AIR WAR COLLEGE AIR UNIVERSITY AN AMERICAN VITAL INTEREST: PRESERVING THE NUCLEAR ENTERPRISE SUPPLIER BASE by Anton Tran, GS-15, NNSA A Research Report Submitted to the Faculty In Partial Fulfillment of the Graduation Requirements 15 February 2012 DISCLAIMER The views expressed in this academic research paper are those of the author and do not reflect the official policy or position of the U.S. government or the Department of Defense. In accordance with Air Force Instruction 51-303, it is not copyrighted, but is the property of the United States government. Biography Mr. Anton Tran is a federal civilian General Engineer assigned as a student to the Air War College (AWC), Air University, Maxwell Air Force Base (AFB), Alabama (AL). Mr. Tran completed his Bachelor of Science degree in Electrical/Electronics Engineering in 1985, Master’s degree in Business Administration in 1992 and 33 graduate hours towards a Master’s degree in Engineering Management. He is currently working as a Weapon Quality Engineer at the Department of Energy (DOE)/National Nuclear Security Administration (NNSA). Before joining DOE/NNSA, Mr. Tran was a Senior Project Engineer at Honeywell Aerospace Division where he was involved in hardware and software research and development (R&D), manufacturing, environmental testing, and quality assurance activities. Mr. Tran will return to NNSA following graduation from AWC. Abstract The current flexible U.S. nuclear arsenal supporting the national security strategy and defense posture requires the maintenance of a capable nuclear enterprise. However, the nuclear enterprise’s supplier base has eroded over time creating a sense of urgency to determine how to sustain a capable nuclear enterprise. President Obama pledged that the U.S. will maintain a safe, secure, and effective nuclear weapons arsenal while pursuing his goal of a world without nuclear weapons, a long-term “path to zero.” This paper argues that if the reliable supplier base is not properly preserved, the U.S. may be forced to prematurely go down the “path to zero” or retain lower than optimal stockpile levels because of the lack of manufacturing and acquisition capabilities. This paper intends to identify the current supplier base challenges, explore and examine available options, conduct studies of other industries on their approaches in managing eroding supplier bases, and provide recommendations for preserving the nuclear enterprise’s supplier base. While there is no one-size-fits-all solution, if not forced to establish capabilities in-house or accept new part/technology due to obsolescence, the paper recommends that the government opt to choose the widely used practice by other industries: provide incentives to suppliers to foster a positive customer-supplier relationship for preserving the supplier base and sustaining a healthy nuclear enterprise. Introduction The United States is the world’s pre-eminent superpower due in large part to its conventional and nuclear weapon superiority. It is argued that nuclear weapons have safeguarded America’s security for decades during the Cold War by deterring a Soviet attack on the U.S. or its allies. The current flexible nuclear arsenal supporting the national security strategy and defense posture requires the maintenance of a complex nuclear enterprise. An important feature enabling weapon production is a reliable U.S. supplier base providing necessary materials and custom parts to produce nuclear weapon components. However, the erosion of this supplier base has created a sense of urgency to determine how to maintain a capable nuclear enterprise. In the 2010 National Security Strategy (NSS) and the Nuclear Posture Review (NPR), President Obama stated that he is pursuing the goal of a world without nuclear weapons and supporting additional reductions in the number of U.S. nuclear weapons and the long-term “path to zero.”1 However, as long as nuclear weapons exist, Obama pledged that the U.S. will maintain a safe, secure, and effective nuclear weapon arsenal to deter potential adversaries and assure the security of our allies and partners. Thus, while the “path to zero” is a long-term goal, the U.S. must determine how it can sustain the nuclear enterprise, in particular a reliable supplier base, in an environment where the stockpile is shrinking and the resulting production workload for the supplier base is diminishing. I argue that if the reliable supplier base is not properly preserved, the U.S. may be forced to prematurely go down the “path to zero” or retain lower than optimal stockpile levels because of the lack of manufacturing and acquisition capabilities. Therefore, in order to maintain the production capability for keeping a safe and effective nuclear weapon arsenal, a more efficient 1 and reliable manufacturing of weapon components must be possible. With the number of reliable suppliers for these parts diminishing, this paper will illustrate how the U.S. government can sustain the supplier base in order to maintain a viable nuclear enterprise. Four options are explored: (1) Configure the nuclear enterprise to establish in-house manufacturing capabilities to produce piece parts so it can control the availability and quality of the parts; (2) Execute a life- of-program buy of all needed parts for future needs; (3) Subsidize suppliers to manufacture designed parts and to keep production lines open; or (4) Provide incentives to suppliers for producing custom parts and/or retaining the capabilities to re-produce parts for future needs. This paper intends to identify the current supplier base challenges, examine available options, conduct studies of other industries on their approaches in managing eroding supplier bases, and provide recommendations for preserving the nuclear enterprise’s supplier base. The Nuclear Enterprise During World War II, under the secretive Manhattan Project, U.S. scientists and government personnel designed and produced all nuclear weapon parts. The massive nuclear weapons complex allowed the government to develop the first test device and two nuclear weapons. In the Cold War era, as the nuclear weapons program grow, the nuclear enterprise emerged as a national strategic asset. The nuclear enterprise was fully operated and managed by the U.S. government and its prime contractors (called Management and Operating [M&O] contractors). This healthy nuclear enterprise was sustained until the Cold War ended in the early 1990s. The end of the Cold War brought significant reductions of the nuclear weapons stockpile, and forced the U.S. Department of Energy (DOE) to re-configure the nuclear enterprise infrastructure. After a series of plant closings in the 1990s and outsourcing in the 2000s to 2 reduce costs, the downsized nuclear enterprise was only able to focus on stockpile sustainment instead of new weapon production (Figure 1).2 Figure 1. The Downsized Nuclear Enterprise3 In October 1999, the U.S. Congress established a semi-autonomous agency, the National Nuclear Security Administration (NNSA), within the DOE responsible for enhancing national security through the military application of nuclear energy.4,5 The law transferred responsibility for managing the nuclear enterprise from DOE to NNSA. NNSA administers the nuclear weapons program through its Office of Defense Programs. To accomplish this mission, NNSA relies on M&O contractors to carry out various tasks at each of the eight nuclear enterprise sites. These tasks include the designing, manufacturing, storing, assembling, nonnuclear testing, qualifying, and dismantling of weapons. NNSA reimburses its M&O contractors under cost- reimbursement-type contracts for the costs incurred in carrying out the missions. The M&O contractors, in turn, may subcontract out major portions of their work, especially in mission- support areas such as constructing facilities. The three national laboratories are responsible for 3 the designs of nuclear weapons, and so are named design agencies (DAs). There is very limited production of nuclear weapons components at these laboratories. Most weapon components are produced at the four production plants; thus, these plants are called production agencies (PAs) (Figure 1 and Table 1). While most day-to-day activities are managed and operated by the various contractors, NNSA is responsible for planning, budgeting, and ensuring the execution of interconnected activities across the enterprise. Table 1. Nuclear enterprise facilities6 The nuclear weapons programs are managed by increasingly complex organizations. The relative large size (cost) of these programs adds an increased political dimension to program management. NNSA weapons program offices are staffed by a mix of military, civilian, and support contractors performing the full range of functions across a program’s lifecycle. There 4 are generally high levels of teaming among the industry components (at the prime contractor level) because no single entity possesses the resources, capabilities, and political diversity required to fully execute the program itself. NNSA has increasingly relied on M&O contractors for both programmatic and technical capabilities, including program management, requirements formulation and management, systems engineering, and system integration. One of the reasons that the U.S. government relies on contractors for such important program management functions is that the capabilities required to manage these complex systems no longer exist internally. As in the conventional defense industry, a fundamental change in the nuclear weapon industrial environment is the shift in the role of the prime (M&O) contractors from manufacturers to integrators of components manufactured by subcontractors. Today, the M&O contractors, their suppliers, and their suppliers’ suppliers are the critical links in a chain that has significant impact on America’s nuclear production capabilities. The current environment demands the need for examining the preservation of the nuclear enterprise’s supplier base. Regardless of the size of the U.S. stockpile, as long as nuclear weapons exist it will be necessary to ensure that weapons will be safe against accidents, be secure against unauthorized use, and function if they are ever employed. This can only be accomplished if steps are taken to maintain the nuclear design, engineering and manufacturing expertise to certify the safety, security, reliability, and effectiveness of all nuclear weapons. The NNSA Stockpile Stewardship Program7 has been remarkably successful in enabling the three weapons laboratories to develop advanced research and surveillance capabilities needed to ensure the long-term health of the stockpile. However, the production plants have suffered significant neglect in basic maintenance and comparable improvements until the last few years. There exists a floor below which the capacity and capability of the enterprise cannot go if it is to maintain any competence in nuclear 5 weapons-related activities. Both the Obama Administration and Congress have recognized this fact and provided the necessary funding to sustain and modernize the nuclear enterprise infrastructure. However, NNSA still relies heavily on industries to supply a vast majority of the non-nuclear piece parts and materials which NNSA builds up into higher assemblies. Nuclear Enterprise Supplier Base Challenges Nuclear weapons stockpile management includes the full range of activities related to the development, production, maintenance, and retirement. Although the Department of Defense (DoD) and NNSA share joint responsibility for all U.S. nuclear weapons, NNSA is responsible for the vast majority of weapon components. Personnel from Sandia, Savannah River, Kansas City, and Pantex provided insight into the significance of supplier base challenges. They offered intriguing arguments on what the U.S. government must consider in order to preserve the supplier base. Challenges include: limited vendor availability for custom parts, timely production and delivery, increasing costs, and quality of delivered parts and supporting documentation. Cost and quality are interrelated due to aggressive production delivery schedules, late design release, or frequent design changes during production. Honeywell Federal Manufacturing & Technologies – the KCP M&O Contractor – is chosen to do most of the procurement for all eight sites. It accounts for about 85% of total enterprise procurement of the process materials, machined parts, and printed wire boards (PWBs). Honeywell maintains the nuclear enterprise’s Master Approved Supplier List containing all qualified/approved suppliers doing business with NNSA. All NNSA sites use this list. The supplier base for commercial off-the-shelf (COTS) and custom parts does not present significant problems since multiple sources are available and the suppliers are mostly small 6