Publication Details

24 December 2024

The Ukraine war has brought industrial warfare to the fore (Vershinin 2022). After almost depleting western and allied countries weapons stockpiles, their Defence Industrial Bases (DIB) inability to deliver at the scale and time needed to replenish inventories and sustain operations at the front, has increasingly become the major cause of Ukrainian difficulties and retreats, when faced with an -at least for now- deeper and more resilient Russian defence complex (Snegovaya, et al. 2024).

Several western Ministries of Defence (MoD) officials and strategic documents from the US, UK, France and the European Union, have raised criticism of their respective countries DIBs performance (Liang et al. 2023, Vergun 2023, Mackenzie 2024, UK MoD 2022). In particular, they have pointed out two hurdles: low levels of available stocks of parts and raw materials, and their low ability to surge production.

When searching for a cause, some remember the -seemingly everlasting- pernicious effect that the reforms of the 1990s had on competition in this sector: large concentrations that led to few suppliers for each major system. Other officials, like French Minister of Defence Sébastien Lecornu[2] and US Undersecretary of Defense for Acquisition and Sustainment William La Plante[3], among several analysts, have pointed to the preeminent practice of Just-in-Time (JIT) philosophy and techniques as the root of the problem (Clark 2023, Wall 2023, UK MoD 2022)[4].

This has partly translated into recent US (US OSD 2024), UK (UK MoD 2021), French, German and EU defence industrial strategies (European Commission 2024, Schnitzler 2024). These are focused mostly on acquisition reform and simplifying requirements. Although these documents address supply-chain weaknesses and difficulties for surging production, actual references to industrial planning and supply-chain management are absent. However, we will argue these frameworks should be considered more seriously.

Defence production lines

The more relevant weaponry sent to Ukraine can be broadly identified in three groups: 1) artillery ammunitions: 2) missiles, radios, radars and other ISR/EW and C-UAS systems. 3) larger system-of-systems platforms, such as armored vehicles, air defence, artillery and rocket launchers. From an industrial perspective, these groupings' main difference is volume and underlining technological variability (Novella 2021):

• In the case of ammunition, missiles and C4ISR/EW systems, supply is more predictable: any given factory produces them by the thousands, following a mature manufacturing process, that doesn’t require customization or re-engineering. Material goes through a flow line of several process centers with semi-manually operated machines (for handling, forging, shaping and painting).
• In the case of missiles and C4ISR systems, they are manufactured in the dozens or hundreds. Production follows an assembly line, with electronic sub-assemblies (such as circuitry and T/R modules) running through CNC machining centers. Processes are considerably stable, although it may be necessary to replace component obsolescence; for example, in missiles circuitry (US GAO 2024). 
• Lastly, armored vehicles and heavy artillery are also manufactured in low quantities, hundreds at most. Process involves longer and more manual assembly and integration activities (including bolting, screwing, wiring), and only some automation in particular workstations, usually welding, handling and painting. Under typical circumstances, the configuration may face increased process variability based on customer requests and upgrades.

Systems of manufacturing

As illustrated, the characteristics of these defence industrial segments make their production systems “to-order”, that is, either “assembly-to-order” (ATO), “make-to-order” (MTO), or even “engineering-to-order” (ETO). This means the so-called “pull-push interface” will be located closer to, or at, the sub-components, raw materials, or even at the design stage (and nowhere near the finished products stage, as in the case of the “make-to-stock” (MTS) system). The interface marks the point within the production chain at which orders move from being triggered by stock levels (pull) to being authorized to meet a programmatic demand (push). Moving the interface closer to the customer enhances speed but diminishes the agility to adjust supply according to demand.

In the case of defence industries, the prevalence of “to order” (ATO/MTO/ETO) systems is evident, since production is “pushed” by the previously known and contracted demand from the Armed Forces, while the “pull” limitation is “upstream” and mostly exercised on inventories of feedstocks and industrial commodity inputs (such as chemicals or materials). It seems paradoxical then that defence industries are accused of using “too much JIT”, since JIT is by definition the extreme case of a “pure pull” or MTS system. If they did, they would have stocks of unsold missiles and tanks, which is absurd; or they would have stocks of unused inputs, which would be ruined.

So, as some analysts correctly point out, the problem is not “too much JIT” (Cook & Aldisert 2023), but that the existing defence supply-chain was structured for a certain demand level and pattern of procurement. The unexpected demand surge created by the war disrupted that configuration and obliged to reprogramme reorder point levels for input inventories and re-balance internal production lines. For example, in the case of 155mm artillery, the short-term expansion of production in the US was in part restricted by the lack of immediate supply of TNT, and other energetics such as IMX-104 and M6 propellant (Judson 2024). Missiles had a similar bottleneck in metals like titanium and nickel (US GAO 2024). A recent study on ammunitions by the US Army Science Board has acknowledged this fact as it recommends multiyear contracts with a minimum sustaining rate of production and setting higher inventory levels for long-lead items (US ASB 2024).

Managing variability in defence manufacturing

Updating input inventories to the new demand level is only part of the issue. In fact, according to a fundamental physical principle in engineering known as “Little's Law”, simply increasing the amount of work-in-progress (WIP) released into a manufacturing line approaching maximum capacity, will eventually overload the system, leading management to re-schedule deliveries forward, without increasing throughput (Hopp & Spearman 2000: 223).

In consequence, the underlying issue is how to manage production in a way that efficiently adapts to variability in demand. In regular civilian industries, changes in demand will be managed with a combination of three possible buffers: excess capacity, higher inventory and longer lead-times. For instance, in industries where fixed assets are very costly, such as chemicals or steel, the tendency will be to operate at near full utilization and use inventories to buffer variability in times of low demand. When demand spikes, the buffer will change to lead-time, that is, reschedule deliveries.

In defence industries, demand is highly variable and contingent to politically contentious budgets and geopolitical upheavals. Keeping inventories of finished products for long periods to accommodate an eventual surge in demand is not reasonable or feasible. However, while in peace time delaying deliveries is a common practice (frequently without consequences), when war breaks out, this is not an option.

Therefore, the logical buffer for defence industries should be to keep constant idle capacity of equipment and workforce. Since it is also a fixed asset- intensive industry, the result will be high depreciation costs. Capacity can also be buffered increasing vertical integration for specialized items and having enough flexibility to outsource components quickly. This requires not only a consistent supplier-development effort, but also a modular engineering strategy that simplifies component manufacturing and integration.

Planning for surging

The current major problem for western defence industrial strategy is how to increase capacity now, while being cognizant of what happens after the Ukraine war is over. Evidently, the prospect of a major conventional war in the Asia-Pacific region may serve as guidance. However, the ramp up of capacity for that scenario may be too big for realistically acceptable budgets. Also, there is the risk of ending with an oversized industry, too costly to sustain in the long run.

As a matter of necessity, then, acquisition authorities have been correctly expanding their purview beyond procurement and into operations and supply-chain management. For instance, when addressing the need to increase throughput, there are a series of phased initiatives available, drawn from civilian industries.

• In the shorter-term horizon and given available budgets, actions can be taken to maximize throughput and minimize cycle-time, such as increasing utilization of available capacity. In the case of the 155mm artillery production surge, one of the first obstacles was in fact to hire and train people to increase daily shifts (Epstein & Snodgrass, 2023). This clearly indicates that the lines were not working at full capacity.
• Liberating capacity and reducing cycle-time can also be achieved by reducing process variability, such as outages, setups (like due to changeovers), eliminating rework and scrap, breakdowns, operator availability, etc. This may require defence industrial policy and acquisition officials to “get inside'' the private industry’s production lines. Quality controls should be implemented not only on final product acceptance, but also on processes and operations.
• When looking at the long-term planning problem, capacity can now be determined for a given throughput and cycle-time target. This can be done through selective capacity increases (such as adding, modifying or changing machines) to an existing line, or through the installation of a new facility. When adding capacity, the correct bottleneck process station or stage should be selected for determining the capacity of the entire production line. In flow lines such as the ones prevalent in defence industries, manual batch stations should become the bottleneck and constantly starved for work, while the more capital-expensive individual process should operate with excess capacity and the ability to rapidly surge if necessary (in the example of 155mm artillery shells, this would be TNT plant or the robotized handling stations). From the above, it’s implicit that the long-term problem also involves determining which stages of the supply-chain should be vertically integrated in order to guarantee engineering and manufacturing surge flexibility. As evident, balancing investments across the supply-chain requires authorities are able to solve numerous coordination failures, between and within industries.
• Lastly, process innovation already holds a central place in long-term capacity planning initiatives. For instance, the US defence industrial strategy has focused on advancements in manufacturing, AI and other 4th industrial revolution technologies. A promising example is the development of solid rocket-motor propellant using additive manufacturing, of use in multiple rocket and missile systems (Erwin, 2023). Indeed, the possibilities these technologies offer are especially great in three regards: a broader supplier base, more flexible and adaptable equipment (which translates into higher capacity), and the ability to increase capacity through smaller increments (Bachman 2021). We should add that conclusions of this line are by no means particularly original (Dews & Birkler 1983).

A broadened scope for industrial policy

The considerations presented in this article suggest that defence industrial policy should expand its scope to include manufacturing issues. This could be done by two main courses of action: firstly, by expanding contract requirements to include supply-chain and production system benchmarks, optimization goals and monitoring mechanisms. As we mentioned before, Test-and-Evaluation activities could expand beyond the product and go into the process as well. Secondly, by having defence industrial policy-makers establish industrial engineering research and support initiatives, as well as set guidelines and best-practices on these matters for contracting officers. 

In any case, such efforts will necessitate Ministries of Defence to establish new dedicated teams, organizational changes, and expanded authorities. 

Author: Martin Novella (BEc, MEc) is Director at the Competition Commission in Argentina. Before, he was National Director of Defence Industrial Policy and worked at the State defence industry in Argentina. His research focuses on defence economics, acquisition systems, industrial policy and global military industries.

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[1] I thank Lorenzo Scarazzato for his helpful comments to an earlier draft of this article. All errors and omissions are entirely my own.

[2] Lecornu: “It’s clear that if production rates are sometimes too slow, it’s because there’s a temptation to work just-in-time and not have enough stocks of raw materials or components” (Ruitenberg 204).

[3] LaPlante: "We are relearning just how resource-intensive this type of warfare can be, and how dialing down our production numbers, and the just-in-time delivery model doesn't work in this kind of conflict" (Clark 2023).

[4] Linus Terhorst: “Since the end of the Cold War, responding to governments’ demand levels, Western defence industries have shifted to just-in-time production models, reducing their output capacity” (Terhorst 2024); Richard Wilding: “The “old normal” supply chain was configured for a world typified by relative stability. “Just in time” and “Lean Approaches” were predominant, efficiency and cost reduction was the focus facilitated by the frictionless global flows of people, products and materials” (UK MoD 2022); Robert Wall: “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” (Wall 2023).