Defense purchasing in a changing world

Lansdale Semiconductor’s president, Dale Lillard, argues that as the world changes, the military procurement and supply system needs to change with it.

The world of military support has changed. The invasion of Ukraine by Russia convinced NATO and the non-NATO countries that border Ukraine that they may also be vulnerable to a conflict with Russia. In a matter of months, these countries realized it’s time to build up their defense arsenals and increase their defense budgets. At the same time, some of these countries have been sending weapons to Ukraine, depleting their own inventories, which means some new orders will be needed to get back to pre-Ukraine levels. 

The American defense industry has been put on notice, and new orders are coming, particularly for weapons being used in Ukraine, namely Stinger and Javelin missiles, which will be used to restock American and NATO inventories. I am certain other defense systems will be ordered by NATO and non-NATO countries around Ukraine as well, such as Patriot missiles for air defense and fighter jets. The problem is many systems include old designs that take time to build due to diminished parts availability and closed production lines that need restarting.

The United States has sent 25 per cent of its Stinger surface-to-air missile inventory and 33 per cent of its Javelin anti-tank missile stock to the war in Ukraine. The Defense Logistics Agency (DLA) has approached defense contractors to start production to replace the weapons shipped to Ukraine. Specifically, Raytheon has been asked to ramp up Stinger manufacturing.

However, Raytheon’s Stinger production line was shut in 2020 with the exception of low volume builds for international customers. Some parts have become obsolete, forcing Raytheon to redesign parts of the system. Redesign and requalification can take up to a year before production can restart. To actually restart production, contractors would need hard orders from the government, similar to the orders given to pharmaceutical companies for Covid-19 vaccines in advance of their initial development.

Contractors historically hesitate to build product using their own funds without hard orders from the DLA so they are not stuck holding inventory the DLA may never purchase. This could easily happen if the Ukraine war ends sooner than the years it takes to build up production lines. Although the DLA has ways of accelerating orders, such as the Defense Production Act, there is nothing currently in place.

In general, what are defense contractors doing to mitigate problems of component shortages and delays to their system builds? Many long-term defense customers have begun to interrogate their suppliers regularly for current information on product life cycle updates and lead times to manufacture new product for these older systems. In some cases, our customers even request our inventory position to ensure they will have the necessary product when needed. 

Many older technology integrated circuits are manufactured using die banks built when the wafer processes were still active. Customers want confirmation there will be plenty of die left for their future needs. We have also noticed customers have started buying multiyear production quantities for inventory to protect them from delayed deliveries or future obsolescence. Current supply chain problems have also motivated some customers to stop just-in-time delivery programs, particularly for integrated circuits in short supply. 

There are government actions that could help the defense industry better support future government requirements. The government needs to speed up procurement contracts so contractors can start placing orders for long lead-time components and engineering programs of circuit redesign for those components no longer available.

The President could implement the Defense Production Act, which would significantly reduce the time of procurement process. In the future, it would be beneficial if Raytheon, for example, was given yearly production contracts to ensure production capability and component support. Similarly, the Ukraine experience shows it would have been beneficial to establish a better no fly zone using fighter jets and Patriot missiles. NATO would be wise to order more defensive weapons systems with their newly committed and increased defense spending. Ukraine’s success in fighting off Russia using our Stinger and Javelin missiles shows just how important the continued manufacturing of these missiles is to NATO’s defense. The world has changed, and the military supply system needs to change with it.