The United States defense market is in a historic period of production ramp-up, but the industrial base is struggling to meet the demand.
To map the current state of manufacturing capacity, we conducted a comprehensive survey of the US defense supply chain. In May 2026, we gathered detailed responses from over 160 companies, including original equipment manufacturers, Tier 1 suppliers, and sub-tier suppliers.
As markets signal rising demand — and ongoing conflicts are likely to increase the backlog to almost $900 billion — companies across the industry told us they are navigating complex shifts in operational resilience, financial stability, and technology. Each segment of the value chain faces distinct pressures, but the overall picture is an industrial base is unprepared for the pending production ramp.
Six key insights on the state of the defense industrial base
The survey points to a clear gap between demand signals and production readiness, with six challenges standing out across the defense supply chain:
- The ramp is real, but the supply base lags behind. Suppliers see the demand signal, but many do not believe they can translate it into executable capacity quickly enough.
- Uncertainty is stalling investment. Demand uncertainty, both in timing and in scale, is keeping suppliers from making the necessary investments.
- The market is burdened by a growing “trust tax.” Suppliers are holding excess capacity in reserve and carrying buffers as insurance against sub-tier delivery risk.
- Workforce issues could cripple the ramp-up. The industry continues to struggle with labor challenges, including finding, training, and retaining the expertise required to scale production.
- Tier 2+ suppliers are often the hollow middle of the ramp. Sub-tier suppliers are a structurally exposed segment of the industrial base, with the least financial, operational, and digital room to absorb the surge.
- AI adoption has begun, but it is not yet a ramp solution. Early adopters are beginning to see marginal benefits, but the technology remains too unevenly deployed to offset the broader challenges.
How the industrial base can prepare to meet demand successfully
The hard truth is that meeting that demand will require solutions beyond orders, funding, and optimism. The recommendations below focus on practical actions that can be advanced across the supply chain without assuming the broad use of hard guarantees, prepaid purchases, or large-scale volume commitments. The path forward includes improving a range of processes, including how the industry forecasts, communicates, shares data, manages constraints, and increases output from existing assets and workers.
Make forecasting a shared operating process, not a one-way signal
Weak forecast credibility is already changing investment behavior. Suppliers do not need perfect demand signals, but they do require demand signals they can interpret and act on. Companies should work to improve forecast quality, transparency, and feedback across the chain.
Better forecasting will not eliminate uncertainty, but it can reduce distrust. The goal is to move the industry from episodic forecast handoffs to an ongoing planning dialogue in which suppliers understand the expected volume, as well as the confidence level, timing risk, and the operational assumptions behind it.
Build multi-tier visibility around bottlenecks, not just spend
The supply chain cannot fix what it cannot see. As many small and specialized suppliers carry the highest risk, Primes and Tier 1s should map suppliers and processes by schedule criticality, substitutability, qualification lead time, and ramp risk — not only procurement dollars.
Visibility should start with practical, structured constraint reporting. Critical suppliers should be able to communicate current rates, labor gaps, tooling limits, material lead times, quality blockers, certification constraints, and realistic recovery timelines. Digital tools can help, but the first objective should be a trusted shared view of bottlenecks. Better visibility reduces the need for inefficient buffers and helps the industry focus management attention on the few constraints most likely to break the ramp. Suppliers may convey they have adequate capacitybut where and how that capacity gets allocated may come down to business decisions. Visibility matters.
Increase output from existing labor and assets
The time is now for aerospace and defense companies to finally address their workforce concerns, and the new wave of innovation may offer opportunities to do so. Hiring is crucial, but companies will first need to increase output from their current workforce and assets to make measurable progress in solving labor problems.
For suppliers, that means focusing on targeted automation, AI, advanced manufacturing, process redesign, and knowledge- capture opportunities that directly relieve bottlenecks. With our data showing early evidence that AI and analytics can help, companies should seize the opportunity for AI-enabled knowledge capture, such as:
- Digitizing work instructions and training less experienced workers faster
- Capturing expert decision logic.
- Supporting operators with AI-guided troubleshooting.
- Using AI copilots for quality, maintenance, and production engineering.
The uncomfortable reality is that the defense ramp will take longer than the market wants to admit. But delay is not defeat. Primes can help orchestrate the chain, Tier 1s can expose and attack the trust tax, Tier 2+ suppliers can make constraints visible and productive, and investors can put capital behind executable capacity rather than demand alone. Through targeted, tier- by- tier action, today’s exposed supply chain can become tomorrow’s credible arsenal.
