Why Defense Production Struggles To Meet Ukraine War Needs

By Chris Trost and Philippe Dume

_{Chris in Boston and Philippe in Paris are vice presidents with Oliver Wyman Engineers who focus on manufacturing optimization and the defense industry.}

The war in Ukraine created an urgent need to accelerate production across defense industries in the United States and other North Atlantic Treaty Organization (NATO) members. Defense manufacturing that had been producing systems and munitions to support deterrence and peacetime training is now required to accelerate to meet Ukrainian wartime needs while replenishing stockpiles at home.

For Ukraine and allies supporting Ukraine, the war led to tens of billions of dollars more on military spending, setting a higher rate that is likely to be sustained for at least the next few years. But simply spending more money on defense will not necessarily guarantee the munitions and advanced weapon systems will be there in the numbers necessary when the call goes out.

First, there is the economic reality that inflation is limiting the purchasing power of those dollars or euros. This translates to a more measured expansion in defense equipment than many probably assumed when some of the big budget announcements were made in early 2022. The economics, in turn, puts additional pressure on the efficiency of the manufacturing process and maximization of output from existing facilities.

A different approach to production

But accelerating production — even under predictable conditions — is challenging and demands a different and more technical approach than steady-state manufacturing — with risks that are often underestimated and go unmitigated. To optimize throughput and output, any ramp-up must start with a critical synchronization of both internal and external processes if it is to avoid bottlenecks. Frequently, the data and metrics used to manage production need to change as the production rate increases. That’s because the acceleration will cause an increase in complexity across material, equipment, employees, processes, and suppliers.

These turbulences — the result of the increased complexity — cause most of the challenges manufacturers encounter. If it takes a long time to untangle these complexities, costs go up without meeting the anticipated higher production rate — something that further constrains the defense expansion.

The key to success is understanding and managing the S-curve the acceleration follows — the steepness of which is limited by the complexity and turbulences in the program delivery. The S-curve “physics” applies to both the original equipment manufacturer’s production and the production rates of all the suppliers in the OEM’s supply chain. If a ramp-up’s S-curve is insufficiently steep, the inevitable result will be slower delivery of weapon systems and munitions — an untenable situation during a war. It can also lead to an inability to replenish stockpiles, which is also unacceptable when geopolitical tensions are running hot.

Being able to control how steep the curve can be at any point in time is a missing element of most acceleration plans. Most program network schedules and earned value systems fail to account for constraints that limit how fast accelerated production can be achieved, resulting in frequent overhauls of timetables and targets.

How it can work

Take, for instance, the impact of the Ukraine war on a major European automaker. A factory in Ukraine of one of its key suppliers was suddenly closed, causing an anticipated three-month delay in three separate car lines while production was reestablished elsewhere. Hundreds of millions of euros were at stake in lost revenue and idle production lines.

Sustaining the automaker’s production lines required a cross-functional approach that involved assessing available inventory, moving production to three different facilities with sufficient space and resources, and establishing supply chains for each site. It also meant moving production equipment and acquiring new machinery as well as training new staff — all while guaranteeing quality assurance.

The car company used our engineering production boost model’s focus on end-product throughput to address the situation, which aligned program management, manufacturing, supply chain and engineering. The approach limited the impact to a single car line for only three days.

More capacity without CAPEX

This level of rapid acceleration without significant capital expenditures (CAPEX) is not atypical. Properly executed technical production boosts can often generate 30% to 50% more throughput capacity in a period of months.

Uncertainty about how long increased spending on behalf of Ukraine will be needed is likely to limit capital investment in new wartime production facilities by defense suppliers. But the industry can get ahead of the resulting strains on production and meet the rising demand for munitions and weapons systems by enabling its S-curve to be as steep of an angle as possible.