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manufacturing volume and increased per unit price. Because of these factors, HSAAP had great difficulty in the mid-1990s competing against competitor pricing.

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In 1998, at the end of HSAAP's operating contract with the Holston Defense Corporation, the U.S. Army held a competition between multiple contractors to find a contractor to supply HPEs. Instead of competing a standard facility use contract, the Army decided to “compete the problem.” The Army asked industry to put forward clean paper proposals on how to fulfill the armed services' HPE needs. Royal Ordnance of the United Kingdom won the competition. It will maintain the HSAAP for 25 years under its agreement with the Army.

Royal Ordnance has taken several steps to decrease its HPE prices by addressing HSAAP's manufacturing costs. It has converted one of the continuous manufacturing lines to a batch process to be more price competitive on smaller orders. Royal Ordnance is also attempting to leverage the chemical production facilities at HSAAP to manufacture chemicals for commercial use.

According to Royal Ordnance, it has outsourced functions (e.g., security and fire protection) to a greater extent than the Holston Defense Corporation. Like other GOCOS, Royal Ordnance is actively courting outside companies to use HSAAP's excess facilities and thereby collect lease payments.

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Royal Ordnance has availed itself of the Armament Retooling Manufacturing Support (ARMS) program." The ARMS program gives incentives to private companies to move onto ammunition production facilities, such as HSAAP. The facility contractor acts as an industrial park manager. The goals of the program are to

Create jobs
Improve the economic stability in regions where munitions facilities are located
Encourage non-defense commercial firms to use DoD government-owned,
contractor-operated facilities
Increase opportunities for small businesses (small business incubators)
Encourage small businesses to undertake manufacturing and other industrial
processing activities

Through modernization, outsourcing, and greater facility utilization, HSAAP operating costs have decreased enough to yield internationally competitive HPE prices. A fixed price contract with the U.S. Army's Operational Support Command for HPEs has been made as well.

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For more information on the ARMS program please see http://www.openterprise.com/

Shipments for the HPE and HPEC Industries

Data collected by BXA indicates that shipment totals in the HPE and HPEC sectors have taken divergent paths. Shipments for HPEs dropped both in dollar value and unit volume each year from 1995 to 1999, chiefly because of reduced DoD orders and the temporary closing of HSAAP. Shipments of HPECs, in contrast, grew during the same period.

Several statistical anomalies affect this shipment data. First, two GOCO facilities did not provide shipment information. These respondents explained that they could not provide shipment data that was compatible to the format used in the BXA survey. Completed items were not always immediately shipped after production, but in some cases were stored on site until requested by the armed services. Consequently, shipments often did not accurately reflect the near-term activity level of the plant. Second, two GOGO ammunition plants were not surveyed in this assessment; therefore, their shipment data is not included.

Census Data on HPEC Shipments

In June of 2000, the Bureau of the Census published comparative statistics from the 1992 and 1997 Economic Census. These comparisons ranked industries by their percent change in shipments from highest to lowest. From 1992 to 1997, HPEC (SIC 3483 ammunition, except small arms) shipments fell from approximately $3.1 billion to $1.5 billion, a drop of over 50 percent. Of the over 400 SIC numbers that could be ranked, SIC 3483 was ranked second to last.

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This data covers the years from 1992 to 1995, before the start of BXA data collection (1995-1999). Much of the post-Cold War decrease in employment occurred from 1992 to 1995, which was not reflected in the BXA data collection.

BXA Survey Data - Shipments in Dollars

According to BXA data, HPE shipments dropped 54.5 percent from 1995 to 1999 (See Table 2 below). The main reason for this decrease in shipments at HSAAP was decreasing demand and increasing product prices in the mid-1990s, which made its products unattractive to U.S. weapon system program managers. Furthermore, HSAAP changed operating contractors in 1998, which temporarily closed the facility so that it could be reconfigured and re-qualified as a supplier of HPEs to the armed services.

In sharp contrast to the declining HPE shipments, HPEC shipments did not consistently decline over the 1995-1999 period. Sales climbed from $394 million in 1995 to $441 million in 1999 for an average annual growth rate of about 2.4 percent.

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Reasons for not ranking specific categories included not having comparable data to work with and not being able to disclose data to protect the identity of respondents.

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A fair amount of market turbulence between 1995 and 1999 is masked by overall trends for this period. HPEC manufacturers saw shipments drop mildly for two consecutive years in 1996 and 1997, enjoyed a brief spike in demand in 1998, and then watched sales decline in 1999. .

Why was the HPEC industry spared from the overall drop in demand experienced by HPE manufacturers? The fact that shipment volumes for HPECs did not follow HPES downward suggests that the preferred HPE sources changed because U.S. HPEC producers elected to import cheaper, foreign HPEs rather than buy the more expensive domestic HPES.

BXA and Census Data - HPEC Shipments

At first glance, the BXA survey statistics for HPEC shipments (SIC 3483) appear to contradict Census Bureau statistics. Census statistics indicate declining volumes as opposed to increasing volumes. On closer examination, the alleged contradiction can be resolved.

The BXA survey domain is unique. BXA selected companies from the gross domain considered by the Census Bureau, yielding a subset of companies and assuring lower, reported shipment volumes. Furthermore, BXA in particular did not survey participants on all SIC 3483 items. BXA disregarded items such as metal parts or stabilizing fins. BXA also surveyed on a different year range of 1995 to 1999, as opposed to the Census Bureau range of 1992 to 1997. Consequently, BXA's findings across both gross survey periods and within specific, reported years must be understood as based on different statistical source qualifiers.

Shipments in Units

HPE shipments in units also moved downward from 1995 through 1999. However, the drop in shipments was more pronounced for HPE shipments in units than for HPE shipments in dollars. Shipments in units dropped approximately 70 percent for the fiveyear period. This phenomenon is due to rising prices per pound for HPEs produced at HSAAP, which made the drop in shipment value less severe. As might be expected, in the case of finished HPECs such as bombs, warheads, projectiles, initiation devices, and other products, unit shipments moved upward overall for the five-year period.

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Total Shipments of
HPES (Pounds)
Bombs, Warheads,
submunitions, and
Projectiles (each)
Detonating Cord and
Other Extruded End-
Products (Units in Feet).

6,810.6

9,148.1

4,810.9

5,912.8

7.115.0

Not released due to the low number of producers and the high

market share of one producer

Initiation Devices and
Miscellaneous (each) 93,953.8 90,119.3 107.750.5
Source: U.S. Department of Commerce, BXA Industry Survey

104,524.6

108,082.1

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