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Wisdom in Washington. Really.

By Steve Geary | 12/14/2015 | 9:22 AM

Defense spending continues a steady decline.  In the mid-50’s, defense spending claimed a little over 10% of GDP, and today it’s down around 4% of GDP.  The tide is going out, and has been for decades.

A big part of that spending relates to military logistics.  The military has to stockpile weapons and supplies to be ready to go to war – that’s warehousing.  The military has to feed and equip troops – that’s commercial shipping. 

Reality is reality.  As any commercial company dealing in military logistics knows, the market is shrinking, and it has been since the end of the Korean War.  Deal with it.

What’s changing is how many companies are dealing with it.  They’ve reached a tipping point, and many are walking away from the military business.  A shrinking market combined with steadily growing government oversight is chasing many companies out the door.

In a letter sent this past September to Secretary of Defense Ash Carter, Senator John McCain wrote, “We both agree that one of our nation’s greatest national security challenges is the maintenance of our defense technological dominance in the coming decades. Unfortunately, the U.S. defense establishment no longer dominates the development of many vitally needed technologies. This is, in large part, because commercial and global research and development (R&D) efforts have dwarfed DOD’s investments in these areas, and because our defense acquisition system too often serves to repel, rather than attract, our most innovative commercial firms.”

While I don’t always agree with the Senator, in this case I can’t argue with his grasp of business.  The DoD is trying to address their market contraction issues with additional regulation, further stifling an already difficult landscape.

Without investment, markets die.  According to a recent editorial in National Defense Magazine, the total R&D for the top four defense contractors is about a quarter of what Google alone spends in R&D each year.  I didn’t check their math, but Sandra Irwin is pretty reputable so I’ll take her at her word.

There is smart money, and it’s not being invested in defense.  It’s going to Google, going to Silicon Valley, going to places where creativity is free to run.

It would be nice if Ash Carter took Senator McCain’s words to heart, and reversed course.  Dr. Carter did, after all, establish a DoD beachhead in Silicon Valley, to try to tap into all the Valley has to offer (see “A reality check for defense ambitions: do they understand what it means to run with the bulls in Silicon Valley”).

Be honest with yourself, Dr. Carter.  If you want to run with the wolves, you have to be a wolf.  That means the solution is to reduce regulation for defense contractors, not increase it.

As my father used to say, “If wishes were horses then beggars would ride.”  While we can hope that the Pentagon backs off, don’t hold your breath.  There will continue to be constriction, companies will continue to exit, and those of us who remain are going to feel the squeeze.

So, what do we do with the lemons that the Pentagon is sending our way?  As the DoD further distorts markets, they’ll create what economists call externalities and what guys like me call opportunities.

Give me a lemon, and I’ll find some sugar and make the lemonade.

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About Mike Rudolph

Mike Rudolph

Mike Rudolph is a recently retired Marine Colonel with over 30 years of operational experience, proven leadership, and management success in the logistics and supply chain management fields. He is an executive consultant with ROSE Solutions and the Supply Chain Visions family of companies - consultancies that work throughout the government sector. Mike led the Marine Corps Supply Chain and Life Cycle Management Center at Marine Corps Logistics Command - responsible for supply chain and life cycle management of all ground weapon systems, equipment, and reparable components, the depot maintenance program, and equipment prepositioning program. During 2004-2008, he served two tours of duty in Anbar Province, Iraq as the G-4 for Multi-National Force – West, supporting all combat operations and coalition efforts to revitalize Iraqi economic development and stability. Mike's efforts were recognized with the Bronze Star for his first tour and the Legion of Merit for his second. He was widely recognized as a visionary and innovator in the Marine Corps logistics community.



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