The coronavirus pandemic has shown just how much the Pentagon relies on globally sourced parts for even American-made weapons.
Defense leaders, who have long been content to let contractors worry about supply chains, have started playing closer attention. Two years ago, the Pentagon took some initial steps to get Chinese parts out of American weapons. More recently, the dispute over Turkey’s purchase of a Russian air-defense system sent the military and its Lockheed-led industry team scrambling to find other countries to make and assemble various components of the F-35 Joint Strike Fighter.
And now the pandemic has upped the urgency of developing more “supply chain illumination tools,” says Ellen Lord, defense undersecretary for acquisition and sustainment.
“[W]e do not want adversaries in our supply chain,” Lord said Thursday at a Professional Services Council conference. “We don’t want further theft of intellectual property.”
Among Lord’s concerns: Chinese companies gobbling up companies that make critical weapon parts. New data from Govini, an artificial intelligence-driven analysis firm, shows China’s increasing presence in the Pentagon’s supply chain.
“From 2010–2019, the number of Chinese suppliers in the [Defense] Department’s supplier base in the sample Govini assessed increased by a total of 420%, to 655, across numerous critical industries. In comparison, U.S. companies grew 97%, to 2,219,” the company said in a new analysis. “Moreover, Chinese suppliers’ share of these critical industries grew to 9% in 2019, up from 6% in 2010. The prevalence of China-based companies across the Department’s supplier base will make it difficult to identify with certainty all of the cases where they are a single-source provider of a key technology or material.”
Chinese companies have increased their shares, particularly in “specialty chemicals, major
diversified chemicals, telecommunications equipment and electronic components,” according to Govini.
“China-based companies have the greatest share of the supplier base in Telecommunications Equipment (20%) and Specialty Chemicals (17%), and have over 10% of the supplier base in nine other critical industries,” the report states. “In the Semiconductors industry, the number of China-based companies has grown 364% between 2010 and 2019, to 65 companies, increasing China’s share to 13% from 7%; the share of U.S. companies (144 in 2019) dropped to 28% from 56% due to a surge of other foreign suppliers.”
While the Pentagon doesn’t directly do business with Chinese companies, they start appearing in the lower tiers of the supply chain. Here are some of Govini’s findings:
- “U.S.-based companies make up less than half of the supplier base starting at Tier 2 and stabilize at approximately 25% by Tiers 4 and 5; U.S. companies have the greatest share in the Data Processing Services (58%), Biotechnology (52%), and Packaged Software (48%) industries,
- “No Chinese suppliers were found to have direct commercial relationships with the Defense Department; their presence emerges in Tier 2 at 5% and gradually increases at each tier in the supplier base, reaching 9% by Tier 5.
- “Across all five tiers, foreign-based companies (including those in China) make up 75% or more of total suppliers in 7 of the 18 critical industries analyzed, and have the greatest share in Major Diversified Chemicals (85%), Electronic Components (84%), and Specialty Chemicals (83%)
It will be interesting to see how these numbers change, if at all in the coming years. Regardless, expect the Pentagon to keep more of an eye on the supply chain, especially at the lower levels in the coming years.
“The coronavirus pandemic’s impact on the supply chain likely will have a small positive side effect; namely, improving the Department of Defense’s supply-chain visibility and making that knowledge a higher priority in the future,” the Heritage Foundation’s Maiya Clark wrote in April.
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The Program Office of the Future
James “Hondo” Geurts, the head of Navy acquisition, loves to talk about the opportunity the virus is providing to shake up the status quo. “Reverting back to the way we were preCOVID, in my mind, would be failure,” he told reporters on Wednesday.
So Guerts has challenged the Navy’s program managers to rethink their organizations and experiment with new constructs.
“Pre-COVID was everybody was in a big building and that may not be the right answer,” Geurts said. “Pre-COVID, we even put it in contracts, for support service contracts, X percentage had to be in the local area. That may not be the right model and approach.”
Allowing workers to live in different locations “may enable us actually to access greater talent in areas where we haven't before,” he said. It could also build resilience.
“The example I use is to some degree [with] COVID, is somebody's throwing a rock into a bucket of water. You'll have a first disruptive wave, that wave will hit the sides of the pail, and then you'll have all the secondary and tertiary disruptions occurring,” Geurts said. “We need to be adaptable because that's part of our wartime mission. And quite frankly, this is helping us get sets and reps in on, where do we need to be more adaptable? What are the approaches we can use?”
Geurts wants his acquisition professionals “experimenting with, thinking about, inventing, where we need to be in the future, so that we are not fragile, so we have more resilience, so that we can be much more adaptable to the situation.”
Tentative Deal to End Strike at Bath Iron Works
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“The agreement keeps existing subcontracting language and protects seniority, the top issues that forced 87 percent of Local S6 members to reject the previous contract and begin the largest strike in the United States on June 22,” the union said in a statement.
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