more than US$100m in funding for a new organisation aimed at connecting private capital with start-ups working on innovative technologies with national-security applications. The Office of Strategic Capital, through tools such as loans and loan guarantees, aims to bridge what it sees as investment gaps.

The Pentagon’s broad effort to expand the pool of contractors is showing early signs of pay-off. The army has small and non-traditional suppliers involved in its Future Tactical Unmanned Aircraft System project. Companies such as Anduril, the defence-focused start-up backed by the Founders Fund venture-capital firm, are becoming regular suppliers for items such as devices to counter uninhabited aerial vehicles and other products. The US National Reconnaissance Office has started to do business with some regularity with new commercial service providers, including in the field of hyperspectral imaging and space launch systems.

The end of the Cold War reshaped the US defence industry. The impact on the sector of another war, Russia’s full-blown invasion of Ukraine, could be equally far-reaching.