U.S. officials are desperate to find ways to crank up weapons production amid wars in Ukraine and the Middle East, and growing tensions with China.

“The task before us is really critical,” said Laura D. Taylor-Kale, assistant secretary of defense for industrial base policy, who last week announced the government is working on a first-ever national defense industrial strategy, meant to “catalyze a generational change.” 

However, deep within defense firms’ logistic chains lurks a hidden problem. Some smaller firms, as well as government-owned production facilities, are using a range of outdated equipment—from fax machines to 1980s era software—according to MxD, a Defense-Department funded institute charged with increasing digitization in the defense industrial base. 

Lower-tier manufacturers are layered throughout the weapons production process, even if the branding on the end-product bears the name of a well-known, multi-billion dollar company. Boeing relies on 55,737 suppliers, Lockheed on 17,722 suppliers, and General Dynamics on 17,701 suppliers, according to an investigation by the Financial Times. 

Many of these smaller suppliers are “tier five, six, and seven,” in the defense supply chain, said Jerry McGinn, a former senior career official in the Defense Department’s Office of Manufacturing and Industrial Base Policy. “We’re talking wiring, harnesses, fasteners, those kinds of things.” 

The Defense Department also works directly with over 39,000 small businesses, not including subcontractors working for bigger firms, according to a 2020 U.S. Government Accountability Office report. 

So if Lockheed wants to boost production for its missiles, those small machine shops must also increase production. “You can’t just go to a hardware store and buy a nut and bolt, it has to meet certain specs,” said Berardino Baratta, the CEO of MxD.

Meanwhile, the number of those firms is shrinking. The number of small businesses working in the defense industry between 2010 and 2020 fell by 40 percent, and an estimated 15,000 firms will go out of business in the next decade if trends continue, according to a Defense Department study. 

“When these folks go out of business, or they retire, the stuff they manufactured is not being produced anymore,” McGinn said. 

And many of the remaining smaller manufacturers don’t have the cash to invest in extra machines to crank up production that they’d only use during surges in U.S. defense spending. “If they’re not running the machine making something, they’re not getting paid,” Baratta said. 

Even if they do have the money, they may not be interested in investing. Many of these companies are staffed by older employees, with nearly a quarter of factory workers age 55 or older. “We can’t just assume they’re going to invest” in modernization even if there are more orders, said Baratta. 

In an interview with Defense One, Baratta recounted how he had sung the praises of digitization to one owner of a small business, who appeared to be in his 60s.  

“Why would I do this?,” the man replied. He was making a healthy profit already, his employees were all in their 40s, and his children didn’t want the business, Baratta said. 

Modernization isn’t only an issue for the small manufacturers. 

Rock Island Arsenal, for example, contains the only Army-owned forge and foundry, and works on everything from howitzers to up-armoring vehicles. 

An MxD team sent to help improve their processes observed that workers would carry rivets by hand from bins to their work stations. As they walked, rivets would spill and lodge themselves between the wood floors of the 200-year-old building. 

“You saw a field of rivets on the floor—it was an efficiency problem,” Baratta said. And some of the machines at Rock Island gathered data from equipment running early 1980s software systems. 

For big Defense Department facilities like that, MxD has been able to step in and directly improve operations. To address the spilled rivets, MxD recommended the rivets be moved closer to the point of assembly. To address the data problem, MxD worked with Illinois congressional representatives to get the arsenal money to fund a digitization plan. 

However, for smaller firms feeding big manufacturers’ supply chains, MxD is pursuing programs that reduce reliance on them entirely. 

One method they’re considering is using artificial intelligence to design weapons so they use components that are more widely available, Baratta said, adding that MxD is working with RTX on a non-defense application project along these lines.

Another potential fix is using extra capacity within government-owned manufacturing to make the same sorts of parts they buy from their smaller, lower-tier manufacturers, Baratta said.

MxD is also working to improve the health and skill sets of manufacturing workers, with programs including monitoring software to keep older workers healthier by analyzing movement data, and one designed to train new workers. 

McGinn praised MxD’s work as sending a market signal to private industry that the government is favoring modernization. 

“It’s not gonna solve everything, but you know, it helps when you have the government engaged,” said McGinn, who flagged broad Defense Department and industry participation in MxD as a positive sign.

Still, incentivizing private investment will ultimately be key, McGinn said, unless the government wants to significantly intervene in markets. 

“What is the right model to keep our capitalist approach?” McGinn asked, pointing to Chinese advantages in defense production that resulted from direct government intervention. 

“We have to counter that to a degree that … doesn’t create a kind of a perpetual government intervention in the marketplace.”