An Expert Debate: Targeting the DoD Supply Chain to Cut Costs (Part 1)

I recently came across some rather sharp commentary on Defense Professionals that quantitatively analyzes the opportunity for better procurement and supply chain practices to cut costs for the US military. It's a fascinating quick look at a giant contracting opportunity to save taxpayers money not by reducing military capabilities, but from better managing the sourcing, operations and supplier management processes associated with defense providers. After reading it, I decided to reach out to two colleagues and experts in the space to get their view on some concepts within the column. Given this is not my area of expertise, I'll refrain from opining myself (for a change).

The article notes, "In a series of public statements, Under Secretary of Defense for Acquisition, Technology and Logistics Ashton Carter has focused on a part of the defense budget that often escapes notice and, hence, its proper share of cuts. This is the supply chain. As reported in Defense News, according to Dr. Carter, for every $.30 DoD spends developing and acquiring weapon systems, it spends $.70 maintaining it. For every $.45 DoD spends on weapons, it spends $.55 on services. Overall, the Pentagon spends $200 billion per year on logistics."

Daniel Goure of the Lexington Institute, the author of the column (and author of Early Warning Blog) suggests that "the reality is that the Pentagon's approach to logistics is appropriate to a different age and a different kind of military. When systems remain in service for 30, 40 and even 50 years, a sustainment model based on short-term contracts and fee for parts and services is ridiculous...[moreover] Dr. Carter and the Pentagon face an enormous challenge in squeezing savings out of the supply chain. One problem is that the lack of adequate modernization of defense capabilities during the last buildup means that the military has a massive overhang of aging and even obsolescing equipment that must continue to be maintained and even modernized at increasing expense. So the costs to keep the current force running will inevitably increase."

Stay tuned for the second part of this series, where we solicit the commentary of Raj Sharma, CEO of Censeo Consulting Group and a visiting fellow at the Center for American Progress and Bill Angeloni, former CEO of Exostar, an A&D marketplace which serves as a supply chain shared service for many of the largest global defense contactors.

Jason Busch