In 2021, a single explosion in Minden, Louisiana, sent shockwaves across the U.S. defense industrial base. For nearly two years, the nation’s only domestic producer of black powder stopped operating. Ammunition manufacturers were forced to draw down stockpiles and delay deliveries because there was nowhere to get the main ingredient for their product. That episode captures a reality often missed in debates about defense production. No amount of pressure from the Department of Defense, whether applied directly or via primes like Raytheon or Northrop Grumman, can make production go any faster if the critical base components don’t exist.President Donald Trump’s recent remarks on defense contractors have brought renewed attention to a persistent problem: Major U.S. weapons programs continue to face long delivery backlogs even as defense budgets rise. The president has focused his criticism on stock buybacks, executive compensation, and financial behavior at large defense primes. And while those concerns resonate politically, and may be correct some of the time, they obscure where production timelines are actually set.
In fact, this pace is governed less by the financial behavior of Northrop Grumman or Raytheon than by the economic realities of the thousands of Tier-2 and Tier-3 manufacturers that supply them. These firms are often small, specialized, and capital-constrained, yet they produce the components that determine whether primes can meet their schedules at all.
I should note that I am not a disinterested observer in this debate. I run a company that operates within the aerospace and defense industrial base, which gives me a commercial interest in these issues, but also firsthand exposure to how sub-tier supplier fragility shapes production timelines in practice.
However, it should be noted that primes also have a role in shaping this environment. Contract structures, payment terms, demand signals, and information flow all influence whether sub-tier suppliers can afford to maintain or expand capacity. But the primes themselves are constrained by what exists downstream. When lower-tier suppliers lack capital or capacity, no amount of prime-level optimization can compensate.
Until the financial fragility of those lower tiers is addressed, delivery delays will continue regardless of how large the federal defense budget grows.
However, if the proposed increase in defense spending reaches Tier-2 and Tier-3 suppliers in a sustained and predictable way, the risk of cascading delays declines, and helps prevent the supplier failures that can snarl the defense industrial base.
Where Production Timelines Are Really Set
Prime contractors integrate systems, manage program schedules, and contract with the Department of Defense. They matter. But they don’t control the industrial physics that determines how fast components are actually built. Those constraints live downstream in the network of subcontractors that produce the parts primes can’t substitute easily or quickly.
Downstream suppliers manufacture propulsion components, energetics, castings, bearings, precision electronics, and other inputs that are deeply embedded in defense programs. Yet over the past decade, that network has thinned dramatically. In fact, the Department of Defense estimates it has lost more than 40 percent of its small business suppliers, increasing reliance on single and sole-source vendors for critical parts.
What remains is an industrial base with little slack, and with many of the remaining suppliers already operating at or near capacity. It turns routine disruptions into program delays and creates a situation whereby serious problems that originate several tiers below the prime remain out of sight until schedules start slipping.
Financial Fragility Below the Prime Level
Financial fragility is the crux of the problem.
Tier-2 and Tier-3 defense manufacturers operate in a very different economic universe than prime contractors. They tend to be privately held, thinly capitalized, and are heavily dependent on a small number of contracts. Their margins are narrow, and their access to external financing is limited. Unlike primes, they can’t easily pre-finance expansion in anticipation of future demand or absorb prolonged payment uncertainty. For instance, large primes can carry financial exposure while government appropriations or contracts are resolved in Congress, but Tier-2 and Tier-3 suppliers can’t front months of labor, materials, and overhead from their own bank accounts. Meanwhile, given that the expenses from sub-tier components typically represent a large majority of a program’s total cost, primes can’t simultaneously absorb their own exposure waiting for government payments while fronting the capital of the sub-tiers they depend on.
That distinction matters in today’s environment, as it means that many times, Tier-2 and Tier-3 manufacturers either operate on extended credit terms that are difficult to afford, charge higher prices to primes to offset financial risk, or leave the defense sector entirely to focus on commercial customers. In fact, the Department of Defense’s 2018 interagency report on industrial base resilience warned that in key sectors, competition has “altogether vanished,” leaving the military reliant on single- and sole-source suppliers because of this lack of resources needed to invest in capacity or innovation. Rising interest rates, persistent inflation, and the unwinding of pandemic-era financial support have continued to hit sub-tier suppliers hard. When those firms close, capacity doesn’t reappear elsewhere. Tooling is lost. Skilled labor disperses. Qualification data disappears. Restarting production can take years, if at all. And even when funding is available, the proprietary processes, specialized workforces, and institutional knowledge required to resume production are often impossible to reconstitute quickly. Scaling capacity at the sub-tier level is neither fast nor cheap. It requires capital investment in specialized equipment, recruitment and training of skilled labor in a constrained workforce, and navigation of qualification processes that can stretch for years. For a small manufacturer already operating near capacity, committing to expansion is a bet on sustained demand. Too often, that bet fails.
Defense procurement has historically sent erratic signals downstream: a surge during conflict, with contraction afterward. While that volatility is manageable for primes, it’s existential for smaller suppliers. When demand falls, they lay off workers, mothball equipment, or exit the market entirely. When demand rises again, the capacity is gone.
Embedded Suppliers and the Myth of Easy Substitution
A common response to supply constraints is to suggest that primes should simply find alternative suppliers. In theory, competition solves the problem. In practice, it rarely exists.
Sub-tier suppliers are embedded in defense programs through tooling, testing, and lengthy qualification processes tied to specific designs, materials, and manufacturing methods. Switching suppliers often means requalifying parts, revalidating performance, and rewriting documentation across multiple programs, something which can require years of requalification or redesign, if a potential replacement exists at all.
This embeddedness is why production delays cascade. Problems that originate at the sub-tier level tend to surface late, after components have already flowed through the supply chain and schedules have already been committed. The Department of Defense has acknowledged that it lacks consistent visibility into lower-tier suppliers and often depends on primes for information they do not themselves possess. In fact, 84 percent of primes have no visibility beyond their Tier-1 supplier.
The F-35 program offers a clear example. In 2022, the Pentagon suspended acceptance of new aircraft after discovering that a magnet in a turbomachine pump contained a specialty alloy sourced from China, raising compliance concerns. The issue came to light only after the parts had been installed in multiple aircraft and moved through multiple reporting layers. Deliveries resumed only after the Department of Defense granted a waiver. No prime-level financial decision caused the delay. Rather, it emerged from a hidden constraint deep in the supply chain, and only got noticed when it became a crisis
Convergence and Hidden Single Points of Failure
Supply chains that appear distinct at the program level often rely on the same handful of sub-tier suppliers. In the munitions sector, multiple solid rocket motor producers depend on overlapping Tier-2 or Tier-3 sources for energetic materials and propulsion components. The same goes for silicon chips needed for fighter jets and satellites that compete with data centers for the same supply, as is the need for specialty chemicals and important structural metals such as titanium and high-strength aluminum. Sourcing these products is becoming increasingly difficult, causing delays and making the lead times across a wide range of weapons programs longer. A sourcing disruption for a supplier at one tier can stall multiple prime production schedules simultaneously.
This convergence undermines assumptions about surge capacity. Funding one program more aggressively doesn’t help if the same constrained supplier supports several others. The Senate has acknowledged this reality in legislation directing the Department of Defense to assess and strengthen the solid rocket motor industrial base, explicitly citing sub-tier capacity as a limiting factor. The bottleneck is systemic and can’t be addressed program by program or company by company.
Figure 1: A graphic of the time, risk, and fragility in the layers of the defense industrial base.
Strengthening the Department’s Tools
Because production speed is in large part governed by sub-tier financial fragility, many existing debates about defense delivery are aimed at the wrong levers. Focusing pressure on prime-level financial behavior may be politically intuitive, but it risks misdirecting attention away from the layers of the industrial base that are a large factor in production constraints.
One underutilized government lever is cash flow. The Department of Defense already has a range of authorities, from the ability to issue multi-year contracts and advance procurement, to Defense Production Act tools and industrial base assessments. These mechanisms have been applied primarily at the prime level. Used this way, their ability to expand physical capacity is limited. Applied differently, these tools could reduce risk for the suppliers whose failure would have the greatest systemic consequences. For instance, during COVID-19, temporary increases in government cash flow stabilized parts of the sub-prime industrial base because money was passed to critical Tier-2 and Tier-3 suppliers quickly, demonstrating an understanding of how thin a margin these businesses were operating on. However, without clearer visibility into sub-tier dependencies and more deliberate attention to how demand signals propagate downward, new spending risks reinforcing existing bottlenecks rather than relieving them.
Another concrete step would be for the Department of Defense to maintain a regularly updated map of sub-tier dependencies for critical programs, building on industrial base assessments already underway in sectors like solid rocket motors. That visibility would enable the department to distinguish between suppliers whose capacity should be sustained through long-term contracting and inputs whose scarcity poses a systemic risk across multiple programs. Suppliers identified as strategically critical — whether due to sole-source status, multi-program dependencies, or operation in fragile sectors — would be eligible for multi-year contracts, loan guarantees, or compliance subsidies tied to reciprocal obligations such as capacity maintenance targets and early warning of financial distress. Eligibility and performance could be reviewed periodically to prevent the system from calcifying into permanent subsidies for underperforming firms. Meanwhile, when the constraint is access to scarce materials, targeted government purchases of stock could be a cost-effective intervention that would be a cheap way to reduce risks to production.
The same logic applies to the Department of Defense’s new cybersecurity requirements, called the Cybersecurity Maturity Model Certification. While necessary, compliance is expected to cost companies between tens and hundreds of thousands of dollars. For small but critical Tier-2 and Tier-3 manufacturers, that additional financial burden can be fatal.
Finally, the U.S. can look to other countries, such as Israel, to evaluate new ways of thinking for how to strengthen the defense industrial base. Israel’s Directorate of Defense Research and Development funds critical capabilities and components early in their research and development and acquisition cycles, before major programs lock in specific designs. What Israel’s model doesn’t translate cleanly to the scale of the U.S. defense market, it illustrates the fact that capacity should exist, and may need government help, before it can be surged. The U.S. has institutions that could implement this approach — the Defense Advanced Research Projects Agency, the service laboratories, and the Defense Innovation Unit — but they operate at a fraction of the scale needed and lack sustained demand signals that would enable suppliers to maintain capacity. Scaling this approach would require redirecting a meaningful share of the defense budget toward direct government investment in sub-tier manufacturing capacity, with clear metrics for capacity maintenance and technology readiness. The political barriers are real, but so are the consequences of the current approach.
Rethinking Responsibility for Delivery
Primes, of course, remain central actors in the defense ecosystem, and their decisions about contract structures, payment terms, and supplier relationships shape the economic environment in which sub-tier manufacturers operate. Yet production timelines are ultimately set by the capacity of Tier-2 and Tier-3 manufacturers, their ability to secure capital, retain skilled labor, and commit to expansion in the face of unpredictable demand. Without addressing those realities, increased defense spending will continue to concentrate at the top of the industrial pyramid while capacity constraints persist at the bottom.
President Trump’s plan to raise the defense budget provides an opportunity to change this dynamic. But only if the money reaches the lower tiers of the industrial base in a way they can rely on. Faster delivery depends not on where in the supply chain it lands, but on whether it arrives with the stability and visibility that enables investment decisions to work out.
The defense industrial base isn’t a single organism. It is a layered system, and its speed is determined by its weakest links. Until policy and procurement decisions fully internalize that fact, the gap between budget authority and battlefield capability will remain.
In war, logistics is often described as combat power. In production, finance plays the same role. And right now, the soldiers at the bottom of the supply chain are starving.
Menny Shalom is the CEO of Nukkleus Inc., a strategic acquirer and developer of high-potential businesses in the aerospace and defense industry. He is a seasoned entrepreneur with over 20 years of leadership experience in defense tech, precision manufacturing, and enterprise software. Prior to going into the private sector, he served as the chief of staff for Israeli Prime Minister Ehud Barak.
**Please note, as a matter of house style, War on the Rocks will not use a different name for the U.S. Department of Defense until and unless the name is changed by statute by the U.S. Congress.
Image: Airman 1st Class Joseph Bartoszek via DVIDS.
