The Army's Organic Industrial Base: What
is the Future for Depots and Arsenals?
It may come as a surprise to many Americans
that the U.S. Army owns - and in some cases operates - a number
of industrial facilities employing nearly 20,000 people. Largely
a legacy of World War II, this industrial base includes several
manufacturing arsenals that date back more than a hundred years.
The number of these industrial facilities has declined
dramatically over the last few decades, beginning with the end of
the war in Vietnam and culminating with the last official round
of base closures in 1995.
The remaining elements of this industrial base
- often referred to as the "organic base" - consist of
an assortment of arsenals, maintenance depots and ammunition factories.
They are operated, funded and modernized as one of the Army's core
activities, and governed by a series of legislative provisions beginning
with the 1920 Arsenal Act.
Despite recent success in business management,
such as adopting commercial practices and bringing in new tenants
through partnerships with private companies, critics argue that
by almost all accepted commercial standards these Army plants maintain
too much capacity, inefficiency and overhead. Some argue for the
wholesale privatization of the public base, turning over industrial
functions entirely to the commercial marketplace where inefficiencies
would soon be eliminated. This seems particularly attractive during
periods when spending on weapons systems is stagnant or declining,
putting public facilities in direct competition with private companies
for scarce business.
The debate on the proper sizing and most efficient
manner of operating the public facilities has been going on for
decades. It involves a complex set of tradeoffs with implications
that reach into the heart of America's ability to equip, sustain
and support troops in contingency operations and times of war, mobilization
and surge; implications that are not always apparent in peacetime.
Many common criticisms of the organic base do not account for the
unique requirements of operating military installations during war.
Operations in Afghanistan and Iraq have tested the limits of some
sectors of the commercial defense base and highlighted the value
of the flexibility, responsiveness and dedication inherent in the
organic base. These operations have also revealed the extent to
which the Army's organic base has already evolved to suit the needs
of a military operating in a new strategic environment, where maintenance,
repair and upgrades are needed in real-time, in the theater of war.
The Defense Department, Congress and communities
around the nation are preparing to debate the 2005 round of base
closures (the Defense Secretary is required to submit a list of
proposed closings to Congress in March 2005) that may include any
of these Army industrial facilities. In this discussion over jobs,
over-capacity and competition for defense resources, the overall
objective of defining and preserving an industrial capability necessary
for national defense must remain paramount.
The answer will not be found in black and white:
private vs. public, arsenal vs. depot, over-capacity vs. efficiency,
but rather in the continued evolution of the nation's industrial
base toward an integration that balances the best of what commercial
companies and Army installations have to offer. Partnerships between
the public and private sector need to be expanded and encouraged
to an extent that transforms both elements. This will not be an
easy task. It will require a shift in thinking among industrial
managers - both public and private, and policy makers as well as
legislators. The business environment must allow a genuine balance
between the interests of the partners, so that both sectors see
tangible, long-term benefits from the relationship.
The advantages of industrial partnerships have
already been proven in several cases where they have been tried,
but more needs to be done to encourage such arrangements. Congress
has helped to create a more hospitable atmosphere for partnering
over the past decade by passing legislation removing some barriers
to long-term business relationships between the government and private
companies. Other obstacles remain, however, including an overall
reluctance to change, and most importantly, share work.
The continuing viability of the organic base,
and ultimately the effectiveness of America's defense industrial
base as a whole, may well depend on whether these obstacles can
be overcome. This is a challenge of transformation no less difficult
and no less important than any other challenge facing the Army today.
EVOLUTION OF THE ARMY "ORGANIC"
The existence of an Army-owned manufacturing
base is as old as the Army itself. When Congress created the Continental
Army - the nation's first professional military - there was no commercial
industrial base to arm the force. To meet its new need for small
arms, artillery and ammunition, the Army created its own sources.
Emerging as it did out of the unique circumstances of America's
earliest days, this link between the Army and its in-house or "organic"
industry is strongly engrained in the nation's military culture.1
THE 19TH AND
EARLY 20TH CENTURIES.
The organic industrial base slowly expanded
over the decades following independence. The oldest arsenal still
operating today - Watervliet - was established in 1813, primarily
to manufacture the small articles supporting artillery, such as
drag ropes, sponges, rammers and shot. By 1840 there were 22 arsenals
supplying the U.S. Army with small arms and ammunition, and assembling
and repairing artillery.
Meanwhile, a small private arms industry had
begun to develop, encouraged by appropriations for long-term contracts
that Congress began authorizing in 1808. This combination of public
and private industries supplied the Army during the Mexican-American
War, and for the first time American military units were adequately
supplied with guns and ammunition during wartime.
In the latter decades of the19th century a
more robust commercial armaments base began to develop based on
ongoing projects in ship building and coastal defenses. Army ordnance
production and design, however, remained concentrated in the public
arsenals, with the increasingly active support of the Congress.
Army attempts to broaden sources of ordnance prior to World War
I were blocked by legislation in 1915 and 1916. This concentration
continued through the inter-war period, with what little activity
there was taking place entirely at the Army's arsenals and proving
EMERGENCE OF THE MODERN ORGANIC BASE.
The mobilization of the American industry
during World War II is legendary. In a few short years the United
States equipped an Army of more than 8 million men, and manufactured
96,000 tanks, 78 billion rounds of small-arms ammunition and nearly
7 million tons of aircraft bombs. This massive effort yielded a
strong new relationship between the Army and commercial industry
at the same time as the Army's organic base was rapidly expanding.
One of the most notable results was the creation
of a hybrid form of production designed to capture the strengths
of both the commercial and organic bases: the government-owned,
contractor-operated (GOCO) facility. There were 77 of these GOCOs
in 26 states by 1942. Another was the emergence of large-scale maintenance
depots where Army combat systems were maintained, repaired and upgraded.
These, like the arsenals, were government-owned, government-operated
During the 1960s and 1970s - after the end
of the Korean War and as the Vietnam War wound down - the Army's
organic base gradually declined. In 1967 the nation's oldest manufacturing
arsenal, the Springfield Armory, closed, followed within a decade
by three others. By the mid-1970s, only 25 of the GOGOs and 10 maintenance
THE ORGANIC BASE TODAY.
The end of the Cold War and the accompanying
rapid decline in defense spending left America with a defense industrial
base far too large for its needs. Soon commercial defense companies
were well on their way to a massive rationalization of the private
sector, including a rash of mergers and acquisitions that concentrated
defense business within a much smaller universe. But the organic
base was bound by tradition, politics, and legislation; the Department
of Defense (DoD) found it impossible to close excess facilities
of any kind, including industrial.3
Nevertheless, something clearly had to be done.
Congress and the Defense Department found the answer in the base
closure and realignment (BRAC) process, a complex interaction between
DoD, Congress, and an independent commission charged with making
final closure and realignment recommendations.4
Four rounds of BRAC closures and realignments
- in 1988, 1991, 1993 and 1995 - have yielded today's organic industrial
base. These facilities are listed in the table above, according
to categories assigned by the Army for budgeting purposes. The other
military services also have some organic industrial capability,
but the Army's is the largest and most complex.5
Due to the range of capabilities that cut across so many technology
areas and industrial processes, most of the Army depots do work
for other Services to varying degrees. For example, Tobyhanna does
all of the Air Force's ground-based communications and electronics
repair. Letterkenny supports ground and air missile systems for
the Navy, Air Force and Army. Anniston supports Marine Corps tracked
None of the other services have arsenals or
GOCOs, each of which is treated differently than depots and shipyards
when it comes to legislation, planning, budgeting and acquisition
regulation. This distinction - particularly in the case of depots
and arsenals - is a continuing source of difficulty for Army managers.
The table highlights in yellow the facilities that are the focus
of our discussion - those that engage in "depot level maintenance,"
and major manufacturing of non-ammunition items. The ammunition
base itself is the subject of a separate Lexington Institute White
LAWS GOVERNING DEPOTS AND ARSENALS
A series of acts and amendments to procurement
law over the last 85 years governs the organic industrial base today.
The following four are among the most important:
The Arsenal Act (1920).
Intended by Congress to keep the public arsenals
thriving, this act requires the Secretary of the Army to have "supplies
needed by the Department of the Army" made in arsenals so long
as the manufacturing is on "an economical basis." This
law applies only to the Army, and only to arsenals and factories.
The entire statute is only six lines long, and has been subject
to numerous interpretations over the years. There is still debate
on whether depots are considered to be "factories" under
this act. (10 U.S.C. 4532)
Core Logistics (1984).
This statute requires DoD to maintain a "core"
organic industrial capability to provide depot-level maintenance
and repair. "Core" is defined in the law as "capabilities
that are necessary to maintain and repair the weapon systems and
other military equipment...that are identified by the Secretary,
in consultation with the Chairman of the Joint Chiefs of Staff,
as necessary to enable the armed forces to fulfill the strategic
and contingency plans..." (10 U.S.C. 2464)
Limitation on the Performance of Depot-Level
Maintenance of Materiel (The 50/50 Rule) (1988).
Under this law, at least 50 percent of funds
appropriated for "depot-level maintenance and repair"
in any fiscal year must be performed by employees of the federal
government. Prior to the 1997 amendment the requirement was 60 percent.
(10 U.S.C. 2466)
Definition of Depot-Level Maintenance
and Repair (1997).
This amendment to procurement law made clear
that the definition of "depot-level" activities is not
limited by source of funds or by location of the work. It is defined
as "material maintenance or repair requiring the overhaul,
upgrading, or rebuilding of parts, assemblies, or subassemblies..."
7 (10 U.S.C. 2460)
Taken together, these laws indicate a long-standing
and consistent effort by Congress to sustain an organic national
defense industrial base of significant capability. Legislators have
consistently supported the Army's view that this base is unique;
that it provides services and goods different from commercial industry,
and that it deserves protection. Broad definitions of the requirements,
along with a guaranteed workload, appear to support this goal even
at the expense of competition and potential savings.
But the story of legislative support for a
strong organic base does not stop with protective measures. In the
last decade or so, and especially since the 1995 BRAC, a new series
of legislation has been enacted to enhance the vitality of the organic
base. These changes have enabled unprecedented cooperation between
the public and private industrial bases, and in the process enhanced
the effectiveness and efficiency of both.
KEY EXAMPLES INCLUDE:
Working Capital Funds (Subcontracting)
Allows facilities in the organic base to sell
products or services to the private sector. (10 U.S.C. 2208(j))
Authority to Sell Outside the Department
of Defense (1993).
Permits depots and arsenals involved in the
manufacture of certain items8 to sell
them outside the Department of Defense. The proceeds from such sales
are returned to the Working Capital Fund rather than to the facility
that made the sale. (10 U.S.C. 4543)
Centers of Industrial and Technical Excellence
(CITE Statute) (1997).
Grants authority to depots now designated "centers
of industrial and technical excellence" (CITE) in their respective
core competencies, to enter into partnerships with private industry.
These partnerships offer unprecedented flexibility to the depots
to perform subcontract work for private industry (and possibly vice
versa), and for private companies to use facilities or equipment
at the depots for either military or commercial purposes. (10 U.S.C.
Enhanced Use Leases (2000).
Creates incentives for both organic facilities
and the private sector to negotiate long-term leases of public property
in return for cash or in-kind investments in the facilities. (10
Arsenal Support Program Initiative (2001).
Permits arsenals to enter into cooperative
agreements with private companies, in which the company may use
arsenal facilities and/or equipment in exchange for investing in
the maintenance or upgrade of arsenal property. Through annual appropriations,
Congress provides funds for arsenals to renovate or adapt their
unused facilities for potential users. (Public Law 106-398, Section
Cooperative Activities Pilot Program
Authorizes all Army industrial facilities (arsenals,
ammunition plants, depots or "a manufacturing plant")
to enter into a variety of cooperative arrangements with "non-Army"
entities. Cooperation can include direct sales or subcontracting
by the Army facility, work share arrangements, and teaming to jointly
bid on new federal contracts. The pilot program provides additional
flexibility by allowing the Army facilities to enter into fixed-price
and multi-year contracts to deliver goods and services, and allow
the non-Army entity to make incremental and in-kind payments. This
statute does not include any provisions for accounting for the proceeds
of any of these cooperative arrangements. (10 U.S.C. 4544)
Strong Congressional support for maintaining
the organic base and the introduction of these more flexible business
practices did provide for a fair degree of stability in the Army's
industrial base during a time of turbulent restructuring within
private industry. But, until September 11, 2001, downsizing and
transforming the military were still the dominant themes, and most
of the industrial policy and legislative initiatives of the 1990s
were focused on reducing and reorienting the organic base to make
it more efficient in the face of significantly reduced demand.
By the time of the September 2001 attacks,
Army depots had reduced capacity by more than half since the beginning
of the BRAC process, and were at 82 percent utilization. Furthermore,
capabilities were consolidated so that all repair and overhauls
of similar equipment were concentrated in one location.9
Initially, the relatively limited scope of operations in Afghanistan
suggested few new implications for the organic base. But this quickly
changed with the war in Iraq and growing understanding of the long-term
nature and intensity of the Global War on Terror. The new national
security imperatives have changed the business and political environments
and raised questions about efficiency versus effectiveness.
Since late 2001, the workload at Army depots
and arsenals has grown by 25 to 40 percent, creating a new set of
challenges. Additionally, the depot workload began to include a
significant role in retrofitting equipment required by deploying
troops. In many cases adding work shifts has provided the additional
volume of production required where stockpiles were low and demand
unexpectedly high, for example, small-arms ammunition and light
In other cases, simple volume has not been
the problem. Instead, for a few highly critical items such as M2
.50 caliber machine guns and armored HMMWVs, the Army had little
or no production capability left after the downsizings of the 1990s.
In both these examples, Army industrial managers have scrambled
to accommodate unanticipated and urgent requirements from the field.
• The M2 machine gun went out of production
in the 1970s, and by the early 1990s the capability to manufacture
the machine gun barrel had virtually disappeared from the American
industrial base. In addition to the modest complement of guns assigned
to active and reserve components, the Army kept an inventory of
13,000 "unserviceable" guns that required some level of
repair or maintenance before they could be used. Until recently,
there were no plans to address this unserviceable stockpile. But
when the Army identified a requirement for an additional 8,000 M2s,10
the Anniston Depot quickly expanded its very small existing repair
capability to process as many M2s as possible without new parts.
During the summer of 2004, Anniston began to repair M2s at the rate
of 100 per month, with plans to ramp up to 700 per month by early
2005, once new barrels and other parts become available from the
• Like machine guns, the demand for armored
HMMWVs by units in Iraq was unexpected. Meeting the demands has
posed a multi-layered challenge for both the organic and private
industrial bases. The initial requirement in the forward area was
for 600 uparmored vehicles - a special version of the HMMWV produced
by one private company at a rate of about 15 per month. When the
requirement for up-armored vehicles in theater escalated to more
than 8,000, the company was able to bring its production up to 450
Meanwhile, another urgent requirement emerged
for armoring other versions of the HMMWVs in Iraq. Steel purchased
from private companies was sent to two arsenals, a GOGO ammunition
plant and three depots. At these facilities the steel has been made
into armor plates and assembled into kits, then sent on to the theater
where they are applied to vehicles by depot teams.
Finally, with all these vehicles in a combat
theater where they face constant and often harsh use, requirements
for depot-level maintenance, repair and upgrades has increased dramatically.
After the 1995 BRAC directed all Army wheeled vehicle repair to
be concentrated at the Red River Depot as a matter of efficiency,
the repair line at Letterkenny Depot was shut down. But the equipment
at Letterkenny remained, and several years ago the depot began to
work on small batches of specialized vehicles for non-Army military
customers. Fortunately, this small capability at Letterkenny now
provides a base for that depot to join Red River as they ramp up
to overhaul an anticipated 4,600 HMMWVs in 2005, compared to a baseline
of 200 just two years ago.
• Depots also played a major role in
improving command and control capabilities for American warfighters.
As the start of Operation Iraqi Freedom (OIF) approached, teams
of civilian technicians from Tobyhanna Army Depot rushed to install
the latest technology into HMMWVs and other vehicles around the
globe. Blue Force Tracking (BFT) kits would guide units through
blinding sandstorms and emerge as one of the technological superstars
of the war. With BFT's communications network, commanders and troops
received near real-time data on their locations, the location of
allied forces, and the location of enemies - thus enhancing situational
awareness and reducing "friendly fire" incidents.
One of the operational surprises of OIF has
been the intensity of the threat from enemy mortar fire. In order
to support the resulting, but unanticipated, requirements from the
theater, Tobyhanna has also completely reorganized its capability
to repair the Fire Finder radar. This is a 1970s vintage system
that detects incoming mortar rounds. Before OIF about 10 radars
a year went through the depot; in 2004 it will be close to 80.
One of the most important lessons learned from
the industrial response to the war in Iraq is that the "depot"
is not a site but rather a capability. The geographic home of each
Army depot now provides a base for the deployment of the depot's
capability to the operational theater where it is urgently needed,
often located directly with combat units. This experience in turn
serves as an incubator for the skills required by each depot.
This trend toward an "expeditionary"
depot capability has developed most fully in the case of ground
systems and communications and electronics system support. Tobyhanna
Army Depot has nine communications and electronics support activities
in Iraq and two in Afghanistan; this is in addition to their 16
other forward- deployed satellite locations throughout the world.
These depot employees work directly with combat units to maintain
critical systems such as Fire Finder and secure communications gear.
Most of the in-theater work on ground systems,
including the armoring of HMMWVs, is being done by forward- deployed
depot personnel. For example, there are five HMMWV service centers
in Iraq, where all levels of maintenance and repair are available
on an asneeded basis. These centers represent an innovative way
to meet the immediate needs of operational units without red tape
In another innovation, the Army Materiel Command
has sent a "Mobile Parts Hospital" or Rapid Manufacturing
System (RMS) to Kuwait for forward repair support in Iraq. These
units (manned by civilian contractors) are comprised of two 20-foot
long trailers crammed with state-of-the-art manufacturing machinery.
When one-ofa- kind or a small number of parts are needed for any
purpose, the RMS can make them quickly based on electronic data
packages received from a central data base, or by reverse engineering
the part(s). Additional RMSs are scheduled to deploy to Southwest
Asia by March 2005.
RESETTING THE FORCE.
Once the task of sustaining current operations
begins to wind down, the capabilities of the industrial base will
turn toward re-equipping the force for the next conflict. Current
policy requires anything on the "critical items list"
be replenished within three years of a major conflict. The Army's
goal, however, is to return active units to their pre-deployment
readiness within six to eight months and reserve units within one
Termed "resetting" the force, this
goal will require new equipment as well as repair of damaged or
worn equipment. The sheer volume and anticipated condition of material
returning from Iraq suggest that the Army depots must be prepared
to maintain a wartime work tempo for up to two years after actual
Army operations in Iraq stabilize at a low level.
"The reset program will repair major
items used in OIF and OEF...The workload for this comprehensive
effort is immense: about 1,000 aviation systems; 124,400 communications
and electronics systems; 5,700 combat/tracked vehicles; 45,700
wheeled vehicles; 1,400 missile systems; nine Patriot battalions;
and approximately 232,200 items from various other systems."
~The Honorable R.L. Brownlee, Acting Secretary of the Army, the
Army Posture Statement, February 2004
All this means that for the foreseeable future,
the load of work for depot level maintenance and repair will continue
to be unusually high. Of course, it will begin to moderate over
time, but is unlikely to return to pre- 2001 levels for years. In
the meantime, occasional spikes in workload, perhaps even on the
order of the current one, should be expected as American military
forces continue to wage the War on Terror.
THE ARGUMENT FOR ENHANCED PUBLIC-PRIVATE
The experiences of the organic industrial base
during the past several years offer unique and invaluable insights.
The unexpected scope and nature of the war in Iraq came immediately
on the heels of a deliberate and significant downsizing of the industrial
base. It has brought into sharp relief the consequences of decision
making that placed a heavy emphasis on efficiency when risk appeared
But at the same time, the seeds of flexibility
that were sown through innovative business practices and legislation
of the post-1995 BRAC period have grown into their own under the
stresses of wartime demand on the organic base. The performance
of the organic base during Operation Iraqi Freedom has shown not
only that it can provide goods and services when private industry
cannot or will not, but that it can most effectively adjust to the
work surge by working more closely with private industry to meet
the demands of war. Among the lessons learned from surging workload
requirements is the value of applying more aggressive partnering
practices and temporary staffing tools to supplement personnel needs
during periods of increased demand for the depot services.
For example, private companies have more flexibility
in hiring for surge requirements. They can take advantage of various
hiring mechanisms, such as limited-term contract employment, and
can circumvent time-consuming advertising and applications processes.
They generally also have much more flexibility to downsize a workforce.
On the other hand, the depots and arsenals are in a better position
to send their employees directly to a conflict area to support operations.
Public employees are trained and prepared for this possibility.
Many private employers avoid or prohibit sending employees into
combat areas. Costs of insurance and other support to such employees
is high and difficult to predict in preparing bids and proposals.
Merging the hiring flexibility of the private
base and the deployability of the public base has long-term advantages.
Tobyhanna Army Depot is using private employees to meet surge demands
for labor within its depot operation in the United States, while
deploying organic personnel to support in-theater activities. There
are about 500 contractor personnel, provided under a personnel services
contract with Lockheed, at Tobyhanna working side-by-side with the
government employees to complete the depot's wartime requirements.
In another example, the public base has proven
more flexible in accepting work that is ill-defined, or subject
to considerable change once underway. Contracts held by private
industry must be pre-negotiated based on some set of assumptions
about the scope and content of the work. Spontaneous changes to
those assumptions often result in significant penalty fees or other
premiums for the government. At the same time, if the assumptions
change dramatically, private companies may not find the associated
risk to profit to be acceptable. The organic facilities, however,
are not bound by any obligation to shareholders. Additionally, given
the large variety and volume of "legacy" systems still
in active use within the Army, the organic industrial base is a
guaranteed source of repair when original equipment manufacturers
have moved on to other systems or gone out of business. Without
the organic base, the cost in time and money of re-creating that
full capability in the private sector would be significant.
Finally, public facilities often enjoy access
to large tracts of land with extensive infrastructure. Activities
on this public property are largely immune from real estate taxes
and other burdens associated with private property. But they often
also lack the modern processes and advanced technology of the private
base where investment in new approaches and future capabilities
has long been the only way to stay competitive.
In practice, several of the Army's installations
have experienced significant benefits from partnering with private
industry. Private industry in turn has benefited as each partner
exploits the advantages offered by the other.
The most notable examples of true integration
of capabilities and work share arrangements involve the Anniston
Army Depot, where some of the first public-private partnerships
were crafted in the mid-1990s. As the Army's industrial center for
heavy combat systems such as tanks and artillery, Anniston had long
considered the private manufacturers of these systems to be competitors
for increasingly scarce upgrade and modification work, and vice
But, encouraged by the twin prospects of no
new production of tanks and further rounds of base closures, Anniston
and General Dynamics reached agreement in 1996 on a joint program
to refurbish and upgrade tanks. That foundation grew to include
United Defense L.P., with a joint program to upgrade the M-113 infantry
fighting vehicle, and Honeywell, which is producing new parts for
the tank's turbine engine in a building just a few doors down from
where the depot's organic workforce is overhauling those engines.
Nearly 10 years after first discussing partnering
possibilities with General Dynamics and continuous growth in the
type and nature of partnering programs, the Anniston Depot has now
embarked on an unprecedented partnership as a sub-contractor on
that company's new production combat vehicle program, the Stryker.
Together, the team was able to deliver new production vehicles within
six months of the initial contract award, under an arrangement that
included sharing infrastructure, resources and personnel. This example
particularly illustrates how the availability of government industrial
infrastructure can be an important element in the private sector's
ability to be responsive in very short periods of time to new requirements.
Today Anniston has more than 30 partnering and teaming arrangements
including co-production, subcontracting and facility use.
In another key example, the Corpus Christi
Army Depot has developed a partnership with General Electric focused
on engineering support and logistics services. Through a direct
contract negotiated in 2000, GE has provided technical and engineering
assistance to substantially improve the performance of the T-700
helicopter engine overhaul line at the depot. Through the suc- cessful
application of GE innovations, Corpus Christi can now rework an
engine in about one-third the time it took four years ago.
Tobyhanna Army Depot has partnered with Engineering
Professional Services, Inc., and several other private firms to
upgrade the communications capabilities of the AN/PRC-112D, a survival
radio critical to soldiers in Southwest Asia and other theaters.
Through a combination of Tobyhanna's technical expertise with the
entire family of PRC radios, and the private sector's accelerated
supply chain, hundreds of radios were upgraded and delivered to
troops on schedule and under cost. In this public-private partnership,
Tobyhanna will provide repair services on these radios warranted
for a ten-year period. Tobyhanna also provides warranted repair
in combat zones for commercial computers in partnership with companies
such as Dell. These partnerships allow the Army to enjoy the original
warranty and companies to avoid sending technicians into harm's
way. Letterkenny Army Depot was the site of the first successful
public-private partnership including depots. The program involved,
Paladin, was moved as part of the BRAC transfer of artillery maintenance
to Anniston, but Letterkenny is still engaged in several public-private
partnerships which include depot maintenance subcontracting (to
the Javelin Missile Joint Venture), and facility use agreements
with various companies. Letterkenny also serves as a supplier, manufacturing
UAV components for AAI Corp., and biological agent detection units
for Lockheed Martin.11
At Red River Army Depot, several successful
partnerships are ongoing. These include direct sales to Lockheed
Martin for maintenance on the Multiple Launch Rocket System and
components for the Patriot Missile System. Lear-Seigler and Stewart
& Stevenson have also contracted to Red River to support maintenance
of their production items. In each of these cases, the private companies
have sought out the depot to provide unique capabilities. This,
in turn, has provided additional work for key depot employees.
The sites that have moved towards more integration
of the public and private sectors capabilities at the depot level
have been able to provide to the DoD a capability that is more robust,
responsive and deployable. It has enabled the Army to build capacity
into its industrial operations by leveraging the capabilities offered
by both sectors.
STEPS TO MORE EFFECTIVE MANAGEMENT OF THE
Further integration of the organic and private
industrial bases will provide the additional flexibility demanded
by an uncertain future. By combining the best elements of each,
a national industrial base can be created that is agile, responsive
and efficient. But additional changes in the regulatory, policy
and legislative environments are necessary to allow this to happen.
Several current practices impose considerable
inflexibility on the organic base. These include Congressionally
mandated rules limiting "carry over," or what would generally
be considered "work in progress" in private industry.
Since depots and arsenals cannot carry over more than a moderate
amount of work from one fiscal year to the next, they are faced
with a quandary when unanticipated surge work is presented. Either
the surge and planned workloads must be accomplished simultaneously,
or the planned workload will be reprogrammed to another facility
or contracted to private industry. In addition, carry over rules
ignore the realities of acquisition lead times and the common practice
among military customers of sending unanticipated workload to the
depots just before the end of the fiscal year. These rules need
to be adjusted so that industrial planners can make workloading
decisions based on each particular situation rather than on an arbitrary
Other financial reforms are needed to allow
a more balanced flow of business in both directions, from public
to private customers as well as private to public customers. Mechanisms
for the efficient procurement by the government from private companies,
such as multiyear procurements, variable pricing12
and elimination of advance payments, need to be put in place to
encourage private companies to buy from the public facilities. Without
such mechanisms, direct contracting with the organic base is both
costly and risky.
Finally, although procurement law allows the
organic base to sell products to commercial and foreign military
customers under certain circumstances, it does not allow the seller
to keep any of the proceeds. This flaw in the system limits incentives
to find new customers and, most importantly, fails to reward those
facilities that are already operating both efficiently and effectively.
In a similar manner, the existing Capital Investment Program gives
control over the "profits" made by any organic facility
to higher authorities, thus taking investment decisions out of the
hands of those who best understand their customers and markets.
The organic base certainly will not realize its full potential to
support the military customer until financial incentives and investment
controls are adjusted to reward the successful government managers.
As the business environment for the depots
and arsenals has changed, so too must the way these facilities are
managed. Several important changes have been made in recent years,
including shifting management responsibility of the depots from
Headquarters, Army Materiel Command, to the individual industrial
commands that serve as their customers.13
Tank-automotive and Armament Command (TACOM), which manages the
arsenals as well as the Anniston and Red River Depots, has taken
this concept a step further and combined all its industrial activities
into one organization to facilitate cooperation and coordination.14
Policy at the DoD level still limits what the
Army can do with the arsenals, however. Beyond the legislative distinctions
discussed below, policy tradition considers the arsenals as a separate
category of industrial activity for purposes of budgeting, planning
and oversight. While this has led to a certain measure of independence
for the arsenals - for example, they can negotiate one-onone with
potential customers - neither do they have the benefit of workload
planning that the depots enjoy. Most importantly, the institutional
differences between depots and arsenals often prohibit rational
work sharing and other forms of cooperation.
Changing the metrics for measuring the performance
of the depots from labor hours to productivity is another way policy
makers could encourage innovations that would ultimately lead to
both effectiveness and efficiency. With the current emphasis on
labor hours in all aspects of depot planning, budgeting and evaluation,
depot workers receive a "mixed message" regarding the
importance of maximizing production or output by finding ways to
do the same amount of work in less time.
There are long term advantages to be gained
from applying more aggressive temporary staffing tools to supplement
core staff levels. The tools can include enhanced partnerships with
defense companies to supply contractor support teams on a broad
and substantial scale to meet large surges in labor requirements
within the depot community. These tools have been proven effective
and should become a business strategy of choice within the Army
Finally, it may be time for the Army to consider
changing its traditional approach to leadership at its industrial
facilities. Managing these complex sites, including labor requirements,
infrastructure maintenance, capital planning, community relations
and environmental stewardship requires the same leadership skills
as running any large scale business. It also requires continuity.
The current practice of rotating a military Commander in and out
of the top leadership position - usually on a two-year cycle - compromises
the long-term viability and strength of the local depot or arsenal,
regardless of the strengths of any given Commander. Instead, the
chief civilian executive, who now functions as the Commander's deputy
and may stay in the job through the rotation of ten or more Commanders,
could be given the Chief Operating Officer position. The deputy
position would then be given to the military officer functioning
primarily as liaison to the Army command structure. The importance
of this liaison job will grow as organic sites evolve toward more
One of the most important obstacles for efficient
management of the Army's industrial base is the legislative distinction
between depots and arsenals. With the exception of the Arsenal Act
- which applies only to arsenals - the legislation outlined above
applies only to depots. Thus, the definitions of "core",
the workloading requirements, and the public-private partnership
opportunities, exclude a significant portion of the Army's organic
The artificial distinction between depots and
arsenals is a uniquely Army problem (because only the Army has arsenals),
and is one that has proven expensive in peacetime and challenging
in time of war. In theory, the arsenals engage in heavy manufacturing,
while the depots perform systems-level maintenance. In practice,
this distinction has blurred over time. But Congressional attention
- and top-level DoD attention - has focused on the depots thus leaving
the arsenals behind. This problem could be addressed substantially
by integrating arsenals into key depot legislative provisions, such
as the Core Logistics Statute.
INTEGRATING INDUSTRIAL BASE PLANNING.
While these changes would go a long way toward
improving the effectiveness and efficiency of both the organic and
private industrial bases, real transformation will require a management
philosophy that considers these two bases as one. Enhanced public-private
partnerships through the steps outlined here will encourage this
way of thinking over time. But in the meantime, opportunities and
capabilities will be lost. The most significant single set of decisions
impending about the industrial base - the 2005 BRAC - will consider
the organic base in almost total isolation from its private counterpart.
The Army should avoid making this mistake itself,
and instead adopt its own successful approach to the ammunition
base as a model for the other industrial sectors. For planning purposes,
the ammunition base is considered an integrated whole of government-owned
and operated facilities, government-owned and privately- operated
facilities, and privately-owned and operated facilities. Integrated
Program Teams that include representatives of both the public and
private ammunition facilities meet each year to address critical
issues facing them as a community.
This approach could be applied to other Army
industrial sectors. With the depots identified as "Centers
of Excellence" for their respective weapons systems, and reporting
to their primary acquisition customers, the sector- oriented management
infrastructure already exists. A more explicit consideration of
private sector capabilities as well as limitations in planning public
sector workloads can only improve the overall performance of the
base. As is the case with ammunition, such considerations need to
take place during the planning and development phases of new weapons
programs, and not be limited to maintenance, repair or upgrade.
The Army will have the ideal opportunity to
put these concepts into action while implementing the decisions
of the next BRAC. The transition plan for the transfer or realignment
of missions should include a strengthened emphasis on partnering
and public and private integration.
Industrial efficiency is naturally a prime
consideration of policy during peacetime, when the cost of national
defense is measured primarily in dollars. But in wartime, when this
cost expands to include many more complex factors, industrial effectiveness
is essential. As America looks toward a future defined by a long
period of undefined conflict in the Global War on Terror, it must
be able to count on a defense industrial base that has both attributes.
The positive experience of industrial partnerships
proves this is possible. A more aggressive policy to combine the
core competencies of the organic base and private companies through
an expanded set of partnerships can:
• Create efficiency by bringing in business
to underutilized organic facilities;
• Enhance effectiveness by providing
the means to maintain a critical skill base and infrastructure that
might otherwise atrophy; and
• Introduce flexibility through on-going
contractual relationships with private companies that can be amended
The result can be an industrial base that is
responsive to the needs of the warfighters and to the interests
of the taxpayers.
1 See Hix, et.al., Rethinking
Governance of the Army's Arsenals and Ammunition Plants, RAND, 2003,
Chapter Two, for a more complete history of the organic industrial
2 Aircraft were an exception.
During the interwar periods the Army Air Corps developed a strong
relationship with the private aviation industry, upon which it relied
for modern designs.
3 A 1977 law required
the Secretary of Defense to submit any requests for base closures
to Congress for approval. As a consequence, no major closures occurred
between 1977 and 1991.
4 For a discussion of
the BRAC history and process, see Taxpayers for Common Sense, available
at: www.taxpayer.net/nationalsecurity/learnmore/BRAC; and the Department
of Defense at: www.defenselink.mil/BRAC.
5 The Air Force operates
three aviation depots and one aerospace depot; the Navy and Marine
Corps operate three aviation depots, four shipyards and two Marine
Corps depots. In 2003 the total U.S. Government-owned industrial
base employed 77,000 people.
6 Lexington Institute,
Supplying Ammunition: the Lifeblood of the Military, November 2004.
7 Exceptions are the
procurement of major modifications or upgrades designed to improve
program performance, or the nuclear refueling of aircraft carriers.
8 Large caliber cannons,
gun mounts, recoil mechanisms, ammunition, munitions, or components
9 Helicopters: Corpus
Christi; Combat vehicles, artillery and small arms: Anniston; Communications,
electronics and tactical missile guidance/control: Tobyhanna; Bradley
Fighting Vehicles and Multiple Launch Rocket Systems: Red River;
Tactical missile ground support equipment: Letterkenny.
10 Requirement for
fielding in fiscal year 2005.
11 These units, DFU1000A,
successfully detected ricin in a U.S. Senate office building in
February 2004. Letterkenny was immediately asked to produce 100
additional units, which they delivered in five days.
12 Variable pricing
allows the producer to offer a product at its marginal cost without
folding in a pro-rated share of overhead.
13 Operational command
and control of the depots is now exercised by TACOM, Aviation and
Missile Command, and the Communications-Electronics Command. These
Commands are also responsible for developing and procuring weapons
14 The organization
is the Ground Systems Industrial Enterprise (GSIE)
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