Six years ago, the Defense Department spent $8 billion on contracts that were performed in Indiana. Last year, contracts in Indiana amounted to just more than $2 billion.
The drop is in part because the defense department has been cutting back nationally. Since 2008, spending on defense contracts has dropped by about $90 billion dollars.
It's also because of a shift from on-the-ground forces to more remote technology such as drones. Now, Indiana defense contractors are trying to adapt to those changing demands and keep defense dollars flowing into the state.
Defense Manufacturers Struggle To Retain Contracts
At Garrity Tool Company in Indianapolis, Carl Boss oversees 60 employees as they manufacture metal parts for military radars, helicopters and airplanes.
The parts are so specialized that we're not allowed to show them up close on camera. Garrity Tool's contracts specify that all proprietary information is kept secret.
After the parts are manufactured, workers inspect them to make sure they fit the exact qualifications. They are then shipped to larger companies including Rolls Royce and Raytheon to be assembled together with other parts and sold to the U.S. Department of Defense.
But these kinds of parts contracts are becoming more rare.
"Right now we are trying to maintain," says Carl Boss, Business Developer at Garrity Tool. "It is tough. At any given time, we maintain anywhere between 20 and 30 contracts in here, that's how we weather the tough times. If we were solely Department of Defense I'd be worried. If we were solely biomedical, I'd be worried, but we're not because we have that broad base that we work in. It helps protect us from the ups and downs."
Garrity Tool has done well compared to many other companies.
At AM General in South Bend, for example, the amount of government contracts has dropped more than $4 billion since 2008--that's two thirds of the state's total decline.
The company produces the Humvee, but the Defense Departments needs are changing. Especially when troops started coming back from Iraq and Afghanistan, the Humvee wasn't needed anymore.
Duane Embree heads the state's newly created Office of Defense Development, which aims to connect contractors with defense agencies. He says Indiana isn't getting out of the defense business, but companies here will have to adapt to changing needs if they want to continue winning contracts.
"If you read the headlines there are always new threats. The main thing is we have been at war for 10+ years now. We will be shifting as we get out of that," he says. "We need to be agile and flexible and focused on meeting the current needs. If we can do that, then I think we will be as healthy and competitive as any other state and any other sector."
The defense department's needs are vast. Last year, they contracted Indiana companies to produce radio and TV equipment, jet engines and underwater sound equipment just to name a few.
Embree says Indiana's manufacturing base makes it a top contender for those contracts because it can often meet the Defense Department's needs through every stage of the process, from making individual parts to assembling entire vehicles or weapons.
"Strengthening those supply chains will enable us to serve not only Indiana major defense contractors but nationally, and we think we can leverage that to sustain and maybe increase the number of employees we have on defense work," Embree says.
Compared to bases on the East and West coasts, Indiana's labor costs are also much cheaper because the cost of living in Washington DC or Los Angeles, for example, are 40 to 50 percent higher.
But there are other states that still gain a lot more contracts than Indiana. These are the states that received the highest dollar amount in defense contracts in 2013:
California - $34 billion
Virginia - $33.5 billion
Texas - $32.3 billion
As we mentioned, Indiana only received around $2 billion.
Innovation: The Key To Defense Contracts
During a tour of the facilities at Army Ammunition Activity Crane in Southern Indiana, the four-star general in charge of the Army's equipment took a look at some of the products and services Indiana has to offer.
"We are still performing operations on every continent. We'll continue to have requirements," says General Dennis Via, Commanding General of the U.S. Army Materiel Command. "We're heavily involved in training, so the weapons that are manufactured here are being utilized for our training missions, so we continue to see where we can maintain and stabilize the workload."
Gen. Via says Indiana contractors looking to earn the Army's business need to produce quality products, but they also need to go beyond the status quo.
"We are always looking for ways to improve how we produce, manufacture, transport, deliver and resupply logistics operations," says Gen. Via. "So we have facilities like Crane that do a great job in looking for innovative ways to do business. Be more smarter about it, but also be innovative and do so at less costs and more value."
Being innovative, though, is not always easy. It takes a lot of resources - time, employees and of course money.
