Rethinking Governance of the Army's Arsenals and Ammunition Plants

353 Pages·2010·0.8 MB·English

Arroyo Center
Rethinking
Governance of
the Army’s
Arsenals and
Ammunition
Plants
W. Michael Hix (cid:2) Ellen M. Pint
John R. Bondanella (cid:2) Bruce Held
Michael V. Hynes (cid:2) David Johnson (cid:2) Art Pregler
Mike Stollenwerk (cid:2) Jerry Sollinger
R
Prepared for the
United States Army
Approved for public release; distribution unlimited
The research described in this report was sponsored by the United States Army
under Contract No. DASW01-96-C-0003.
Library of Congress Cataloging-in-Publication Data
Rethinking governance of the Army’s arsenals and ammunition plants / W. Michael Hix ... [et al.].
p. cm.
“MR-1651.”
ISBN 0-8330-3322-0 (Paperback)
1. Arsenals—United States—Management. 2. United States. Army—Ordnance facilities—
Management. I. Hix, William M. (William Michael), 1940–
UF543.A3R48 2003
355.7'068—dc21
2002154485
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PREFACE
This report documents the results of an analysis of the Army’s ordnance indus-
trial base. It focuses on arsenals and ammunition plants. Specifically, it ana-
lyzes Watervliet and Rock Island arsenals and 14 ammunition plants, 11 of
which are operated for the Army by contractors, and it considers alternative
forms of governance and management for each class of installation. The work
was sponsored by the Army G-8. It should interest those involved with the mil-
itary industrial base or transferring government activities to the private sector.
The work was carried out in the Military Logistics Program of RAND Arroyo
Center, a federally funded research and development center sponsored by the
United States Army.
iii
iv Rethinking Governance of the Army's Arsenals and Ammunition Plants
For more information on RAND Arroyo Center, contact the Director of Opera-
tions (telephone [phone], extension 6500; FAX [phone]; e-mail
[email protected]), or please visit the Arroyo Center’s Web site, found at
http://www.rand.org/ard/.
CONTENTS
Preface .................................................. iii
Figures .................................................. ix
Tables. .................................................. xi
Summary ................................................ xvii
Acknowledgments. ......................................... xxix
Abbreviations ............................................. xxxi
Chapter One
INTRODUCTION ....................................... 1
Scope and History of the Study ............................. 1
Study Progress to Date. ................................... 2
Phase 1: Watervliet and Rock Island Arsenals ................. 2
Phase 2: Qualitative Assessment of Broad Options ............. 3
Phase 3: Development and Assessment of Specific Options ...... 4
The Ordnance Industrial Base Today ......................... 5
Ownership and Workforces .............................. 6
Funding of Ordnance Materiel ............................ 7
Replenishment ....................................... 9
Organization of This Report ................................ 9
Chapter Two
BUILDING THE NATION’S FOUNDRY: THE EVOLUTION OF
THE ARMY ORDNANCE INDUSTRIAL BASE ................... 11
The First Era: Arming the Soldiers of a New Nation .............. 12
Colonial Antecedents ................................... 12
Arming the Revolution .................................. 12
The Early American System .............................. 13
Early Tests: The War of 1812 and the Mexican War ............. 14
From the Civil War to the Great War .......................... 17
From the Great War to World War II .......................... 22
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vi Rethinking Governance of the Army's Arsenals and Ammunition Plants
From World War to Cold War, Limited Wars, and Sole
Superpower ........................................ 28
Chapter Three
PROBLEMS AND ISSUES .................................. 31
The Case for Change ..................................... 31
Our Assessment of the Base ................................ 33
Lack of a Strategic Vision or Plan .......................... 33
Management Distraction ................................ 35
Reduced Workload and High Costs ......................... 35
Invisibility of Costs. .................................... 38
Lack of Access to Capital ................................ 43
Low Priority of Ammunition .............................. 44
Time Required to Dispose of Excess Facilities ................. 46
Lack of a Replenishment Policy ........................... 46
Strategy by Default. .................................... 47
Army Efforts at Innovation and Change ..................... 48
Chapter Four
A STRATEGIC VISION AND OPTIONS FOR ACHIEVING IT ......... 53
A Proposed Vision ....................................... 53
Policy Options for Moving Toward the Vision ................... 57
Privatization ......................................... 57
Creation of a Federal Government Corporation ............... 60
Consolidation ........................................ 61
Recapitalization and Unification .......................... 61
Assessment Criteria ...................................... 62
Mission Accomplishment ............................... 62
Long-Run Cost. ....................................... 63
Consistency with National and DoD Policy ................... 63
Administrative Ease .................................... 63
External Issues. ....................................... 64
Limiting the Options to a Feasible Set ........................ 64
Privatization ......................................... 64
Federal Government Corporation ......................... 66
Consolidation ........................................ 67
Recapitalization and Unification .......................... 67
Summary ............................................. 67
Chapter Five
THE PRIVATIZATION OPTION ............................. 69
Are Commercial Producers Unresponsive? ..................... 71
Characteristics of the Market for Ordnance Materiel ............ 71
Responsiveness of Markets .............................. 75
Contents vii
Examples of “Unresponsiveness” .......................... 80
Would it Cost More to Produce Ordnance Materiel in Privatized
Plants?. ........................................... 83
Government Investment and Production Decisions ............ 84
Recovery of Capital Costs ................................ 87
Competition for Ordnance Production ...................... 90
Does Private-Sector Production Involve Unacceptable Risk? ........ 92
Replenishment ....................................... 92
Homeland Security .................................... 94
Loss of Irreplaceable Assets .............................. 96
Environmental Issues. .................................. 97
Bankruptcy .......................................... 99
Responsiveness to Emergency Demands .................... 102
Economic Regeneration Model ............................. 103
Conclusions ........................................... 105
Chapter Six
FEDERAL GOVERNMENT CORPORATION OPTION .............. 107
Background ........................................... 107
About Federal Government Corporations ..................... 109
Creating a Federal Government Corporation ................... 112
Options for Ordnance FGCs ................................ 112
Characteristics of the Arsenal FGC ........................... 114
Organizational Structure ................................ 115
Corporate Missions .................................... 116
Corporate Charter Outline ............................... 117
Business Plans ......................................... 118
Market Type ......................................... 119
Market Size .......................................... 120
Gross Margin ......................................... 121
Market Structure ...................................... 122
Summary ............................................. 134
Chapter Seven
SUMMARY COMPARISON OF OPTIONS ...................... 139
Comparing the Three Options Against the Five Assessment Criteria .. 140
Mission Accomplishment ................................. 140
Program Risk ......................................... 142
Replenishment Risk .................................... 143
Responsiveness Risk ................................... 145
Disruption Risk ....................................... 146
Risk of Falling Behind in Manufacturing Technology ............ 146
Mission Accomplishment: Comparative Assessment ........... 147
Consistency with National and DoD Policy .................... 147
viii Rethinking Governance of the Army's Arsenals and Ammunition Plants
Cost ................................................. 148
Transition Cost ....................................... 150
Managerial Ease ........................................ 151
External Factors ........................................ 151
Summary of Comparative Assessment ........................ 151
Divestiture Implementation Considerations ................... 152
Divestiture Design ..................................... 153
Production Contract Bundling ............................ 154
Divestiture Option Considerations ......................... 155
Divestiture Design Option Evaluation ....................... 157
Creating a Tailored Hybrid Design: One Approach ............. 158
Summary ............................................. 160
Chapter Eight
A RECOMMENDED STRATEGY ............................. 161
The Strategy ........................................... 162
Fallback Strategies. ...................................... 162
For the GOCO Plants ................................... 163
For the Arsenals ....................................... 163
Sequencing ............................................ 164
An Integrated Replenishment Strategy ........................ 165
Estimated Budget Effects .................................. 165
Privatization of GOCO Ammunition Plants ................... 166
Creation of Arsenal FGC ................................. 173
Appendix
A. DEPOT DUPLICATION ................................... 181
B. REPLENISHMENT. ...................................... 189
C. MODEL OF GOCO COMPETITION WITH UNCERTAINTY ......... 213
D. BUDGET IMPACTS AND DESCRIPTIONS OF FACILITIES .......... 215
E. VALUATION OF PARCELS ................................. 287
References ............................................... 303
FIGURES
1.1. Logic Underpinning Determination of Ownership of
Mission-Critical Capability ............................. 5
3.1. Inputs and Output at Watervliet Arsenal ................... 36
3.2. Utilization Rates of Machines Required to Manufacture
M256 Gun Tubes at Watervliet Arsenal ..................... 37
3.3. Ratio of Overhead to Total Labor at Arsenals and
Comparable Commercial Firms .......................... 39
3.4. Planned and Actual Production for the M795 155mm
Artillery Projectile .................................... 45
5.1. Value of Ammunition and Ordnance Shipments, 2001
Dollars ............................................ 74
6.1. USOC, Notional Organizational Chart ..................... 115
6.2. Comparative Market Sizes .............................. 120
6.3. Gross Margins as a Percentage of Revenues ................. 122
6.4. Indirect Staffing Levels ................................ 123
6.5. Direct Labor Rates, Fully Burdened ....................... 125
6.6. Revenues for WVA in the Five-Year Business Plan ............. 130
6.7. Revenues for RIA in the Five-Year Business Plan .............. 131
6.8. Staffing for WVA Business Plan .......................... 132
6.9. Staffing for RIA Business Plan ........................... 133
A.1. Production Equipment at Army Arsenals and Depots .......... 186
B.1. Arsenal Production, Replenishment Requirements, and
Capacity ........................................... 191
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x Rethinking Governance of the Army's Arsenals and Ammunition Plants
B.2. Mix of Item-Lines on Active and Inactive Commercial
and Government Lines ................................ 193