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Formerly Executive VP, General Dynamics Corporation Member, Board of Directors, Naval Submarine League

It is a pleasure to address an audience of fellow submariners, industry and government personnel, many whom I consider close friends and colleagues. Today I would like to take some time to talk about the industrial base that supports naval shipbuilding, the challenges the collective industry is facing, and a little on the submarine industrial base.

Shipyards get most of the attention, but there is a huge array of players within the collective term ‘industrial base.’

  • Hull, mechanical and electrical (HM&E) suppliers tend to be associated with the basic hull and framework of the core ship-for the most part designed for the life of the ship.
  • The combat system and electronics area has shorter technology half-lives and draws heavily on the advances of the commercial market.
  • The government clearly has a management and buying role, but it goes much beyond that as the complexity and warfighting capability increases.
  • The labs play a critical role in advancing technology and warfighting capability.

Clearly, there is a strong linkage between the many diverse elements of the industrial base and this needs to be considered in its broadest terms.

As much reduction as occurred in the 1990s, there is still significant excess capacity at the big 6 yards associated with naval shipbuilding. With LCS (Littoral Combat Ship) and Coast Guard deepwater programs, yards traditionally considered at the next tier are actively involved. Some of this is a result of looking at commercial hull forms and designs.

The consolidation within the industrial base has resulted in many single or sole source suppliers, especially for unique marine products. Competition is also limited, especially among the yards. At the rate of production of submarines, how do you have meaningful competition? Even when we had 688 competition, the awards looked very close to allocation in order to have ‘meaningful’ competition over the next flight. Similar parallels exist with the DDGs.

At the rates being procured today, it is becoming extremely difficult to have ongoing competitions. It would likely be a one-time competition for a series of ships.

There is limited commercial work; exclusively that associated with the Jones Act trade; mostly cargo carriers and double hull tankers.

The yards have invested large amounts in facilities, design systems and processes over the last I 0-15 years, while significantly downsizing. It is important to note there is not an even distribution of capabilities across the industry and government: one yard to another; surf ace vs submarine; nuclear vs non-nuclear; naval vs more commercial yards.

Today’ s situation is further complicated by a wide variation in projected force levels. There was a goal of375 ships in the Navy and we are hearing now of numbers from 260 to 325; and even those are said to be unaffordable. In addition, requirements are changing and across the shipbuilding programs production rates are very low.

It seems also the procurement holiday of the 90s have forced a major recapitalization of the Navy all at once with many new programs; some with very high technical development risk. We have before us intentions to build the TAKE as well as LPD 17, LCS, DD(X), CVN 21, LHA(R), CG(X), MPF(F) and VIRGINIA class submarine.

Recently a Global Shipbuilding Industrial Base Benchmarking Study was conducted by the Deputy Under Secretary of Defense. The First Marine International Corporation did the benchmarking with support from the Navy and both domestic and international shipyards. The objectives were: (1) To survey global shipyards for manufacturing and business practices; (2) To assess US shipyards; (3) To compare and identify opportunities; and (4) To identify Department of Defense, Navy and Industry actions, policies and the contract incentives to implement them.

The findings of that study indicated that the use of Best Practices improved yard performance significantly, as did both improved facilities and higher levels of technology. On the average it was found that US yards were better at pre-outfitting and storage. Several of the more important categories of performance which were rated were in Pre-Erection Activities, Ship Construction and Outfitting, Design and Production Engineering and Organizational & Operating Systems .

In assessing productivity, the study concluded US yards significantly trail high-output commercial yards, while some operate at equivalent, or above, core production levels of international naval shipyards. It went on to state that core level was not always achievable because of overly complex design, unstable production rates, and increased overhead in the naval environment.

This Global Shipbuilding Industrial Base Benchmarking Study is highly recommended for review by all concerned with shipbuilding and the productivity of the industry.

The cost growth in US naval shipbuilding is often cited as a negative factor in discussions of defense budgeting. It is important, therefore that we know what that factor entails and look at the various causes for the numbers which we see.

This chart shows, for two ships in each of four major naval programs, the initial cost, the percentage growth in FY 05, and the total projected growth, also as a percentage of the initial cost.

This is not a good picture, especially when one considers that the SCN budget has represented, on average, 33% of the Navy’s and 12% of the Department of Defense procurement budget. That total cost growth of$3.3 Billion for these eight ships is equivalent to one VIRGINIA, or three DDGs, or six LCSs.

There are many reasons for cost growth in naval shipbuilding:

• Procurement instability
• Immature design-particularly in the lead ship
• Material ordering, delivery and schedule delays
• Capability enhancements introduced
• Poor estimating up front
• Change orders for whatever reason
• Material & equipment cost increases; especially STEEL
• Poor project management
• Inability to recruit appropriate labor
• Poorly defined construction specifications

The Benchmarking study also identified a vicious cycle which can occur due to the various causes of cost growth which could amount to a program death spiral. This chart seeks to show the interrelation of those various cost growths which tend to make a bad situation much worse. Controlling these identified factors is paramount to control ling cost, once you have settled on a design/class of ships.

The b>Keys to Affordability can be deduced from an understanding of the causes of cost growth and their interrelation.

• Workforce experience and knowledge is a huge factor in design and construction; and this is an issue within the Navy and industry.
• Managing risk. especially with the lead unit. This also applies to new processes which need prototyping such as design and production systems. It is critical to this effort to know the realm of the possible.
• A stable design with minimal concurrency between design maturity and construction.
• The right balance between government and industry. Both must understand this is a team game and each side of that balance must know when to tum loose and when to be heavily involved.
• A good contract with the right incentives is necessary. Risk management is central to this on both sides.
• Common development where possible.
• Re-use of design where possible and the use of common modules-to the extent that tools allow it. • Stable production rates and funding.
• Aggressive overhead management.

It seems to me the Industrial Base has done a lot, but more still needs to be done. For instance, Modularity can be a key to shipbuilding affordability. It seems important to get more modularity into our shipbuilding manufacturing environment. For instance, in the aerospace industry, some air frame manufacturers became module manufacturers. We have to look at whether this is an option in the naval shipbuilding business. Going commercial wherever possible is another attractive option and can be done on the ship, module and component levels.

We all recognize that numbers count, and force level management only goes so far, but we have to recognize that while industrial capacity also counts it cannot be available at any cost. If the production rates stay low, the industrial capacity and it’s inherent costs have to be addressed.

Innovation is most definitely a Force Multiplier, and the competition of ideas is our discriminator, however, funding is again a critical factor. Dollars for Research and Development are key to achieving that innovation on the continuing basis critical to maintaining the technological advantage which drives Force Multiplication.

While competition is highly desirable, as stated earlier, its real value may be limited. The Bench marking study noted that the use of “best practices” resulted in significant improvement. We need to share best practices and that can be done through NSRP and SIBIF. They have been identified as areas for investment to allow that sharing at a 50/50 cost sharing basis.

Stable procurement provides real value in the shipbuilding business. Industry needs to be able to have some idea of the future. Right now the shipbuilding plans seem unrealistic, because they are unaffordable, and they are always changing. Instability is caused also by jumping to a new program prematurely. Breaks in production or big swings in activity, whether in the yard or at the supplier, equate to big inefficiencies, and consequently cost big money. Each time we march off in a new direction I am concerned that sound technical analysis has been applied to the decision – the laws of physics can not be ignored. Admittedly, the rigor necessary for nuclear and ship safety issues doesn’t have to be applied across the board, but ignoring sound Lessons Learned is a sure formula for repeating the mistakes which taught them.

In addition to all of these programmatic and management issues facing Navy shipbuilding today, tomorrow’s worldly challenge is already on our doorstep in the form of compound, sophisticated threats. On the one hand we have the Iraqi action and the Global War on Terror, which shows promise of being of major concern for some time. On the other hand we have the emergence of China which looks to complicate our force level needs within the time-constants of ship design and construction. While we are focused on the engagement in Iraq, China is becoming the largest user of raw materials, much of which comes from the Third World. It would seem the development of their Navy is vital to insuring these resources. How we as a nation engage, support our forces and deter bad actions as this economic power develops is a major strategic issue. A weakened US naval position does not seem to be an affordable option.

Finally, I am worried that the industry and the Navy are not working together to address many of these issues. It is safe to say that Industry and the Navy are at a crossroad.

For the specific case of submarine shipbuilding there are steps which can be taken to ease the problem. As a first order consideration, we all know that multi-year procurement is the real base for stability. In addition, we should use the opportunity we have with the VIRGINIA class submarine to drive down the learning curve and aggressively go after cost. I look at the TANGO BRA VO effort as another opportunity. It is focused on external payload delivery and distributed propulsion, both of which could significantly lower the complexity of construction, thus the cost, in future submarine designs. On a more current note, the SSGN is truly transformational. It is a very modem example of taking a historical platform and adapting it for new capability for use in new missions. It also has the truck-like capacity to offer tremendous flexibility in addressing new forms of payload. For new security environments it’s not hard to visualize the SSGN as an arsenal ship for all kinds of payload. Innovation always has been at the center of submarine warfare, and innovation will be important in the solution of these problems, but funding is needed and some areas are being starved. It has to be noted that the Demonstration program is providing significant benefit. We should also fully embrace the use of surrogate vehicles to extend the submarine’s reach.

Finally, it is clear that an integrated plan is needed which insures an affordable and capable industrial base for the future. I am not sure either OSD or the Congress believe there is a plan, or an acquisition strategy, which supports the Navy’s shipbuilding programs. Without an architecture, we may not like what results and will likely have to pay big time to get what we need. The Navy needs to steer this effort because it is their base industry they need to be the architect.

No one is proposing preservation of the past; but we jointly need to determine the future end-state.

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