The Fatal Flaw - Part 6: The Last Supper: How America Broke Its Arsenal

The Dinner That Changed Everything

In the spring of 1993, newly appointed Deputy Secretary of Defense William Perry convened a dinner meeting with the CEOs of America’s major defense contractors. What happened that evening—known ever after as “the Last Supper”—would reshape American defense production for decades.

Perry’s message was blunt: the Cold War was over. Defense spending was falling. There was no longer enough business to sustain the existing number of contractors. Companies should consolidate or prepare to go out of business. The Pentagon would not only accept consolidation—it would actively encourage and subsidize it.

The industry listened. Within a decade, the defense industrial base had been transformed:

The consolidation was presented as necessary modernization—eliminating redundancy, reducing overhead, creating “national champions” that could compete globally. What it actually created was a defense industrial base with efficiency optimized for peacetime and resilience optimized for nothing.

The Logic of Consolidation

The post-Cold War consolidation wasn’t irrational—given its assumptions. The logic ran as follows:

Assumption 1: No peer competitor. After the Soviet collapse and the stunning success of Desert Storm, American military planners concluded there was no adversary capable of matching U.S. forces in conventional warfare. The massive industrial capacity needed to replace wartime losses was therefore unnecessary.

Assumption 2: Small wars only. Future conflicts would be limited interventions against minor powers—operations requiring small quantities of advanced weapons, not mass production of basic equipment.

Assumption 3: Technology over quantity. Superior technology would substitute for numbers. A single F-22 fighter could defeat many enemy aircraft; therefore, fewer F-22s were needed than the F-15s they replaced.

Assumption 4: Globalization is permanent. Integrated global supply chains would remain accessible regardless of geopolitical conditions. Producing components wherever costs were lowest was safe because trade would never be disrupted.

Given these assumptions, maintaining redundant production capacity was wasteful. Multiple companies building similar weapons meant higher per-unit costs. Duplicate facilities for submarine hulls or tank assembly represented resources that could be better used elsewhere.

The assumptions seemed validated for nearly three decades. American forces fought in the Balkans, Afghanistan, and Iraq—all conflicts against vastly inferior opponents where advanced weapons performed brilliantly and attrition rates remained minimal. The system worked as designed.

Until it didn’t.

The Efficiency Trap

Consolidation didn’t just reduce the number of prime contractors—it restructured how defense production worked at every level.

Just-in-Time Manufacturing

Defense contractors adopted the same “just-in-time” (JIT) manufacturing methods that had revolutionized commercial industry. Rather than stockpiling components, factories ordered parts to arrive exactly when needed. This reduced inventory costs and storage requirements.

The vulnerability: JIT systems have zero buffer against supply disruption. When a single supplier fails, production stops immediately. There’s no inventory to draw down while the problem is resolved.

Single-Source Dependencies

Cost optimization meant selecting the single best supplier for each component rather than maintaining alternative sources. This reduced procurement complexity and leveraged economies of scale.

The vulnerability: If that single source fails—through bankruptcy, disaster, or geopolitical disruption—there is no backup. Qualifying a new supplier for defense applications takes years.

Skilled Workforce Reduction

Consolidation closed facilities across the country. Workers were laid off. Training programs were eliminated. The specialized knowledge required to manufacture complex weapons systems was allowed to dissipate.

The vulnerability: Rebuilding production capacity requires not just factories but workers who know how to operate them. Knowledge that took decades to accumulate cannot be quickly regenerated.

Investment Starvation

Reduced competition meant reduced innovation incentives. With guaranteed contracts and few alternatives, surviving contractors had limited motivation to invest in next-generation manufacturing capabilities.

The vulnerability: American defense manufacturing has fallen behind in advanced techniques. Producing at scale requires capabilities that have atrophied through neglect.

The Foreign Dependency Crisis

Perhaps the most dangerous consequence of cost-driven optimization was the offshoring of critical production to potential adversaries.

Defense contractors, like all manufacturers, sought the lowest-cost sources for components. Specialized chemicals, rare earth elements, semiconductor components, and thousands of other items were increasingly sourced from overseas—often from China.

Current vulnerabilities include:

Rare Earth Elements

The United States was once the global leader in rare earth production and processing. Today, China controls approximately 85% of global rare earth refining capacity. Rare earths are essential components in guided missiles, aircraft engines, and nearly every advanced weapons system.

Semiconductors

American semiconductor production has fallen from nearly 40% of global capacity to approximately 10% over recent decades. Meanwhile, Taiwan—located 100 miles from China—produces the most advanced chips. A significant portion of semiconductors in U.S. weapons systems originate from facilities the United States could not protect in a Pacific conflict.

Specialized Chemicals

China serves as the sole source for many specialized chemicals essential to weapons production. These are often produced by a single facility serving the global market. There is no alternative supplier.

Pharmaceutical Ingredients

The same pattern applies to military medical supplies. Active pharmaceutical ingredients—essential for combat medicine—have been offshored to China and India. In a major conflict, American forces might run out of basic antibiotics and pain medications.

The COVID-19 pandemic and the Ukraine conflict provided stress tests of these vulnerabilities. Microelectronics shortages delayed weapons production. Critical materials from Ukraine (neon gas for semiconductors) and Russia (titanium) became unavailable. Supply chains presumed to be permanent proved fragile.

The Visibility Problem

The Department of Defense relies on over 200,000 suppliers for weapons and equipment production. Yet the federal procurement database offers “little visibility” into where materials actually originate.

Prime contractors often don’t know the full supply chain for their own products. They know their Tier 1 suppliers (direct contractors), and perhaps Tier 2 (suppliers to suppliers). But Tiers 3 and 4—the raw materials and basic components that everything depends on—are often invisible.

This means the Pentagon cannot answer basic questions:

• Which weapons programs depend on single-source suppliers?
• How much production capacity exists for specific components?
• What would happen if a particular foreign supplier became unavailable?
• How long would it take to reconstitute domestic production of critical items?

Without visibility, there can be no planning. The defense industrial base has become a black box where inputs enter, weapons emerge, and the dependencies in between are largely unknown.

A 2025 Government Accountability Office report found that DoD had not identified resources, priorities, or timeframes for addressing this visibility gap. The organization responsible for implementing commercial best practices for supply chain visibility remained unidentified. The problem was known; the solution remained organizational vapor.

The Surge Incapacity

All of these vulnerabilities converge on a single critical question: Can the current defense industrial base support high-intensity conflict?

The evidence suggests it cannot.

High-intensity conflict against a peer adversary would consume weapons and ammunition at rates not seen since World War II. Historical data and modern simulations suggest:

• Artillery ammunition: Thousands of rounds per day per division (current production covers months of such consumption in a year of manufacturing)
• Missiles: Expensive precision weapons exhausted in days or weeks (multi-year production lead times)
• Aircraft: Losses measured in dozens per week (single-digit annual production)
• Armored vehicles: Significant attrition monthly (production in dozens per year)

The defense industrial base cannot surge to meet these demands. Facilities don’t exist. Workers aren’t available. Supply chains can’t scale. The assumption that wars would be short and low-attrition—the assumption that justified consolidation—becomes catastrophically false in peer conflict.

The military refers to this as the “bullet gap” or “missile gap”—the chasm between what would be consumed in high-intensity combat and what the industrial base can produce. Current estimates suggest ammunition and equipment stocks would be exhausted in weeks of peer conflict, with no ability to replace them for months or years.

The Acquisition Incentive Problem

The problem isn’t just that the industrial base has weakened—it’s that the acquisition system actively reinforces the weakness.

Defense procurement is designed to minimize cost. When evaluating contractor proposals, if two technical solutions are equal, the lower-cost option wins. This seems rational until you consider what it incentivizes:

• Single-source components (cheaper than qualifying alternatives)
• Foreign suppliers (often lowest cost)
• Minimal inventory (reduces carrying costs)
• Consolidated facilities (economies of scale)

Every cost-saving measure that creates vulnerability is rewarded. Every resilience measure that costs money is penalized. Contractors who source from China beat contractors who pay more for domestic production. Companies that maintain surge capacity lose contracts to competitors who eliminated that “waste.”

The acquisition system, in effect, pays contractors to create the vulnerabilities that threaten national security.

The Emerging Recognition

The problem is no longer invisible. The COVID pandemic, the Ukraine conflict, and the increasing likelihood of Indo-Pacific contingencies have forced recognition that the defense industrial base is inadequate.

Recent initiatives include:

• Increased investment in domestic semiconductor manufacturing
• Efforts to rebuild rare earth processing capacity
• Programs to map and reduce foreign dependencies
• Attempts to accelerate production of critical ammunition

But these efforts face structural obstacles:

• Timeframes: Building factories takes years. Training workers takes years. Qualifying new suppliers takes years.
• Funding: Rebuilding industrial capacity requires sustained investment that competes with weapons programs for limited budgets.
• Incentives: Until the acquisition system rewards resilience, contractors will continue optimizing for cost.
• Coordination: No single authority controls the complete supply chain. Changes require coordination across dozens of organizations.

The defense industrial base wasn’t broken accidentally. It was deliberately restructured according to assumptions that no longer hold. Reversing that restructuring will require deliberate, sustained effort over many years—effort that may not be available before it’s needed.

The Universal Lesson

The Last Supper illustrates a pattern visible in organizational failures across domains: the optimization of peacetime efficiency at the expense of crisis resilience.

Organizations facing budget pressure naturally eliminate redundancy, reduce inventory, consolidate suppliers, and offshore production to lower costs. Each individual decision is rational. The accumulated effect is a system optimized for normal conditions that catastrophically fails under stress.

• Hospitals that run at 95% capacity have no surge capacity for pandemics
• Just-in-time supply chains that minimize inventory cannot absorb disruptions
• Power grids optimized for normal demand fail in extreme weather
• Companies with single-source suppliers are one bankruptcy away from production halt

The defense industrial base is simply a larger-scale, higher-stakes version of the same pattern. The efficiency metrics that justified consolidation looked excellent—until the stress test revealed what efficiency had eliminated.

The question facing any organization is whether resilience is a cost to be minimized or a capability to be preserved. The Last Supper answered that question in the worst possible way, and America is still living with the consequences.