DOD’s primary representative for supplier-base issues is the Office of the Deputy Under Secretary of Defense for Industrial Policy (Industrial Policy). Its mission is to sustain an environment that ensures the industrial base on which DOD depends is reliable, cost-effective, and sufficient to meet its requirements. Industrial Policy defines reliability as suppliers providing contracted products and service in a timely manner; cost- effectiveness as the delivery of products and services at or below target costs; and sufficiency as suppliers delivering contracted products and services that meet prescribed performance requirements. DOD’s Program Executive Officers manage a portfolio of programs related to weapon systems. DOD also relies on a cadre of military and civilian officials— known as program managers—to lead the development and delivery of individual weapon systems. Program managers or their designees interact with prime contractors who manage subcontractors to provide the final good or service to DOD. Currently, DOD relies primarily on about six prime contractors who manage thousands of subcontractors for DOD systems. DOD has a variety of authorities, including laws, regulations, and an executive order, that govern its interaction with the defense supplier base. There are several key authorities available to DOD for maintaining information on its suppliers as well as ensuring a domestic capability for certain items, such as radiation-hardened microprocessors. In addition, the Department of Commerce has authority to assess the supplier base to support the national defense, and has conducted 15 supplier-base assessments in the past 5 years, including studies on imaging and sensor technology. See appendix II for a description of selected key defense supplier-base authorities. Although DOD has undertaken a variety of efforts to monitor the defense supplier base, it lacks a framework and consistent approach to identify and monitor concerns in the supplier base. The military services, Industrial Policy, and other DOD components collect information about the health and viability of certain defense supplier-base sectors. However, DOD has not applied departmentwide criteria to determine supplier-base characteristics that could result in reduced or nonavailability of needed items. As part of its supplier-base monitoring efforts, DOD has previously created lists of specific items that are considered critical at a point in time, but lists such as these run the risk of becoming obsolete and do not focus on supplier-base characteristics that could guide identification of problems. To better target its monitoring resources, Industrial Policy recently established criteria for supplier-base characteristics that could be indicators of supply concerns. These criteria have primarily been applied to the missile and space defense sectors and have not been used to guide the identification and monitoring of supplier-base concerns for all sectors departmentwide. The military services and other DOD components conduct studies on their respective suppliers, often in response to supplier concerns for individual programs. For example, the Army’s Aviation and Missile Research, Development, and Engineering Center studies availability issues for Army missile and space programs, such as the availability of raw materials for these programs. The Air Force Research Laboratory conducts assessments that range from annual studies of key supply sectors to evaluations of the supplier base for individual components or materials, such as beryllium. Within the Navy, the Fire Scout vertical takeoff and unmanned aerial vehicle program had an industrial capability assessment conducted of its supplier base before it proceeded to the production phase of the program. Officials from the Missile Defense Agency told us they have dedicated staff to monitor the supplier base for each of the agency’s 12 programs and have contracted for support to help improve supply-chain management between the agency’s program offices and their prime contractors. The Secretary of Defense is required by legislation to report annually to Congress on the supplier base. Industrial Policy prepares these reports, which provide a broad analysis of supplier trends and summarize supplier- base studies performed by various DOD components. For example, Industrial Policy reports on the percentage of prime contracts with a value of $25,000 or greater awarded to foreign suppliers. In addition, Industrial Policy also intermittently reports on foreign reliance for selected weapon programs. For example, in both 2001 and 2004, Industrial Policy reported to Congress on overall foreign reliance for 8 and 12 selected weapon programs, respectively. Industrial Policy also reports annually on industrial capabilities, including a macro-level summary of DOD’s seven supplier sectors and a summary of capabilities assessments conducted within DOD—which totaled 47 in 2007. Industrial Policy also provides quarterly updates on the financial and economic metrics of various defense suppliers; convened a roundtable of companies to identify barriers to conducting business with DOD; chartered a cross-department work group to collaborate on tasks related to defense supplier-base challenges, such as sole sources of supply and barriers to competition; and conducted other activities to foster knowledge of the defense supplier base. To support supplier-base analyses by Industrial Policy and the military services, the Defense Contract Management Agency’s Industrial Analysis Center conducts program- and sector-specific defense supplier-base studies, as well as conducting analysis to support DOD’s studies of foreign reliance. While these multiple efforts have provided the various DOD components with information about specific suppliers, they have not provided a DOD-wide view of supplier-base characteristics that could be indicators of problems—in large part because the efforts are not guided by departmentwide criteria for identifying and monitoring supplier-base concerns. In addition, DOD has also developed lists of items deemed critical at a point in time as part of its supplier-base monitoring efforts. For example, in 2003, after insufficient visibility, planning, and programming led to shortages of several mission-essential items during Operations Iraqi Freedom and Enduring Freedom, the Joint Staff directed the military services, the Defense Logistics Agency, the Defense Contract Management Agency, and the Combatant Commanders to create a list of the their respective top 20 “Critical Few” material readiness-shortfall items. Criteria for selecting items included those with high variances in wartime versus peacetime demand, military-unique characteristics without a commercial substitute, and limited industrial-base capacity. DOD developed a classified list of 25 items in 2003 that, according to officials, has not been updated. Similarly, an Army regulation and Air Force directive cite the development and use of “critical items lists.” However, officials from both services stated that the language in these authorities is outdated and the lists, if ever developed, are no longer used. According to Industrial Policy, lists such as these only capture items that are deemed critical at a point in time and, therefore, do not reflect changes in industry, technology, and DOD requirements. The Air Force has initiated efforts to establish criteria to track supplier- base concerns. Specifically, the Air Force’s Space and Missile Systems Center, under direction from the National Security Space Office, established a Space Industrial Base Program in order to address issues affecting the Air Force’s ability to develop and deploy space systems. According to Air Force officials, this action was a result of DOD Directive 5101.2. The center developed a method for identifying and tracking defense items with supplier-base concerns, defining such items as those whose loss or impending loss of manufacturers or suppliers has the potential to severely affect the program in terms of schedule, performance, or cost if left unresolved. Specifically, criteria for identifying and monitoring these items is based on supplier-base characteristics such as uneconomical production requirements, foreign-source competition, limited availability, or increasing cost of items and raw materials used in the manufacturing process. According to the Space and Missile Systems Center, based on the criteria it developed, it identified approximately 80 critical items in its space systems and coordinated with the Aerospace Corporation, a federally funded research and development center, to track the supplier base for these items. According to Industrial Policy, the breadth of DOD’s programs requires that it selectively monitor DOD’s supplier base. In turn, to better target supplier-monitoring resources, Industrial Policy recently established criteria for identifying conditions that could be indicators of supplier-base concerns for certain defense items, deeming these items as “important.” Its criteria for such important items include those produced by a sole source; used by three or more programs; representing obsolete, enabling, or emerging technologies; requiring long lead times to manufacture; or having limited surge-production capability. According to Industrial Policy, this internal effort grew out of DOD’s development of its critical asset list, and the organization uses the “important” designation to help it identify components and their suppliers that have the most potential to negatively affect production across program and service lines. However, while Industrial Policy uses these criteria, it is not aware of similar use by other DOD organizations. Industrial Policy has used these criteria to identify important components in the missile and space sectors, and has yet to use these criteria to guide the identification and monitoring of supplier-base concerns for all sectors departmentwide. According to Industrial Policy, the missile and space sectors have the preponderance of important items because they contain few commercial off-the-shelf components and a greater number of defense-unique components and, therefore, these sectors contain the most sole-source suppliers. According to Industrial Policy, these sectors are most likely to experience rapid production increases during times of conflict—another contributing factor. Examples of items identified in these sectors include thermal batteries, tactical missile rocket motors, lithium-ion batteries, and traveling-wave tubes. While still early in the process, Industrial Policy reported that it has used these criteria to help identify and work towards mitigating supplier-base concerns within the space and missile sectors. Specifically, the Defense Production Act Title III was used to improve domestic manufacturing performance for two items deemed important—traveling-wave tubes and long-life lithium-ion batteries. In a separate effort, Industrial Policy stated it is collaborating with the Defense Logistics Agency’s National Defense Stockpile Center to create departmentwide criteria for the terms, “critical,” “strategic,” and “important” and expects the Defense Logistics Agency to report to Congress by the end of calendar year 2008 on the results of this effort.