By Bart Taylor | Jan 30, 2023
America's defense supply chain is at a crossroads. On one hand, business is booming for defense contractors. On the other, U.S. manufacturing is straining to meet current demands in a trillion-dollar industry that's certain to ask more and more from domestic suppliers.
We're on the cusp of a new golden age of advanced manufacturing -- or at a breaking point.
Perhaps no person is more qualified to parse the possible outcomes than retired Air Force General Chris Hill. In his "last job with the government", Hill was commander of the Oklahoma City Air Logistics Complex, the largest repair station in the Department of Defense (DoD) and United States Air Force, managing a multi-million dollar budget to procure parts and services in support of four DoD product groups: aircraft, aircraft components, and aircraft and weapons systems software -- in addition to being the only Air Force depot that repaired engines within the "organic defense industrial base."
What Hill experienced was eye-opening. "The scope of the challenge in that job, specifically with material availability in engines alone in the 2019 to 2020 period, was about a $200 million impact to production -- because we couldn't get parts," he explains. "The hardest jobs fell to supply chain leaders."
Cue the breaking-point narrative.
"When I think about the biggest challenge in the Department of Defense," Hill continues, "I think about the Defense Logistics Agency. And I think about what they face as a challenge in getting their mission done, which is essentially providing supplies, everything from construction materials to machine parts to uniforms and food. In the last 10 years, they've seen a 40 percent decline in the number of small and medium-sized businesses that are participating in their marketplace. And they see a churn in their domestic supplier base of about 25 percent a year in small and medium-sized businesses. And that is a significant concern for them."
Hill has crossed the street to work on the challenge -- to the private sector. Today he's president and general manager/Federal and Defense, for Sustainment, the upstart technology and software platform efforting to optimize the manufacturing supply chain around the needs of small and medium-sized manufacturers (SMMs) -- including the ecosystem of suppliers and contractors directly supporting America's defense industrial base.
Why stay in the game? "I think there's a compelling, urgent national need to get more small and medium-sized businesses into the marketplace," answers Hill.
The need -- and challenge -- is real. America's manufacturing supply chain is a small business ecosystem. SMMs constitute 98.9 percent of manufacturers and employ 70.3 percent of manufacturing employees in the U.S. In 2022, small businesses were awarded about 25 percent of all DoD prime contracts.
But when it once was a given that small manufacturers were a renewable resource, years of offshoring and devaluing of the American industry have diminished the community of companies stepping up and into industry supply chains. Moreover, the rules have changed for SMMs, and the perception among SMMs is that defense business is hard -- hard to land, hard to sustain, hard to tool up to meet technical thresholds and process requirements.
For SMMs, it's a maddening paradox. As much as the DoD needs SMMs, and is legislatively required to hire them, the system seems rigged for larger companies able to initiate and support DoD work.
The dissonance for SMMs was evident to Hill. "I have to say straight up that doing business with the government is not easy. I mean, it's administratively cumbersome. The workforce is organized in a way that isn't always a mirror to industry. And the nomenclature, the lexicon, the language are confusing. I found since retiring that the government and commercial industry used the same words to describe different things and different words to describe the same things. And that lends itself to be confusing. I think that also contributes to why it's hard to do business with the government today."
But Hill's appreciation for small business runs deep, shaped by his experience in hiring, retaining, and managing SMMs.
"Since I retired [from the military], I worked for a $37 million dollar manufacturer, and I worked for a $37 billion dollar manufacturer," he recounts. "I saw a $37 million dollar company compete head-to-head with Tier Two OEMs. And they did great. As a matter of fact, they could do things that those OEMs couldn't do, because they were agile, hungry, and didn't have to cover broad G&A costs of a larger firm. Most importantly, they delivered on their promises -- quality products, on time. So, effectively, competition priced the small and medium-sized business into the market."
"I also think there's a gap between what's available on the market and what's presented to the DoD. I mean, I was at a small manufacturer in December with the Assistant Secretary of Defense [Deborah[ Rosenblum, who leads industrial base policy for the Department of Defense. And she came to visit this vendor, specifically, because they were a small sized manufacturer, and they provide a capability that's one-of-a-kind in the nation. And she came by to see what was happening, what they were doing, and all the different products that they made. And to say 'thank you' for participating in this market. We need to work harder to uncover this type of capability."
Hill's messaging to SMMs? "I would suggest that the nation's national defense is worth their time. We're working to generate interest and connect a capability and capacity in a marketplace with opportunities. That's why I joined the Sustainment team. I think that this company is doing a lot to get after it."
In part two, we'll talk with Chris Hill about specific opportunities and how SMMs can more effectively engage the DoD ecosystem.
Bart Taylor is publisher of CompanyWeek. Email him at firstname.lastname@example.org.