Can We Defend The Defense Supply Chain? Lessons Learned From Industry Leaders in Supply Chain Management

Ronald Menz

EXECUTIVE SUMMARY

Nearly six years ago the Senate Armed Services Committee investigation exposed how inundated the defense supply chain had become with counterfeit electronic components. The investigation identified vulnerabilities throughout the supply chain and highlighted counterfeit components found in missile systems, aircraft, and other sensitive technologies. These revelations sent shock waves through the defense industry and military community. In response to the Senate Armed Services Committee investigation, other countries began to ask if their defense supply chains had been compromised by counterfeit electronic components, thus putting their national security at risk.

The immediate response was a bipartisan amendment to the 2012 National Defense Authorization Act. Congress’ action was meant to strengthen the defense supply chain by implementing counterfeit avoidance protocols across the entire defense industry. However, this intent was not realized. While Congress’ initial action was almost instantaneous, its actual implementation did not occur until 2014, two years later, when the final rule was issued. Compounding the measure’s unrealized impact was the lack of guidance given to industry. As part of the final rule, defense contractors were to have measures in place for detecting and defending against counterfeit components. However, neither the amendment nor the final rule provided the guidance that industry wanted, and needed, to ensure all parties were doing their part to fight counterfeit components.

This thesis seeks to identify how the defense supply chain can defend against counterfeit electronic components by identifying and applying the best practices of industry leaders in supply chain management. To achieve this, the author used a comparative case study methodology to assess how two different organizations prevent counterfeit components from entering their supply chains. The two model entities selected for this analysis were Apple and the United Kingdom Ministry of Defence (MoD).

In researching the methodologies that Apple and the MoD use to manage their respective supply chains, this thesis identified a number of key concepts. Many of these practices are now identified as the industry standard. Accordingly, a broad spectrum of industries use these methodologies to manage their supply chains, and they have helped establish a set of best practices for supply chain management. Based on these findings, the author makes the following recommendations to help the Department of Defense (DOD) apply these concepts to the defense supply chain.

  • Integrated Supply Chain: The defense supply chain needs to adopt a singular approach to supply chain management. In this philosophy, supply chain management starts with product development and is interwoven through every other aspect of the procurement cycle, to include manufacturing, procurement, and logistics.
  • Collaborative Efforts: The DOD needs to work more collaboratively with its industry partners. This includes providing industry with the needed guidance for implementing and measuring a counterfeit components detection model, as required in section 818 of the National Defense Authorization Act of 2012.
  • Contracting Practices: the DOD needs to adopt a contracting for availability model similar to the UK MoD’s model. In so doing, it must reapportion the level of responsibility assumed by defense contractors, which will afford the DOD greater leverage in its contracting practices.
  • Policy: The DOD needs to more effectively develop and use policy to guide the actions of defense contractors and suppliers. While it has issued internal guidance to address the detection and prevention of counterfeit components, it has yet to provide industry with any such guidance.

 

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