Logistics & DOD

Investment Analysis Clubs Macro Economic Trends and Risks
1

the Department of Defense has systemically underinvested in logistics in terms of money, mental energy, physical assets, and personnel. Neglect of logistics arguably became most severe in the post–Cold War era. Pressure to save money through efficiency and misguided attempts to run the department like a “lean” business disproportionately impacted logistics. Maximizing the ratio of combat “tooth” to logistical “tail” saved money, but at the cost of leaving U.S. armed forces with a logistical system that is stretched thin supporting peacetime operations and wholly unsuited to the demands of warfare with China or Russia.

It does not matter how good your equipment is or how well trained your personnel if they have insufficient munitions. Likely Ukraine War has shown how poorly US logistics is currently.

More on f-35.

when it comes to spare parts, would present major risks in a large-scale conflict, according to the top U.S. officer in charge of the program. While that is troubling, it is hardly surprising. Unfortunately, even after years of major problems being readily apparent, the F-35 program continues to face significant supply chain hurdles that could seriously hamper the jets’ ability to perform sustained high-end combat operations against a major foe like China.

The biggest risk is that F-35 units have little in terms of spare parts on the shelf to keep their aircraft flying for any sustained amount of time.

Many billions of dollars invested in top-of-the-line stealth fighters could well be wasted with those aircraft being taken out of the fight early in a conflict – not due to enemy fighters or surface-to-air missiles, but because of a lack of spare parts ready and waiting nearby on the shelf. It sounds ironic, but that is a potentially glaring reality at this time.

The above in conjunction with the exploding cost of the F-35 boondoggle illustrates the sorry state of the DOD.

I guess we can Thank Gawd Tucker Carlson has been fired though and thus the DOD institution has been saved! It must have been a narrowly avoided consequence. LOL

Carlson “made a mockery” of the free press and “repeatedly cherry-picked department policies and used them to destroy DoD as an institution,” said the first senior DoD official.

3 Likes
2

As offered before, my suspicion is the defense contractor “JCs” have decided milking the “development” phase, with long delays and huge cost overruns, is much more profitable, than actually building anything.

There was a thread on a naval history board on FB a few days ago, that started out with the “Commie threat” narrative to advocate for even higher defense budgets. I countered with how much more the US spends, in absolute dollars, and as a percent of GDP, than either Russia or China (Russia spends less than the UK). The problem is not the amount of money. The problem is the rampant corruption in DoD procurement.

Steve

2 Likes
3

And the concentration of the defense industry which threatens US security.
For example black powder.

the Department of Defense relies on to produce bullets, mortar shells, artillery rounds and Tomahawk missiles.”

Military suppliers consolidated at the Cold War’s end, under pressure to reduce defense costs and streamline the nation’s industrial base. Over the past three decades, the number of fixed wing aircraft suppliers in the U.S. has declined from eight to three. During the same period, major surface ship producers fell from eight to two, and today, only three American companies supply over 90% of the Pentagon’s missile stockpile.

Lower-tier defense firms are often the sole maker of vital parts—such as black powder—and a single crisis can bring production to a standstill.

*After months of supplying Ukraine with Stingers, howitzers, anti-armor systems and artillery ammunition, stocks are low in both the U.S. and its NATO allies, especially in 155mm howitzer shells, an ammunition that has been crucial to pushing back Russian forces. *

“Can you imagine what would happen to these supply chains if the U.S. were in an actual state of active war, or NATO was?” said Jeff Rhoads, executive director of the Purdue Institute for National Security, a defense-research institute at Purdue University. “They could be in trouble very quickly.”

The black powder factory blew up 2 years ago and still out of production.

In the meantime, U.S. military contractors who use black powder have been drawing on stockpiles, according to people familiar with the matter and U.S. officials. Other producers of black powder exist in Germany, Poland, Switzerland, Brazil and China.

Chokepoints are one of a number of weaknesses in the U.S. military’s supply chains. Others include a lack of skilled workers in casting and forging, shortages of infrastructure for battery technology and periodic shortages of advanced microchips.

Non WSJ article link:
https://www.msn.com/en-us/money/markets/the-us-military-has-an-explosive-problem/ar-AA1an520

1 Like
4

I had this conversation recently. It might have been on a FB page.

I can understand the consolidation, due to the force drawdown at the end (or maybe “suspension” would be better) of the cold war. The lack of oversight, with teeth, allows too much corruption.

DoD was being shafted 60 years ago too. In the 50s, DoD had a policy of having a “second source” for many major systems. Redundancy in mission critical goods is good, right? Except for the profiteering and incompetence that flourished. Kaiser charged the Air Force a lot more than Fairchild did, to build the same C-119 aircraft. There was quite a scandal about it, and the Air Force yanked all it’s contracts from Kaiser. A Packard engineer’s analysis of Packard’s management of an engine program for Navy minesweepers showed that a perfectly suitable engine could be bought from Cummins, complete, for what Packard was charging the Navy in program overhead, alone.

At the end of the Korean war, large numbers of production contracts were cancelled, including contracts let to all the automakers, except for GM. GM continued production on it’s contracts. The SecDef at the time, Charles Wilson, went to DoD from being President and CEO of GM.

Same thing in WWII. Case: Waco CG-4 glider. Ford Motor was the low cost producer at $14,891 per glider. Waco, an existing aircraft builder, the company that designed the glider, billed the Army $4,500 more than Ford, to build the same design Ford was building. Babcock Aircraft billed the Army $51,000 per glider. The worst was National Aircraft Corp. The Army cancelled the contract with National in 43, but ended up paying $1,741,808.88, for the one glider the company produced.

Harry Truman became prominent, by investigating corrupt war contractors. One of the worst was the Wright aircraft engine plant near Cincinnati. Company officers had bribed government inspectors at the plant to pass known defective engines…engines our guys would be betting their lives on in combat, but all Curtis-Wright could see was juicing profits by fobbing defective engines off on the government.

Steve

5 Likes
5

Could be that concentration of the defense industry means less sweet jobs for retired field officers. So they now go work for repressive foreign governments.

Members of Congress have obtained a list of former military officers who have done paid work for foreign governments since 2012. It may be a surprise — or not — that the list includes 77 senior officials (Generals and Admirals), and that the countries that employed them represent some of the most repressive governments in the world (Saudi Arabia, Egypt and the UAE).

The UAE’s prominence in this list is especially notable because, while these DoD officials were working for the UAE, its government was masterminding a number of schemes to illegally meddle in U.S. politics and elections.

What a surprise! I thought it was only the Russians.LOL

2 Likes
6

Especially as the DOD cannot pass an audit of its books.

The Pentagon is the only government agency to have never passed one, most recently failing for the fifth consecutive time in November 2022, when it accounted for just 39 percent of its $3.5 trillion in assets.

In the 2022 audit, only seven of the 27 investigated areas earned a clean bill of financial health.

3 Likes
7

I think we understand that consolidation in the defense industry reduces ovrrhead costs and improves efficiency.

But it also decreases redundancy which in turn means educed ability

1 Like
8

Pols supporting DoD hardware programs whine “JOBS”, as if DoD’s primary function is as a make-work program. (a particular Senator, who has a very whiny way of speaking anyway, was whining 'JOBS" so loudly, when a Navy contract with Bath Iron Works was up for the chop, that, I hear her voice constantly, whenever anyone uses “jobs” as the excuse for government spending and bailout programs.

To keep more contractors afloat, would require even more wasteful spending.

In “1984” defense production, for the forever war, was, explicitly, a make work program, to keep the mob employed, and docile.

Steve

2 Likes
9

Defense spending is always a concern. But we do need ability to expand production of ammunition, missiles, etc in an emergency.

That probably means keeping line running 40 hrs per week in peacetime with ability to run 24/7 in an emergency. You can also envision 2 or 3 production lines in one facility with one operating at a time shifting staff.

DOD should factor emergency capacity into their funding decisions.

1 Like
10

Excess production capacity shall be cut by Congress because it “costs too much” to keep it available year after year after year after year…

The savings could be passed on as tax cuts…

11

Yes, and today we see the price of those “savings.” Little ability to deal with a true emergency. Months or maybe years to respond.

1 Like
12

One buys insurance in the hope of never having an event that triggers compensation. One pays money to have someone else cover the risk.

If you save money by not making munitions, who gives you munitions when you need them? How does the saying go? Penny wise and pound foolish?

The Captain

4 Likes
13

Similar to the lessons from off shoring to China. Saves money in the short term, but creates a vulnerability that can be costly under unanticipated circumstances.

Rigid system with little ability to adapt to the unplanned.

1 Like
14

Therein lies the problem. The reason to stop production and save the money is because “they will not be needed” or “they will be replaced with newer/better stuff when needed”. So the tax cuts get made and then a war starts… Where are the munitions? And the politicians who stopped production capacity are retired, dead, or otherwise no longer in office.

3 Likes
15

The bigger much more threatening issue is now are our tool and die industries. We have seen them migrate to China.

While China no longer can make as good a use of the tool and die industry we need to regain leadership in tool and die.

The assembly lines for munitions are there. The number of assembly lines is not enough. We need more machine tools.

2 Likes