National security supply chain

The Defense Department's undersecretary for acquisition and sustainment, Ellen Lord, last month emphasized the importance of transferring microelectronic production to the U.S. The Pentagon needs to exercise greater command-and-control over its acquisition of microelectronic technology, which is the foundation for 21st-century fast, disruptive technology such as "Big Data," artificial intelligence, quantum computing and 5G wireless.

Bringing the supply chain to the U.S., which the Pentagon refers to as "reshoring," would be a major step toward protecting the security of microelectronics from nefarious adversaries like China.

The success of Secretary Lord's strategy depends on the strength, resilience and agility of the defense industrial base, composed of large and small businesses supplying the Department of Defense (DOD) with key components and support. DOD relies on this powerful network of privatesector suppliers, whose strength derives from the free enterprise upon which our economic strength is built. The defense industrial base, which grew out of World War II, when U.S. industry produced roughly two-thirds of Allied military equipment, engages in critically important research and development (R&D), as well as the design, production, delivery and maintenance of weapons systems.

But today's defense industrial base suffers from a number of shortcomings.

DOD acquisitions often take too long and cost more than they should. Regulations, excessive legislation and bureaucracy have cut into the defense industrial base's profit margins by adding complexity, cost and confusion to the acquisition process. Often, these regulations cost more to implement than they were designed to save.

Maintaining DOD's advantage in technology depends on a wellcapitalized defense industrial base - one that is not forced to accept low rates of return on R&D investment and manufacturing and is not vulnerable to the whims of the economy or foreign acquisition. A fiscally healthy industrial base promotes investment, competition and resilience in supply chains. A wellcapitalized industrial base encourages industry to invest its own resources into R&D because the return on investment holds the promise of robust returns.

A fiscally healthy defense industrial base has the financial resources to survive economic shocks without the need for government bailouts. The Defense Contract Management Agency, which manages some of the largest DOD contracts (including the F-35 joint strike fighter aircraft), has been on the hook to provide assistance to firms facing closure as a result of the COVID-19 pandemic.

Conversely, a poorly capitalized industrial base has less competition, private-sector investment and resiliency. Companies in poor fiscal health lack the resources to protect themselves from malicious attacks designed to steal or alter their data. If defense-related markets are not as lucrative as other sectors, many companies will opt out of the defense market and invest in other types of R&D and other markets.

By defining the defense industrial base as critical infrastructure, the Department of Homeland Security allows government support to ensure especially that small businesses remain open. But with the U.S. military increasingly relying on technology with the fastest innovation cycles, which requires the most effective incentives for private industry, three policy strategies should be implemented:

First, DOD needs to increase the level of competition for nextgeneration technology. The defense industrial base must promote more competition - especially more entrants into the defense market, which would increase innovation and reduce costs to the taxpayer.

Second, DOD needs to support higher profit margins to create greater incentives for R&D and reduce development time. DOD should allow for competitive profit margins by enabling competitive market forces to drive the basis for negotiating price, rather than artificially low or non-competitive profit margins.

Third, DOD should financially support cutting-edge technology, based on our leading scientific research and development. The Pentagon should provide funding for our world-class laboratories and research facilities, including the workforce of scientists and engineers who are poised to execute some of the military's most challenging missions.

At the heart of creating a more efficient and effective acquisition process is freeing the Pentagon workforce from smothering regulations and providing them the resources, incentives and authority necessary to do their jobs.