Munitions industrial base: trouble on the horizon.

A confluence of current events indicates that a vital national resource--the munitions industrial base--urgently requires attention.

These concerns are not merely theoretical or speculative. They are based on historical facts. Between 1985 and 1994, Defense Department funding for the procurement of ammunition declined by 80 percent. The inevitable result of severely restricted production was a shake-out of producers. More than 70 percent of the firms that had participated in the manufacture of munitions exited the field, never to return. The ranks of a highly skilled and experienced work force were similarly decimated.

Little consideration was given to this reality, and little or no planning was done to ameliorate its effects. Individual producers and suppliers struggled to adjust, but lacked a clear, approved baseline to serve as a guide to the future. Knowing little more than the fact that funding was decreasing from one year to the next, ammunition producers had no satisfactory basis for business decisions on investments and the setting of production rates. There was no light at the end of the tunnel, and the rational business choice for many was to go in another direction.

What may have been a rational choice for an individual firm, however, often was irrational from the point of view of the industry as a whole and its continued ability to meet the needs of the military services. The cumulative effect was a munitions industrial base in crisis, literally on the verge of collapse. One reaction of the private sector was the formation in 1993 of the Munitions Industrial Base Task Force--a coalition of 18 major producers. Its primary goal was to make clear that the munitions industrial base was in danger of disappearing. A strong, unified message was carried to the Defense Department, the services and Congress.

An injection of funds allowed the situation to be stabilized. In 1995 and 1996, the office of the secretary of defense added more than $2.2 billion to ammunition budgets between 1996 and 2002. Congress appropriated more than $1.9 billion above service budget submissions for ammunition procurement for the 1995-2002 period. In the ensuing years, depletion of stocks caused the services to increase their funding requests. Ammunition consumption had increased substantially as a result of the Iraq war and the global war on terrorism.

Compared to its former perilous state, the munitions industrial base is today on a relatively sound footing. Inevitable change lies in the future, however.

Budgetary pressures will force reductions in overall defense spending. Historically, when defense spending slows down, the money provided for the procurement of ammunition declines even faster.

The services expect that their "reset" costs for replenishing their war equipment will be at least $17 billion annually for the next three to four years. These expenditures likely will compete for scarce budget dollars.

The requirements for ammunition to support combat operations in Iraq will dwindle as that conflict winds down.

For a limited number of munitions, excess production capacity currently exists.

The nature of future conflicts will change some munitions requirements in fundamental ways. For example, the needs for tank and artillery ammunition may decline. On the other hand, requirements for precision guided munitions and less-than-lethal munitions will likely increase.

Many munitions production capabilities remain "one deep." The Army's program executive office for ammunition is now giving considerable attention to this issue.

Munitions professionals in government or industry take as a given that the industrial base will be funded at reduced levels. Their concern is ensuring that the base remains capable, competent, and responsive, while financially viable.

"We must plan the objective state of the munitions industrial base," said Mark De Young, president of the ATK Ammunition Systems Group--a member of the board of directors of the munitions industry task force. Positive, proactive steps taken now will avoid a repetition of past difficulties. Implementing the planning advocated by De Young will be a munitions industrial base that achieves a "soft landing," the term currently in vogue to describe this future state of the base.

The nation's munitions industrial base must be the "right" size--able to handle the military's continuing needs in a cost effective manner, but also able to adjust rapidly to unpredicted surge requirements. Equipment and facilities must be modern and efficient, and workers must be skilled and experienced. There must be financial incentives to persuade businesses to remain in the base.

The Defense Department must determine its long-term requirements for each product line, while industry must set the minimum sustaining rate for the required production capabilities of each area. The goal is to maintain a production rate consistent with the volumes required, which can rapidly adjust to higher demand when needed.

Taken in the aggregate, a harmonization of requirements and production rates will lead to a gradual downsizing of the base, preferably on a glide slope lasting several years.

Budget planning must ensure that each product area continues to be funded at a level consistent with its minimum sustaining rate.

Acquisition strategies should specifically weigh the continued maintenance of the U.S. munitions industrial base as being at least on a par with cost, schedule and performance.

A strong military partnered with a strong industrial base are powerful deterrents to potential adversaries. If war does arise, the readiness of the military and the industrial base will be key to swift and successful resolution.

William R. Holmes, a retired Army brigadier general, is president and CEO of Day & Zimmermann Munitions and Defense. Robert A. Seraphim is a former professional staff member of the U.S. House of Representatives' Appropriations Committee, subcommittee on defense.