{"id":53190,"date":"2022-02-11T17:45:48","date_gmt":"2022-02-11T17:45:48","guid":{"rendered":"https:\/\/one.sightlinemg.com\/defensenews\/uncategorized\/2022\/02\/11\/covid-drags-defense-industrial-base-down-to-failing-grade\/"},"modified":"2026-08-07T23:49:55","modified_gmt":"2026-08-07T23:49:55","slug":"covid-drags-defense-industrial-base-down-to-failing-grade","status":"publish","type":"post","link":"https:\/\/one.sightlinemg.com\/defensenews\/industry\/2022\/02\/11\/covid-drags-defense-industrial-base-down-to-failing-grade\/","title":{"rendered":"COVID drags defense industrial base down to failing grade"},"content":{"rendered":"\n

WASHINGTON \u2014 The National Defense Industrial Association gave the defense industrial base an overall failing grade for the first time ever, as the ongoing COVID pandemic<\/a> continues to upend the sector.<\/p>\n\n\n\n

In its third annual Vital Signs report released Feb. 2, NDIA gave the industrial base a health and readiness score of 69 out of 100, which it deems an unsatisfactory and failing grade and \u201ccause for real concern.\u201d<\/p>\n\n\n\n

NDIA, which worked on the report with decision science company Govini, scores categories on a 100-point scale, and scores below 70 are considered failing. The association based most of its study on data sources from 2020, the first year of the pandemic and before vaccinations began, so some of these results are lagging indicators.<\/p>\n\n\n\n

NDIA said the two of the eight key categories it uses to measure the health of the defense industry \u2014 the supply chain<\/a> and companies\u2019 production capacity and ability to surge if necessary \u2014 have deteriorated significantly, \u201calmost certainly\u201d due to the pandemic\u2019s effects. Three other categories \u2014 industrial security, innovation and production inputs \u2014 also received failing scores in 2021, though production inputs and industrial security saw slight improvements over the previous two years.<\/p>\n\n\n\n

And with the pandemic continuing, the association added, it is crucial for the nation to figure out how to sort out these problems. However, NDIA said it opted not to offer policy recommendations, support specific legislative or regulatory changes, or call for investments in the report.<\/p>\n\n\n\n

\u201cThis score serves as a wake-up call to all who care about the state of our national security,\u201d retired Gen. Herbert \u201cHawk\u201d Carlisle, NDIA\u2019s president and CEO, wrote in the report\u2019s introduction. \u201cThe pandemic reinforces the fact that our defense industrial base is not isolated from the American economy or the global business environment. Now, more than ever, we must pay heed to the health of our base as it serves our warfighters.\u201d<\/p>\n\n\n\n

Govini CEO Tara Murphy Dougherty said in a Wednesday morning press conference that problems with the defense sector could become a national security concern if the defense sector can\u2019t attract the most innovative companies \u2014 particularly because China\u2019s government is investing heavily in emerging technologies.<\/p>\n\n\n\n

\u201cDoD has to attract the companies that are working on bleeding-edge technology in the commercial sector of the United States economy,\u201d Dougherty said. \u201cIf we cannot accomplish that, the techno-military challenge and competition that we\u2019re facing with China will continue to undoubtedly get more difficult.\u201d<\/p>\n\n\n\n

The defense industrial base includes manufacturers, systems integrators, service providers, technology firms, labs and research organizations, and other suppliers across the entire United States that in one way or another help supply the military. NDIA said its findings were not to judge the companies themselves, but the environment in which they operate.<\/p>\n\n\n\n

Nearly 400 businesses also responded to a survey NDIA conducted last August. Of those, 71% said their business had been moderately or greatly hurt by the pandemic, and 14% don\u2019t believe their business will ever get back to what they once were.<\/p>\n\n\n\n

Pandemic-related assistance also appears to have largely dried up, with 63 percent of respondents reporting they had not received financial help from any source since the end of December 2020.<\/p>\n\n\n\n

Ailing supply chains<\/h1>\n\n\n\n

Supply chain problems \u2014 which have been repeatedly highlighted by top industry leaders in recent months \u2014 largely erased the considerable progress the industry had made the prior year. Between 2019 and 2020, the supply chain score in NDIA\u2019s reports increased from 60 to 71 \u2014 a barely passing grade. But the 2021 score plunged 8 points to 63.<\/p>\n\n\n\n

With the pandemic snarling all parts of the supply chain, it took companies considerably longer on average to recoup a dollar invested in a product as a cash receipt, NDIA said. This had ripple effects, as companies that had to wait longer for their sales also had to wait longer to re-invest those revenues into producing new goods for sale, stretching bottom lines.<\/p>\n\n\n\n

And NDIA predicted that the next Vital Signs report will show even more pandemic-caused supply chain turmoil.<\/p>\n\n\n\n

Carlisle said in the press conference the budget uncertainty caused by the lengthy and frequent use of continuing resolutions worsens the sector\u2019s supply chain problems. If companies can\u2019t be sure when the Defense Department will have the money to pay them, they can\u2019t place the pre-orders or advance purchases they need to operate most efficiently, Carlisle said.<\/p>\n\n\n\n

And that\u2019s an entirely self-inflicted wound, said Wes Hallman, NDIA\u2019s senior vice president for strategy and policy, adding that it\u2019s one the nation\u2019s adversaries do not have to work around. Hallman also highlighted the problems caused by a sluggish nomination and confirmation process, which has left multiple key DoD positions unfilled.<\/p>\n\n\n\n

\u201cWithout having those folks there, we are losing something that we can never get back, and that is time,\u201d Hallman told reporters. \u201cTime wasted is time that we cede to our competitors. Our competitors do not have to operate under a CR.\u201d<\/p>\n\n\n\n

\"\"
F-35s being built at the Lockheed Martin Factory in Fort Worth, Tx., in April 2012. The National Defense Industrial Association is raising concerns about the defense industrial base’s worsening health amid the pandemic. (Lockheed Martin)<\/figcaption><\/figure>\n\n\n\n

Hallman said other nations have the ability to force their industrial base to support military goals. The United States doesn\u2019t want to do that, he said, but it needs to be able to leverage the creativity of its own economy.<\/p>\n\n\n\n

\u201cThe harder you make that and the less that you have direction, and the less you have certainty, then those folks are unwilling to make those investments or to jump into this sector,\u201d Hallman said. \u201cThat\u2019s something that Congress can focus on as well.\u201d<\/p>\n\n\n\n

Productive capacity and surge readiness \u2014 which NDIA said is \u201ca key test\u201d of the defense industrial base\u2019s health and measures industry\u2019s ability to expand its output and meet increased military demand \u2014 are also victims of supply chain woes, seeing the most significant slide since before the pandemic. In 2019, NDIA gave that category a healthy score of 80. In the following year, it slid 13 points down into an \u201cunsatisfactory, failing\u201d score of 67.<\/p>\n\n\n\n

Amid the pandemic, this productive capacity and surge readiness category plunged another 15 points down to a score of 52, in the \u201ccritical, failing\u201d range. NDIA said this was largely due to declines in industry\u2019s output efficiency. That score was an already-critical 48 in the 2020 report, but this year\u2019s report saw it plunge even further, down to 20.<\/p>\n\n\n\n

The production input score, which ticked up one point to a still-unsatisfactory 67, measures factors such as the costs of goods and services, access to vital materials, the diversity, productivity and compensation of the industry\u2019s workforce, the talent pool for science, technology, engineering and mathematics workers, and the security clearance process. The sluggish security clearance process and access to strategic materials such as rare earth metals needed for microelectronics, batteries, magnets, and other electronic components, continued to be a major \u2014 although improving \u2014 drag on this sector.<\/p>\n\n\n\n

But two-thirds of respondents said it remained somewhat or extremely difficult to find workers with the security clearances they needed.<\/p>\n\n\n\n

The healthiest sector in the report was in the \u201cdemand\u201d category, which improved significantly along with the growth in the military\u2019s budget and increased contracts. Demand was spurred in part by a notable increase in foreign military sales in recent years, which grew from almost $32 billion in 2017 to more than $50 billion in 2020 and represented \u201ca bright spot for the defense industry.\u201d But, NDIA noted, growing inflation and the potential for flat budgets could deal a blow to demand.<\/p>\n\n\n\n

And while competition overall remains strong, NDIA highlighted a \u201cworrying\u201d drop in the number of new vendors entering the defense industrial base, from 6,500 entering in 2019 to 6,300 in 2020. If the defense industry has to rely on a smaller pool of vendors, that could lead to production or innovation shortages, the report said, or discourage other potential new vendors from competing.<\/p>\n\n\n\n

As in past years, industry leaders told NDIA that the two main things the government can do to help the defense industrial base would be to streamline the acquisition process and \u2014 after years of continuing resolutions and other uncertainties \u2014 to provide budget stability. Most industry leaders also said uncertain business conditions would cause them to hold back from expanding their military production capacity, and that excessive paperwork is discouraging them.<\/p>\n","protected":false},"excerpt":{"rendered":"

NDIA found that amid the pandemic, supply chains and companies’ ability to surge production have deteriorated significantly.<\/p>\n","protected":false},"author":7,"featured_media":26212,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_yoast_wpseo_meta-robots-noindex":"","_yoast_wpseo_meta-robots-nofollow":"","_yoast_wpseo_canonical":"","_acf":"","_yoast_wpseo_primary_category":12,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","_smg_distribution_targets":[]},"categories":[160,33,12,36],"tags":[],"coauthors":[3412],"class_list":["post-53190","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-daily-news-roundup","category-home","category-industry","category-newsletters"],"acf":{"subheadline":"","legacy_arc_id":"RYX2U2OA25A4XPAV55PEYDNQVI","arc_canonical_url":"\/industry\/2022\/02\/11\/covid-drags-defense-industrial-base-down-to-failing-grade\/","remove_feature_photo":false,"is_sponsored":false,"subtype":"","redirect_url":"","disable_inline_ads":false,"native_logo_pretext":"Presented 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