Programming for Resiliency in the Munitions Enterprise.
In July 2017, the President signed Executive Order 13806, which seeks to assess the resiliency of the defense industrial base. Some of the challenges listed in the executive order include:
1. The physical plant capacity of the defense industrial base.
2. Gaps in national-security-related domestic manufacturing capabilities, particularly around single points of failure.
3. Problems with third-tier and lower-level suppliers, including obsolescence of parts and infrastructure, and reliance on actors of concern outside the United States.
Studying the munitions enterprise is not a new phenomenon. In 1972, RAND completed a weapons supply and demand analysis for the Air Force. Although dated, many of the concepts and frustrations discussed then are not much different today. It is difficult to match supply and demand when demand can change much faster than supply. More recently, over the past couple of years, the Joint Staff and Office of the Secretary of Defense (OSD) staff completed several munitions-related Strategic Portfolio Reviews (SPRs). These SPRs provide senior DoD leadership the analysis required for decisions relating to current operations, projected shortfalls, risk balancing, and trade-space. The Institute for Defense Analysis (IDA), a federally funded research and development center (FFRDC), was working on three projects relating to the munitions enterprise at the end of 2017. These projects involve optimizing the munitions enterprise for sustainment and surge, munitions preparedness options, and an assessment of alternative weapon effectiveness. In short, the munitions enterprise contains an incredibly complex mix of factors.
Three current examples demonstrate the challenges facing the munitions enterprise. First, the United States must import explosives to meet its current demand. Second, the Joint Direct Attack Munition (JDAM) tail-kit production process contains many single points of failure. Third, a lack of visibility into problems with lower sub-tier suppliers can lead to long production delays.
Capacity at Holston Army Ammunition Plant
Holston is a government owned, contractor operated (GOCO) facility, operated by British Aerospace Systems (BAE). It produces nearly all of the explosives (Research Department Explosives [RDX], High Melting Explosive [HMX], and Insensitive Munitions Explosive [IMX]) used for filling munitions. (1) During World War II, the capacity for RDX peaked at around one million pounds per day, but current capacity is only a few percent of that. Over the past 15 years, DoD leadership took a risk by funding priorities other than the munitions stockpiles and production processes. As a result, explosives production is not keeping pace with the joint force's munitions consumption. To fill the gap, the United States is buying tens of millions of pounds of TNT from overseas sources. Between fiscal year FY2017 and FY2020, the United States will invest nearly $500M to increase the current capacity at Holston. Even with this investment, achieving the capability to meet America's explosives demand will not happen until FY2023.
Single Points of Failure for JDAM Tail Kit Production
Shortly after 9/11, the DoD quadrupled its monthly JDAM tail kit requirement from 750 to 3000. (2) This was a significant requirement for Boeing, the prime contractor, and the capacity increase took two years. (3) There are three critical sub-tier components manufactured by three different suppliers that are necessary to complete the JDAM tail kits--the inertial measurement unit (IMU) by Honeywell, the global positioning system receiver by Rockwell Collins, and the thermal battery by Eagle Picher. DoD provided additional funds to these sub-contractors for test and production equipment, as well as for infrastructure to support the increased capacity. (4) Today, the DoD has the same concerns with these and other sub-tier production lines. Tactical missiles share many of the same critical sub-components and are more complicated. Since capacity does not equal current demand, there are sub-component trade-offs between weapons systems for a given munition's maximum production rate (MPR). Similar problems arise across the components of seekers, fuses, warheads, jet engines, and rocket motors, requiring DoD to prioritize industry efforts. (5)
Visibility into Sub-tier Suppliers
The most significant sub-tier issue in 2017 involved a voltage control switch from a fifth tier supplier, Silicon Power. DoD was not informed the semiconductor production facility had closed until two years after the event. A proper transition would have involved DoD making a three-to five-year end-of-life buy, but that never happened. Consequently, there was only a six-month supply of switches and not enough time to engineer, integrate, and test a new solution. (6) Another example is lead nitrate (used in lead styphnate) which is used in almost every gun primer for small and medium caliber ammunition. Nearly all lead styphnate is imported from China. Other overseas dependencies exist.
In response to Executive Order 13806, a recent Munitions and Missiles Working Group identified the following significant sector-wide risks: material obsolescence, lack of redundant capability, visibility into sub-tier suppliers, loss of design and production skills, and gaps in surge capacity. (7) While there are many layers of complex problems in the munitions enterprise, the focus here is on what the programming community can affect. Four topic areas are: the reliance on Overseas Contingency Operations (OCO) funds; single points of failure; predictability; and explosive and propellant production.
The challenge from the programmer's perspective is how to distribute funding for munitions over the Future Years Defense Program (FYDP) when demand is neither static nor very predictable. Two critical factors are the minimum sustaining rate (MSR) and maximum production rate (MPR). Maintaining an MSR is essential from the perspective of the industrial base to ensure the long-term availability of the munition. The MPR is the point at which increasing production requires significant additional resources such as people, shifts, and infrastructure, and the major constraints are usually time and funding. With some munitions, achieving the MPR can require a multi-year investment. Some other complexities in managing a munitions portfolio are variable unit costs, discount pricing, critical sub-components, and production trade-offs within families of munitions. Program managers maintain an extensive group of products and customers using a variety of pricing strategies. Programmers and program managers must also account for Foreign Military Sales.
When determining purchase quantities for a munition, Services must consider the acquisition objective, production rate, and the total munitions requirement (TMR). Some of the criteria used for deciding TMR have evolved over the years, but TMR is a function of training, testing, current operations, and strategic reserves. Programming decisions for munitions consider a comparison of the current inventory to the use of production capacity, and the impact of current activities relative to the TMR. In this context, munitions programmers and program managers should determine the purchase quantities from a limited budget given Service demand, while keeping in mind the constraints and risks from the industrial base.
The Services manage their Program Objective Memorandums using both base budget and OCO projections to meet their requirements. While the base budget FYDP is for a five-year projected period, Congress and the Office of Management and Budget (OMB) annually renegotiate OCO funds and the associated business rules. Although the base budget is relatively stable, reliance on OCO funds can lead to unpredictable outcomes. Consequently, Services tend to understate their munition requirements at the end of the FYDP in anticipation of being able to use OCO funds to meet their needs. Even if the Services publish "anticipated OCO," this exposes the industry to non-trivial risks. Those risks escalate when there is pressure to reduce the DoD budget.
At the macro level, OCO funds provide the Services with additional resources and flexibility. At the budget execution level, there are many indirect linkages to OCO funds, and the business rules regarding items that qualify as an OCO expense are subject to change each year. Although Service accounting requirements and OMB guidance may discourage this practice, keeping all munitions dollars (particularly those designated for precision-guided munitions) in the base budget instead of relying on OCO funds would bring more stability to both government program managers and the industrial base.
Single Points of Failure
The Munitions Industrial Base Task Force, which consists of representatives from 15 major defense companies and the government, identified over 300 single points of failure in the munitions industrial base. (8) The Army, the Single Manager for Conventional Ammunition (SMCA), is the Service responsible for the production of shared conventional ammunition, explosives, and propellants. (9) The Army, through the Program Executive Office--Ammunition, also maintains a statutorily required watch list, which details items and capabilities essential to responding to a national emergency. These items remain at risk without some level of government intervention.
There is no mathematical formula for optimizing resiliency as resiliency-based decisions are a function of qualitative risk assessments. Thus, OSD, Joint Staff, and the Services need a general toolkit to help visualize these risks. Such a kit should incorporate the single points of failure and watch list items in a format that analyzes the impacts of the possible programmatic changes in the context of the entire enterprise. The ongoing efforts of IDA's projects on the munitions enterprise might serve as a starting point for this initiative.
Corporations and government program managers desire predictability. Given the long production timelines ranging from two to three years depending on the munition, the defense industrial base needs a stable demand signal. Given an MSR, MPR, and lead-time, the optimal production for each munition requires maximum predictability and risk reduction. A production manager deals with many trade-offs within families of munitions, production interdependencies with sub-tier suppliers, and many types of contracts that are periodically rebid. The challenge at the macro level lies in balancing long-term production with future requirements, which is extremely difficult due to the inability to accurately forecast the total needs for each munition type over a five-year horizon. Thus, in most cases, a default technique is to make regular incremental purchases. The Joint Munitions Command is presently using the Industrial Base Assessment Tool (IBAT), which uses these principles to determine some elements of industrial trade space. However, IBAT captures only the programs for which the SMCA is responsible.
Integrating appropriate watch list items and single points of failure into the IBAT would add both resiliency and predictability to the overall system and the PPBE process. Increased visibility into sub-tier suppliers for critical items would help mitigate risks related to obsolescence or sources outside of the United States. Either OSD or the Joint Staff should maintain such a tool with the appropriate resolution of information. This increased situational awareness at OSD or the Joint Staff would help make munitions (particularly precision-guided munitions) purchasing much more predictable and stable, benefiting both the industrial base and the joint force. Furthermore, it would yield improvements in acquisition and contracting strategies (for example, deciding to use an indefinite delivery/indefinite quantity vs. a firm fixed price contract).
Energetics (Propellants and Explosives) Production
The munitions enterprise consists of government owned, government operated (GOGO) and government owned, contractor operated (GOCO) installations, as well as commercial production facilities. Many of these GOCO installations trace their birth to the rapid buildup following the U.S. entrance into World War II. The Holston Army Ammunition Plant produces nearly all of the U.S. military explosives, and the Radford Army Ammunition Plant provides almost all of the U.S. military propellants for ammunition items. (11) Propellants for missiles are produced in the commercial industrial base. These critical installations are Rubik's cubes of finances, processes, shipping, environmental requirements, and chemistry projects. Managed by BAE, nearly every munition in the inventory contains a product from these two plants. They have been running at maximum capacity for some materials since the beginning of the War on Terror.
There are several problems with GOCO facilities that are beyond the scope of this article. In short, there is a compelling case for more government control at these installations since the private sector has different incentives than the public sector. Corporate leadership decisions ultimately default in favor of the interests of shareholders (protection of profits). They optimize actions and investments for peacetime steady state production, and will not develop a warm base additional surge capability unless contracted.
Private firms have no incentive for investing in new infrastructure that would be available past the date of their current contract. GOCO facilities currently have over one billion dollars of deferred maintenance. (12) It is the nature of the private business model to focus on the most profitable product lines. However, the intricate supply chains in the munitions enterprise that support America's national security require resiliency, reliability, and redundancy. Corporations with monopolist pricing power over a government service inherently optimize for profits, but not for national security. An additional problem with the GOCO model is personnel turnover when a contract changes. The health of the munitions infrastructure is a national security imperative that requires more government involvement, not less. (13)
Some might argue that the conversion of some, or all, of the GOCO facilities to GOGO, would reduce the number of single points of failure, improve the quality of infrastructure, and provide a more robust workforce. While that might be worth considering, an alternate path forward would be to pay contractors to maintain and exercise excess capacity. Holston is currently operating at 100% capacity and has partially completed $500M of capital improvements focused on increasing production. Once the additional capacity is available in FY2023, the Army should consider periodically surging output by creating and maintaining stockpiles of intermediate products that have long-life expectancies.
There are three actions the programming community should implement to improve resiliency in the munitions industrial base.
(1) Eliminate reliance on OCO funding to procure base budget quantities of munitions, particularly precision-guided munitions. Procurement quantities must be transparent in the base budget to give commercial entities an actionable demand projection. Using base budget dollars instead of OCO funds would create more certainty for corporate planning.
(2) OSD or the Joint Staff should maintain a tool that models and visualizes portions of the munitions enterprise relating to macro level production, programming, single points of failure, and the watch list. An increased level of situational awareness, an understanding of corporate trade space, and early identification of potential sub-tier issues will improve decision making by offering a framework for decision-makers to think about resiliency when distributing resources.
(3) Pay U.S. based contractors to develop and exercise excess capacity for explosive and propellant production. In the near term, demand will continue to exceed production capability. Once capacity exceeds output, using excess capacity from time to time by creating stockpiles and temporarily increasing production would be beneficial to the overall system.
While the corporate world has quarterly profits as a quantitative report card, national security requires qualitative grading. At a simple level, munitions programs need both a steady state and a surge capability. Warfighter demands may change at a moment's notice. In contrast, production problems in the munitions and industrial base often take years to solve. The current system does not plan or budget for "resiliency." It is difficult for industries to optimize infrastructure and workforce when DoD creates giant swings in demand. Industries will always adjust, with the final bill paid by the taxpayer. Every munition has its own story, but the programming community needs to balance both resources and risk across the enterprise more efficiently.
Risk reduction and resiliency are the daily responsibility of program managers all across the enterprise, but there are actions the programming community can take. Elimination of OCO for munitions would improve long-term planning for industries as well as program managers. With all of the information technology tools and data science of the 21st Century, the programming community in the Pentagon (OSD, Joint Staff, and Services) should have better visibility into supply chains, sub-tier issues, and production tradeoffs. In the world of explosives and propellants, there is no excess current capacity. When allocating funds across many programs, the PPBE community must consciously seek a funding profile that maximizes system resiliency. The fundamental nature of this problem will continue to exist. To retain the ability to fight the nation's wars, the U.S. requires a robust and resilient munitions enterprise. This is a never-ending rebalancing of risk that requires endless multi-organizational discussions and actions.
Lieutenant Commander Leslie E. Cornwall
Lieutenant Commander Leslie Cornwall, USN, CDFM. LCDR Cornwall serves as Operation and Maintenance, Navy Reserve Appropriation Branch Head, at the Office of the Chief of Navy Reserve. LCDR Cornwall earned a BS in political science from the Naval Academy in 2004, an MS in human resource development from Texas A&M University in 2011, and an MBA in financial management from the Naval Postgraduate School in 2017. Prior to his current assignment, LCDR Cornwall served as Flag Aide to Commander, Navy Reserve Forces Command.
Lieutenant Colonel Christopher I. Eastburg
Lieutenant Colonel Christopher I. Eastburg, USA. LTC Eastburg is an operations research analyst in the Office of the Secretary of Defense--Cost Assessment and Program Evaluation. He earned a BS in mathematics and operations research. LTC Eastburg earned an MS in operations research and an MBA from Georgia Tech in 2009. Prior to his current assignment, LTC Eastburg worked at the Army Test and Evaluation Command.
Lieutenant Colonel David L. Padilla
Lieutenant Colonel David L. Padilla, USMC. LtCol Padilla is the Maritime Operations Planner, N35 Future Operations OPG, Commander Naval Forces Europe, Commander Naval Forces Africa, Commander Sixth Fleet. He earned a BS in criminal justice from Troy University in 1998 and an MS in international relations with focus in conflict resolution in 2011. Prior to his current assignment, LtCol Padilla served as Deputy Chief, J3 Joint Operations Coordination Element (JOCE), United States Forces Korea, Combined Forces Command--Korea, and United Nations Command.
(1) BAE Systems, (n.d.). Holston Army Ammunition Plant. Retrieved February 14, 2018, from https://www.baesystems.com/en-us/product/holston-army-ammunition-plant.
(2) Department of Defense (DoD). (2005). Strategic Assessment for the Precision Guided Munitions Industrial Base. Washington, DC.
(6) Michienzi, C. (n.d.). Excerpt from Report on the Defense Industrial Base in Response to Executive Order 13806. Washington, DC: Department of Defense (DoD).
(8) Department of the Army (2016). United States Army Ammunition Industrial Base Strategic Plan (IBSP): 2025. Washington, DC.
(9) Department of the Army (2017). Single Manager for Conventional Ammunition (SMCA) Advanced Planning Briefing to Industry Guidebook. Washington, DC.
(10) Department of the Army, United States Army Ammunition Industrial Base Strategic Plan (IBSP): 2025.
(11) BAE Systems, Holston Army Ammunition Plant.
(12) Department of Defense (DoD). Real Properly Asset Database (2017).
(13) Ferrari, John (2009). Transferring Conventional Munitions Industrial Base Capabilities to the Public Sector. Defense Acquisition Review Journal, 159-170.
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|Author:||Cornwall, Leslie E.; Eastburg, Christopher I.; Padilla, David L.|
|Publication:||Armed Forces Comptroller|
|Date:||Sep 22, 2018|
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