The US boasts the biggest military in the world by some margin with a budget of around $850 billion for 2025 – yet a big military and a budget to back it is only the beginning. In a world with tightening senses of reshoring and a dissipating idea of globalisation amidst a tense geopolitical landscape, the supply chain that feeds this behemoth is coming under more and more pressure.
The resilience of the US defence supply chain is critical to maintaining security and military readiness for not only itself but its many allies. However, in recent times various challenges have directly threatened the stability and efficiency of this complex network. These issues, driven by both geopolitical and economic triggers, require the urgent attention and comprehensive strategies to ensure that the US retains its defence capabilities in an increasingly contested global landscape.
Challenges facing the US defence supply chain
Unfortunately for the US, there is a single problem or fix that can be identified to solve the issues the US defence supply chain is facing. Rather, it is a multi-faceted problem that spans from sourcing, to obsolescence, and all the way to management.
One of the core issues the US must address is something that many countries across the globe are coming to terms with, this being a dependency on foreign suppliers. For the US defence supply chain, this problem is especially concerning given that the key nation they are dependent on are also its biggest rivals on the geopolitical stage. The US has structured its defence supply chain in such a way that it heavily relies on foreign sources, particularly China, for many critical materials such as rare earth elements, semiconductors, and other essential military components. This dependency creates vulnerabilities in times of geopolitical conflict or trade restrictions, which is precisely what we are seeing now.
The US has also seen a steep decline in domestic manufacturing capacity due to decades of offshoring and deindustrialisation at a time of globalisation. This reduction in manufacturing capability has affected the ability to rapidly scale the production of essential military equipment.
Then comes the problems of obsolescence coinciding with Diminishing Manufacturing Sources and Material Sources (DMSMS). Many defence systems depend on outdated technologies that are no longer in production, making it challenging to maintain and upgrade critical equipment.
Visibility and management are also key concerns within the US defence supply chain. The defence supply chain involves multi-tiered subcontractors, making it difficult to track the origin and movement of materials and components. This lack of visibility can result in unexpected shortages and delays.
These challenges also coincide with a time where the workforce within the sector is under duress. A shrinking skilled labour force in manufacturing sectors has further exacerbated supply chain issues, limiting the capacity to produce and maintain defence equipment efficiently at home.
What’s triggering these supply chain challenges?
There are a number of driving forces behind the struggles facing the US defence supply chain, some more clear than others. Addressing these trigger points would be key to overcoming the overarching issues present in the supply chain. So, what are the factors have triggered the aforementioned challenges?
- Geopolitical tensions – The rising tensions around the globe, especially those between the West and China, have heightened concerns about the security of the US defence supply chain. China currently dominates the global supply of rare earth elements as well as making significant contributions to the semiconductor markets, making the US vulnerable to supply disruptions of critical materials. The current global landscape is also riddled with ongoing conflicts that have exposed the flaws in global supply chains even more. One needs only look at the ongoing Russia-Ukraine conflict to see these flaws, particularly regarding energy, raw materials, and military supply.
- Economic shocks and deindustrialisation – Decades of offshoring and deindustrialisation have reduced domestic manufacturing capacity. The US shipbuilding industry, for example, has declined significantly, leaving the nation unable to match China’s rapid naval expansion as it wrestles for domination over the South China Sea. The COVID-19 pandemic and subsequent supply chain crises further exposed the fragility of global logistics networks.
- Technological obsolescence – Even for a nation with a massive military budget, the slow pace of modernising legacy defence systems has created a reliance on outdated technologies. Additionally, adversaries like China and Russia are investing heavily in cyber capabilities to disrupt supply chains, creating further risks for the US.
- Workforce gaps – The ageing workforce in sectors like shipbuilding and aerospace, combined with gaps in STEM education, has contributed to labour shortages. The US defence sector faces difficulties in recruiting and retaining skilled workers to support emerging defence technologies.
Addressing the supply chain challenges
Solving the problems facing the US defence supply chain is no easy task and requires a top down multifaceted approach to overcome.
Reducing dependency of foreign supplies
For starters, the US will need to reduce its dependency on foreign suppliers. This can be achieved by increasing domestic production of critical materials by providing things like tax incentives or grants to US companies involved in the mining, processing, and manufacturing sectors. Just look at the US Chips Act for a key example of this.
Whilst a homeland approach should be the focus, America should also look to build upon its ties to its core allies as it shifts away from dependency on its adversaries. Ally nations such as Australia, Japan, or Canada can offer up access to resources that would typically come from elsewhere.
Stockpiling is another strategy that could benefit the US in the long run, ensuring availability of critical materials during geopolitical disruptions.
These efforts have already begun, the US Department of Energy (DoE) has launched programmes which are designed to boost domestic rare earth mining and processing. Since the early 2020s, the US Departments of Defense (DoD) and DoE have put over half a billion dollars into establishing domestic rare earth element supply chains to support the defence sector.
Improve domestic manufacturing
Revitalising domestic manufacturing capacities should also be on the top of the list when it comes to address the supply chain challenges.
Reshoring efforts in production through similar tax/grant incentives, especially for defence contractors, will have to bring manufacturing back to the US mainland.
Levelling up existing manufacturing capabilities should also be a key part of this process. Modernising factories with new technologies such as automation or advanced manufacturing technologies like additive manufacturing will be key.
Finally, the streamlining of procurement processes will also be integral to reducing bureaucratic delays in contract securing.
In December 2023, the Biden Administration expanded the pre-existing Defense Production Act (DPA), creating the Title III of the DPA, to invoke a boost in the domestic production of critical defence components.
Supply chain visibility
Improving supply chain visibility is another area the US must target if it hopes to improve into defence supply chain. This is a notorious pain point for the US military who has seemed to of developed a habit for the mismanagement or failures in tracking of military equipment and supply. It was only January 2024 when more than $1bn of military equipment designated for Ukraine seemingly disappeared.
To address this, the US defence sector could explore the use of digital supply chain management systems which utilise blockchain or AI to provide real-time visibility across all tiers of the supply chain.
Beyond this, a mandated transparency requirement for defence contractors in regards to suppliers and subcontractors could be implemented. Predictive analytics could also play a role here, used to anticipate potential disruptions and stock shortages.
Addressing technological obsolescence/cybersecurity
Obsolescence is a major problem for many of the world’s militaries, even the biggest and richest. An age of relative peacetime and stability has led to a picture of old tech in a new age. As for cybersecurity, technological obsolescence and cybersecurity effectively go hand in hand, as cyber threats level up, so to must their targets, if not, then disruptions will only continue to mount.
Investing in the R&D to develop modern replacements for older defence technologies is critical here, and something that the US invests strongly into. Yet on the cyber side things are left a bit worse for wear. Strengthened cybersecurity measures across the supply chain and wider military to protect against cyberattacks is sorely needed. Throughout 2024 the DoD spoke and acted heavily on cybersecurity concerns, making a case for the creation of an independent military service for cyber and employing proactive cyber measures. The Cybersecurity Maturity Model Certification (CMMC) framework is one such measure in place that ensures contractors meet cybersecurity standards.
Beyond this, encouraging an open architecture system that allow for easier upgrades and interoperability should also be strongly considered for the future of this sector.
Mitigating economic shocks and supply chain disruptions
Economic shocks, such as the COVID-19 pandemic and subsequent supply chain crises, exposed the fragility of the US defence supply chain. To reduce the impact of such disruptions, the DoD can take several proactive measures.
One key strategy is to establish redundant suppliers to ensure critical components can be sourced from multiple locations. Relying on a single supplier or region increases the risk of shortages if that supplier faces production issues or if geopolitical tensions escalate. By diversifying its supplier base, the DoD can mitigate these risks and ensure continuous access to essential materials.
Another important measure is to implement just-in-case inventory models. Unlike just-in-time models, which focus on minimising stock to reduce costs, just-in-case models maintain a safety stock of critical components. This approach ensures that the military has necessary supplies on hand to avoid delays in critical equipment delivery, even during supply chain disruptions.
Additionally, the DoD should strengthen logistics networks to ensure the timely delivery of materials and components to military bases and operations. This involves improving transportation infrastructure, optimising supply routes, and developing regional hubs to decentralise logistics operations. These hubs would provide more flexible and resilient supply chains, reducing the impact of disruptions in any one region.
The DoD is currently working on regional supply chain hubs to decentralise logistics operations and improve resilience against disruptions.
Closing the workforce gap
The workforce gap in the U.S. defence sector has become a significant issue, exacerbated by an ageing workforce and gaps in STEM education. To ensure the country’s defence manufacturing capabilities remain robust, several measures can be taken.
One of the most important steps is to invest in STEM education. This will help to cultivate a pipeline of talent in fields such as advanced manufacturing, engineering, and cybersecurity. By encouraging more students to pursue careers in these areas, the U.S. can ensure that there is a steady flow of skilled workers ready to support the defence industry.
Another key measure is to offer apprenticeships and vocational training in defence manufacturing. Practical, hands-on training can help bridge the gap between theoretical knowledge and real-world skills, providing the defence sector with workers who are job-ready. These programmes can also serve as a pathway into the industry for young people who may not be pursuing traditional university degrees.
Additionally, it is essential to retain older, experienced workers by offering flexible retirement policies. Many experienced workers in the defence sector possess invaluable knowledge and skills that are difficult to replace. By offering options such as part-time work or mentorship roles, the industry can continue to benefit from their expertise while gradually transitioning new workers into key roles.