Working ‘outside the lines’ to scale production isn’t working: Cadenazzi

DETROIT — For years, the Pentagon’s answer to a slow, rigid, and risk-averse acquisition system was to build workarounds. Organizations like the Defense Innovation Unit (DIU) in Silicon Valley were created to move faster than the traditional bureaucracy, pull in commercial drone technology, and give nontraditional companies a way into the defense market. 

It helped bring tech disruptors, venture-backed firms, and new industrial players into a sector many had long avoided. But the Pentagon’s industrial base leadership is now making a different argument: going around the system and working outside the lines isn’t fully working. 

That was a key message on Tuesday from Assistant Secretary of Defense for Industrial Base Policy Michael Cadenazzi: That the US cannot compete with China, rebuild its defense industrial base, or deliver capability at wartime scale if the core acquisition system itself remains slow, fragmented, and structurally resistant to change, no matter how many workarounds are bolted onto the side.

“The collective number of outside the lines initiatives have not resulted in fundamental structural improvement of the core acquisition system, and that means that we’re not spending enough time internally,” said Cadenazzi.

The challenge is no longer simply innovation, it is production, he said during the joint Xponential/MDEX conference in Detroit, noting Beijing has spent decades building national industrial capacity, while America made “terrible assumptions” about how the world would evolve after the Cold War.

America outsourced manufacturing to its “greatest strategic competitor,” Cadenazzi said, becoming dependent on foreign firms and countries for vital inputs, and lost generations of scientists, engineers, skilled trades workers, and production know-how. The consequences now show up in shipbuilding, aircraft delivery delays, vehicle readiness, workforce shortages, and lower-tier supply chains that are vulnerable to counterfeit or Chinese-made components. 

For drones, the Pentagon is now only just starting to fund its first rounds of bulk purchases of first-person-view drones, the most basic drone type for military use, years after Ukraine perfected them.

In this environment, a fast prototype is not enough, Cadenazzi argued. A promising drone, sensor, software, or autonomous system does not solve the warfighter’s problem if it cannot be acquired at scale, certified quickly, produced reliably, exported to allies, and supported through a resilient supply chain.

The issue is not that groups like DIU haven’t brought value. It is that their success has not translated into broad, lasting reform of how the DoD buys, tests, certifies, scales, and sustains military capability. 

“Our charge is to spend the time and do the hard work to fix the core system,” he said. “If you read the ATS [Acquisition Transformation Strategy], you’ll find that it is not reflective of an interest going outside the lines. It’s actually going head first into the melee and fix things. You’re seeing challenging topics like reforming tests, certification, qualification, reorganizing the PEO structure into the PAE structure, dealing with the cultural challenges of the contracting workforce.” 

The realignment of organizations also extends to the improvement of Foreign Military Sales (FMS) and Direct Commercial Sales (DCS) to partners, including drones. The US has never lacked global demand for its weapons, he noted, but the gap has been production potential. 

That led to the decision to shift arms trade organizations, such as the Defense Security Cooperation Agency and the Defense Technology Security Administration, under the office of acquisition and sustainment instead of policy. The plan is to try and match international demand with actual production capacity, speed deliveries to allies and partners, and create stronger demand signals for industry.

Cadenazzi said the FMS/DCS realignment is still being worked through so no results yet, but he framed it as a major opportunity and a structural improvement.