Higher Costs and Longer Lead Times – A Growing Industry Concern

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Opinion

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Posted: Aug 04, 2022 12:01 AM

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

With the federal government announcing that America is now technically in a recession, with inflation over 9% – and some pundits saying this will not decrease anytime soon – these latest numbers only confirm what a great portion of the citizenry has been feeling for quite some time. The technical data shows a slowdown, but the general public has seen the handwriting on the wall for months. Record high fuel prices, soaring food costs, lack of product availability, reduced service staffs, and empty shelves not only have a direct and daily impact on the consumer, but reinforce the sentiment that things aren’t good, and could get worse.   

But many of these same underlying challenges are generating other problems that don’t seem to be getting as much coverage in the mainstream press. However, they are trickling down throughout the economy, affecting productivity, raising costs, causing delays, pushing timelines to the right, and forcing tough choices. Most startlingly, they have the potential to significantly impact our national security, space, and defense posture as well. These core issues are rising materials costs and longer lead times for component sourcing.  

Nowhere are these related problems more concerning than in the areas of aerospace and defense, where the delayed delivery of vital components – which are often highly sophisticated, have a limited supplier base, and which often depend on rare raw materials for production – threatens the completion of our most important space and security platforms. Combined with a penchant for fixed-price procurements made easier by the low-inflation decades prior to this one, the squeeze is on contractors – many of them small or minority owned.

From aircraft completion and delivery, to jet engine production, to software, microchips and basic safety equipment – the lags in component sourcing and ongoing supply chain disruption continue to have a profound and sweeping effect.  Naturally, when materials and parts are in short supply, and the competition and need remains high, the prices go up. And for many of the items and materials used in the manufacturing of space technologies, or highly-capable aircraft or weapons systems, these costs can be absolutely eye-watering.  

But the prices don’t just manifest themselves in a vacuum – they get absorbed and passed on or impact the bottom line. And when it comes to U.S. government purchased platforms, systems and vehicles, those costs are soaked up by us citizens – the taxpayers – and threaten the small business base from which many Americans receive their paychecks. 

In the long run, delays in parts, materials, components and sub-systems cause other important ripples.  Manufacturing delays can mean our forces don’t get the equipment they need for training and operations on time – this erodes readiness. For example, aircraft that can’t be maintained or overhauled because of parts shortages or delays, sit in the hangar and aren’t flown by pilots who need them to either conduct operations or maintain training standards. America is already facing a major military pilot shortage, which is impacting everything from readiness and operational capability, too retention. Not having aircraft available for training or operational sorties only makes a difficult issue even more vexing.  

The lack or delay of parts and components may also limit the ability of military forces to keep pace against aggressors, or to remain competitive in producing technology necessary for a higher strategic goal.  High costs and longer lead times can also complicate acquisition and delivery of systems to the government – which can jeopardize contract awards, compound costs to the taxpayer, jumble business pipelines, and stifle hiring. While successful and savvy companies have protocols and back-ups in place to roll with the punches, extended situations like we’re currently dealing with, is testing limits and starting to cause unavoidable “real dollar” repercussions.  

Of course, this set of challenges is only the latest form of fallout from the economic disruption caused by the Covid-19 pandemic – a situation that we are likely to continue dealing with for months, if not years. Added to this, America is still reeling from an upside-down labor market dynamic, which is also fueling lead time issues, sourcing and costs. In fact, the Aerospace Industry Association (AIA) has recently suggested that the pandemic caused at least 87,000 jobs to be lost in the aerospace industry, a problem that adds a layer of complication in completing important and sensitive products and work on time.  

It is notable and good that the Congress has been taking a more aggressive approach to addressing some of these supply chain and sourcing problems. And, committees in Congress are taking a harder look at the sourcing of key elements used in high technology for defense and space technology production; recent concerns raised about antimony and the lack of a reliable domestic source stands as an example.   

But in the here and now, the harsh reality is that a vicious cycle of inflationary pressures, unceasing supply chain scrambles, and extended lead times for key items is spinning faster, and becoming a major problem for industry. It is especially trying for smaller and minority owned companies that don’t have the access to sourcing networks, stockpiles, fallback options, or economies of scale to overcome and work around these problems.  

Every day, Americans are grappling with high prices and limited goods – but now these disruptions are have national defense implications. A good first step to heading off further damage would be for the government to acknowledge the issue and provide adjustments to contracts before businesses reach the breaking point. We had better start finding some real solutions real soon.

Grant Anderson, P.E. is the President & CEO of Paragon Space Development Corporation, a recognized leader in life support and thermal control in extreme environments. He holds a B.S. in Mechanical Engineering and an M.S. in Aeronautical & Astronautical Engineering from Stanford University.