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Defense Dept. runs race for raw materials

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The U.S. metal stockpile policy is on the verge of its biggest overhaul in the past 15 years amid increasing trepidation about the country's dependence on foreign producers.

DLA Strategic Materials, formerly the Defense National Stockpile Center, was created in 1939 to prepare for World War II. At the end of the Cold War, however, the government agency moved from buying metals and commodities to selling off its massive surpluses. DLA commodity sales have totaled about $7 billion since 1994, and the market value of the remaining stockpile is around $1.6 billion.

But there has been a growing chorus in recent years that the current stockpile system is outdated and inefficient. In 2006, Congress expressed concern that global demand for several defense-specific raw materials had escalated due to industrial surges in China, India, Russia and Brazil, and it formed a working group to reconfigure the DLA's strategic materials security program to ensure greater flexibility and the availability of important materials.

The DLA is scheduled to present a report to Congress later this year that will focus on determining the potential risk to existing supply chains and recommend a strategy to minimize any identified disruptions to supply. The report is expected to recommend that the military have greater authority in how it secures metal, according to market sources.

"It's my understanding that the report is done and that the DLA is trying to push it up the system. However, there is some push-back, as the traditional use of the stockpile has been to sell (metal) and come up with extra money for (Defense Department) pet projects," a U.S.-based government policy analyst said. "Eventually, either they are going to run out of stuff in stockpile and the gravy train will end or (Congress) will make smarter strategic changes and advance forward."

One major challenge for the Defense Department is that it can't add new material to its stockpile list without congressional approval, an onerous process that can take years to complete. "There is a big bureaucracy between the stockpile administrator, the White House and Congress," the analyst said. "We're talking about a broad authority that spans across many jurisdictions. It certainly isn't the most nimble system. In a world where technology is outdated in a matter of months, it's a bit silly to have a system where it takes an act of Congress to authorize buying a new metal."

Ronnie Favors, administrator of DLA Strategic Materials, wouldn't provide specifics on what the report contains, but did say recently that the agency is looking to move toward strategic sourcing and partnering with foreign nations.

The DLA currently is exploring a new materials management system under which it would pay for, and have access to, mill products that would be held by producers in "virtual" warehouses rather than in government-run warehouses.

The agency earlier this year launched the so-called Strategic Materials Security Program, a pilot program where the DLA issued a solicitation to procure up to 167,000 pounds of titanium annually for the U.S. Army and Navy. In addition to allowing the DLA to make joint purchases across the armed services, the program focuses on providing government access to stocks of titanium ingot rather than sponge or finished products because it's a much more flexible intermediary.

There also are new budgetary concerns, DLA director Vice Adm. Alan Thompson said during a guidance in August. "It's a very different environment than the one we've been in for the last decade," Thompson said. "The defense budget is going to be increasingly pressured in the next few years. The good news is we've been talking about this in DLA for awhile, and we've been talking about the need to make adjustments sooner rather than later because it is far less disruptive if you do that."

TOM JENNEMANN


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