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)
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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)
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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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