Procurement: Fatal Distractions

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June 3, 2016: Despite more than a decade of increasingly strenuous efforts, Russia has not been able to cure the quality control problems that hobble its defense manufacturers and high-tech industries in general. This has been a problem ever since the communists took over in the early 1920s. The communists removed incentives to excel and made it clear to managers (of design and manufacturing organizations) that success (and at times survival) lay in fulfilling the plan (of what and when to produce) drawn up by bureaucrats. The power of the market (to motivate, correct and reward) was removed and even after communism collapsed in Russia in 1991, many Russians still believed in the mystical power of the plan. Russia continues to seek solutions to its inability to produce competitive weapons and military equipment but they have not been able to plan their way out of this mess. It was not for want of trying.

In 2013 Russia took the bold decision to hold regular meetings between senior military and procurement officials and the most senior (as in president Putin himself) government officials to note current problems and come up with solutions. These frank discussions let the top government officials quickly know what problems were being encountered in the defense bureaucracy and the defense industries and what could be done to fix it. On the down side the senior defense and procurement officials were fined and otherwise censured for failure to achieve goals agreed upon at these meetings.

The government is also recognized the role of corruption in all this and this has resulted in many more corruption investigations and prosecutions of those associated with defense procurement. Corruption was problem before the communists took over and did not go away during seven decades of communist rule.

One of the announced goals of all this was to eliminate growing dependence on foreign suppliers of weapons and military equipment. In 2013 it was decided that all foreign procurement deals would be cancelled or sharply scaled back. Russian leaders wanted to show they were willing to do whatever it took to get Russia competitive again when it comes to developing and building weapons. This, for the defense industries, was literally a “do or die” decision.

All this was in response to years of disasters and disappointments in Russian defense industries. For example in early 2016 the Russian president (Vladimir Putin) was visibly embarrassed when well-rehearsed demonstrations of new Russian made equipment failed. Doors would not open, equipment would not start or would fail at key moments. Putin does a lot of these live demonstrations and most of them run smoothly. But the fact that so many do not, and do so in a very visible setting, makes it clear that some things never change in Russia, like the low efficiency of Russian manufacturing, especially when it comes to very complex systems like the rockets that put satellites into orbit. Failures in this area are very visible and for night launches near foreign territory it sometimes means an impressive light show as rockets go out of control in unexpected ways.

It’s not just poor quality control in building stuff, there is also inept management. A few years after Russia had ordered a massive increase in warship production the Russian managers of the shipyards involved had to admit that the work would take years longer than initially promised and quality control inspections by outside agencies (and users) kept revealing sloppy and sometimes very dangerous work habits.

Money was not the big problem. The inability of the Russian defense industry, especially the shipyards to perform and do so on schedule was. This problem is not a secret but the extent of it is generally not publicized. The public got a hint back in 2010 that something was very wrong. Back then the government announced its decision to buy four Mistral amphibious assault ships from France. This was just the beginning as the Russian Defense Minister made it clear that Russia would seek more Western weapons and military equipment because Russian firms were not able to deliver the kind of weapons and equipment the military was asking for. Russia was planning to spend over $600 billion in the next decade to replace aging Cold War gear. The Defense Ministry insisted that the Mistral deal was but the first of many. Russia already had an agreement with Israel to build a factory in Russia to build Israeli UAVs under license. Similar deals were made with other Western suppliers for armored vehicles from Italy and various bits of technology from other Western nations. All this is being put on hold or cancelled, except for the Mistral deal. Those Mistrals were never delivered because France (and the rest of the world) was angry at the 2014 Russian invasion of Ukraine.

The problems with the Russian defense industry go beyond poor management and ineffective quality control. There is a persistent shortage of skilled workers and competent managers as well as a tradition of ignoring complaints from users. Changing these Soviet era habits has proved extremely difficult. There are simply too few competent Russian managers (in general) and fewer still willing to work in the defense industries. Same deal with skilled workers. Even during the late Soviet era the defense industry was regarded as a refuge for over-paid and corrupt incompetents. Imposing Western ideas like warranties and financial controls didn't work. The warranties were not honored and the financial controls were seen as an interesting challenge to corrupt officials rather than a new tool to aid management.

 


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