COVID-19 Pandemic Reveals Supply Chain Vulnerability
by C. Todd Lopez, DOD News
July 24, 2020
Ellen M. Lord discussed acquisition in the face of COVID-19 during a virtual "fireside chat" today with the Ronald Reagan Institute.
Efforts that followed an executive order by the president to assess the defense industrial base and the U.S. supply chain have proven useful in the face of COVID-19, Lord said.
"One of the most useful things that came out of that was we segmented the base, we all had the same lexicon, then we could identify fragilities," Lord said. "We identified a lot of single-source offshore supply chain critical items. So we have used that as a platform over the last couple of years to try to make sure that we strengthen that industrial base."
COVID-19, she said, has helped to accelerate efforts to strengthen the industrial base.
"Not only for the rare earth elements or the microelectronics that we all know so well," she added, "but also for the advanced pharmaceutical ingredients that go into our drugs that obviously are important for the nation and also very, very important for DOD," she said. "So we've been able to really get that message out and frankly, get a little bit more support from Congress and the administration to strengthen our domestic industrial base."
A worker at Force Protection Industries Inc. makes a Cougar H 4 X 4 MRAP vehicle at the factory in Ladson, SC on January 18, 2008. Production began in 2001 and increased significantly in 2006, as it became increasingly clear that the MRAP's V-shaped hull, which deflects underbelly blasts, was providing better protection for troops from improvised explosive devices. (U.S. Defense Department photo by Cherie A. Thurlby)
For microelectronics, she said, as with other manufacturing, there's risk associated with much of the intellectual property being based in the United States, while much of the manufacturing is based overseas.
One risk, she said, is the security of the supply chain. With COVID-19, she explained, many international commercial flights were halted. DOD had to respond by providing a military air bridge to bring supplies into the United States in support of the Department of Health and Human Services and the Federal Emergency Management Agency.
"We set up flights to bring back all kinds of medical equipment and personnel protective equipment that was produced offshore that we owned, but we couldn't get back here," she said.
Another risk, she said, is that manufacturing overseas might produce equipment and gear that's not entirely what it seems.
"We could have implants in those electronics," she said. "So all of a sudden ... we have U.S. systems calling home to China. We also have the theft of intellectual property that is very well documented, where what we think we licensed for a specific use is all of a sudden repurposed into capability organic to China."
Other factors with off-shore manufacturing involve workers themselves, Lord said. "Manufacturing know-how accumulates with the experience of actually producing something — and that's lost in the U.S. if workers here aren't doing the work," she said. And when work is done overseas, she added, it means Americans aren't doing the work stateside.
"We lose those good jobs that we really need here in the U.S.," she said. "So [there are] all kinds of risks associated with that, that we're concerned about."
Public-private partnerships might be able to bring some manufacturing of microelectronics back to the United States, Lord said. One way to do that, she said, is using Defense Production Act Title III authority to grant loans to re-shore critical capability to the U.S.
"We again are working through all the legalities of that," she said. "We are looking at what are those critical capabilities that we should re-shore, both in the medical resources side of things, as well as the industrial base writ large — but where defense really has a critical need that then could help industry in general, and microelectronics is one of those."
Workers at Force Protection Industries make Cougar H 4x4 mine resistant, ambush-protected vehicles at the factory in Ladson, SC on January 18, 2008. (U.S. Defense Department photo by Cherie A. Thurlby)
A number of CEOs have reached out to DOD to discuss issues related to dependence on overseas manufacturing and the risk it poses to national security, Lord said, including a willingness now to discuss a consortium coming together for trusted microelectronics.
"They are also being very, very generous with their time explaining to a variety of government officials how their business works, what they need, what they don't need," she said. "I will say right now, we are in the midst of really some dynamic discussions that I think are very, very exciting."
Lord said she thinks the time is coming for policy that makes the government more supportive of having businesses bring critical capabilities back to the United States.
"That ranges all the way from capital to make the investments, to local and state and federal tax incentives to regulatory easing of burdens," she said. "We really have to look at the entire scope of that kind of supply chain, the whole thread, and understand what makes sense. And frankly, as DOD, we have a compelling, urgent and ... large need here. And we can be the leaders, and I think we have a lot of fast followers."
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