Two trends dominate our thinking about supply chain management—programs are ever-more reliant on effective management of their supply chains, and supply chains are ever-more global in scope.  What this means is that contractors are vulnerable.  They are vulnerable to execution problems caused by suppliers three or four tiers deep in their supply chains—or even lower.  They are vulnerable to cost and schedule impacts from vendors of whom they’ve never even heard, let alone run through a risk identification and mitigation process.  And the quality of their finished product is dependent on suppliers located tiers deep and countries away.  From “specialty metals” to resisters and diodes, the supply chain is—for better or worse—truly a global one. 

Some companies and members of Congress want to make the competition for design and construction of the next generation U.S. Air Force’s aerial refueling tanker to be about the country in which the prime contractor is headquartered.  Regardless of whether an “American” or “European” company wins the prime contract, it is a certainty that some portion of the tanker will be built outside the borders of this country.  Deal with it.

As we reported in this article, many major defense acquisition programs are dependent on rare earth magnets produced in China.  You have a problem with that?  It’s called free-market capitalism, cupcake.  Free-market capitalism is what our country is supposed to be about.

Free-market capitalism is what happens when companies close-down production in locations with high labor costs or high insurance costs or high income taxes, and move their production facilities and/or workforce down the road a piece to where it’s cheaper to operate and the margins are higher.  If by “down the road” one means “across the ocean to a foreign land” then so be it.  You don’t like the results, then change the business climate, sweetheart. 

You got a problem with loss of manufacturing capacity, loss of skilled jobs and industrial capacity, loss of critical technologies, and/or loss of ability to produce “American-made” defense weapons and programs?  Then you better turn the Titanic around, Einstein, ‘cause the Pentagon hit that particular iceberg about 20 years ago.

In the meantime, while you’re running for the wheelhouse and pleading with the Captain to turn the ship around, we have work to do.  We’ve got to secure our supply chain.

Securing the supply chain doesn’t mean to stop dealing with foreign suppliers.  It doesn’t mean building barriers that inhibit communication, visibility, and establishment of long-term partnerships.  It doesn’t mean adding a bunch of labor or costs into the transactional hand-offs between buyer and seller.  It doesn’t mean getting the lawyers involved.  We have some thoughts toward what it does mean, but nobody has it down to a science yet.

Frankly, the aerospace and defense industry is behind the times.  You want state of the art?  You’ve got to look at the Food and Drug Administration (FDA).  They have been concerned with securing the supply chain—particularly as that term applies to prescription drugs, for many years.  In January 2009, the FDA announced a “secure supply chain pilot program” aimed at allowing the FDA to determine the “practicality” of developing a secure supply chain program “to prevent the importation of adulterated, misbranded, or unapproved drugs by allowing the agency to focus its resources on imported drugs outside the program that may pose such risks.”

Pentagon PEO’s, are you listening?  While the FDA is concerned with adulterated or unapproved drugs, you need to be concerned about counterfeit parts and components, or electronics designed to fail upon command.  As a recent article in the April 19, 2010 edition of Aviation Week & Space Technology magazine reported, “It’s only a matter of time, say experts … before a fake component in a major piece of Pentagon equipment leads to catastrophe because the Pentagon lacks the ability to track or identify the counterfeits.”

That same article reported on a November 2009 study by the Commerce Department, commissioned by the DOD that put the Pentagon on notice that its supply chains were vulnerable to counterfeit parts.  This article in the EETimes discussed that report.  The EETimes article reported—

The survey … revealed extensive problems in the electronic industry supply chain and showed counterfeiters are targeting discrete products as well as microcircuit with ‘fake non-working parts’ or ‘working copies of the original designs.’ Some counterfeit parts were also ‘new products re-marked as higher grade product,’ the Bureau said, adding that many of the new parts would work ‘but not at the desired level of functionality.’ ‘The majority of counterfeit parts are being discovered because they are returned as defective, exhibit poor performance, or have incorrect markings or physical appearance,’ the Bureau said in a report. ‘A significant number of counterfeit incidents were uncovered because the customer suspected the parts were counterfeit.’   Counterfeiters are lured by the easy profit they can make from pouring fake or substandard products into the supply chain and also because it is often very easy to introduce their counterfeit products into the system.

So what can be done about this problem?

First, use of technological enablers can help sort out the good parts from the bad ones.  Currently available technologies include:

• Radio Frequency Identification (RFID).  RFID is wireless technology that communicates part identification data by radio waves.  Data is encoded into a chip which is integrated with an antenna and packaged into a finished tag.  The encoded data is read with read/write devices, commonly known as “readers” or “interrogators.”
• Electronic Product Codes (EPC) (aka Unique Item Identifier or UID in the defense industry).  Each mission critical part/component is assigned a unique identification number in the supply chain.

But those solutions have their own problems.  For example, you don’t want a component broadcasting its RFID to the world while installed on a stealthy B-2 bomber.    An UID numbers can be faked.  They are good first steps, but are ultimately ineffective at securing the supply chain.  There are some other innovative technologies can and should be adapted to our needs, including use of light-bending color and nanotechnology (“taggans”).

The risks for the A&D industry sector are real.  The risks demand a serious and near-term response.  Our goal should be to establish a “product pedigree” for our supply chain through creating an unbreakable chain of custody from first source through the various manufacturing and fabrication and assembly and finishing steps.  We need to be able to follow our raw stock and piece parts and components and sub-assemblies into final assembly and test, ideally by satellite monitoring.  One the product is assembled and tested, we need to follow the finished item as it makes its way to the warfighters.  And we need to do it without alerting the enemy or giving away our position.

It’s not an easy task, but the easiest way to drown on the Titanic was to pretend there was no iceberg or that the ship wouldn’t sink.  Listen up, Lunchbox, the ship is taking on water and it’s time to get a bucket.  We’re not fooling you.  But your foreign supplier might be.

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