Defense cuts could strain supply chainSmall and mid-sized businesses that supply the U.S. military with essential goods, weapons and machines could see a decrease in business if automatic defense spending cuts kick in this January.

Congress and the Obama administration have battled over how to best reduce the national debt, and if an agreement cannot be reached, the military may see budget cuts that would reverberate across the nation. These cuts would impact not just the military, but the also companies that produce the goods the armed forces use on a daily basis.

The cuts have the potential to disrupt supply chains nationwide. Special fibers produced in one state are often sent to another for weaving, and that product can then sent across the country to develop body armor for military personnel.

Industry suppliers that produce ships, airplanes, submarines, parachutes and other essential goods could see a decrease in orders and business if military spending is limited. A reduction in orders could put some of these smaller firms out of business if they are unable to find other organizations with a need for their products. However, even if they are able to find nonmilitary consumers, they're being edged out with increased competition from producers in other countries, like China and Brazil.

Some of these smaller firms are scrambling to lower their direct material cost to ensure they can remain competitive for as long as possible. Other businesses anticipate that they will not survive after the military budget cuts kick in, so they are already beginning to prepare for the future. While some have shut down production of certain items, others are working to make the switch into producing commercial products, rather than military goods.

The decrease in firms producing military goods could stifle the defense supply chain, due to a shortage of products. If a large number of specialized companies shut down as a result of the military budget cuts, the nation's defense may struggle to obtain the things it needs.

Military suppliers must now wait and see if a deal that will save military spending can be reached. If not, some businesses may need to rework their product lines to appeal to nonmilitary consumers. The businesses that shut down or change up their goods may force the military to evaluate its procurement strategies to ensure it is getting the best products available from the remaining suppliers.
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