How governments can better prepare for supply chain disruptions

Supply chain interruptions and slowdowns linger as an effect of the pandemic. They make purchasing and acquisition difficult for both the private sector and government. Recently thinkers from IBM Center for the Business of Government, National Academy of Public Administration, and the Chamber of Commerce put their heads together to come up with ways governments can become more resilient on the supply chain front. Federal Drive with Tom Temin discussed all of this with Dan Chenok from the IBM Center and with Robert Handfield from North Carolina State University.

Interview Transcript: 

Tom Temin And let’s begin with what your senses of what I said at the beginning is this still lingering with us? I can tell you from personal experience, there are definitely still consumer rated supply chain interruptions. What about the industrial level and the governmental level?

Dan Chenok Let me start and then Rob can add the premise of the discussion was really that the lingering effects of supply chain constraints remain to some extent, but there are on the horizon new and evolving threat to the supply chain. And those both include threats from things like another health care crisis, but also threats to how the chains operate from, of all things technologies. And that can make things go faster, but can also introduce risk from cybersecurity, etc. So to your question, generally, the premise that the participants discussing that Rob is our expert author wrote about were kind of broad spectrum and do apply across years. It wasn’t just an effect of the pandemic. But Robert, go ahead and take over.

Robert Handfield Yeah, I would say the effect of the pandemic has a very, very long lasting hangover. Unfortunately, we are still seeing traces of many of the disruptions that occurred during COVID that have continued to occur. And those are in the health care sector or even in the industrial goods sector. We’re seeing shortages of different kinds of resins and steel and lumber in some cases. And you get these spot shortages and unfortunately you don’t really know where they’re going to come from or how they’ll materialize. And there’s, of course, a lot of other factors as well climate change events, geopolitical events, etc.. And people are kind of left in this state of continuous anxiety. We were talking about purchasing. People who buy things are almost always worried about something going wrong. And that seems to be kind of the state we’re in these days.

Tom Temin Yeah, I think in some ways, I mean, the first supply chain disruption that the modern day American industry felt was after the Arab oil embargo back in whenever that was in the middle 1970s. And so that’s when I think we learned this thing could happen. But in the discussions that you all convened, you came up with the concept of creating a shared, and getting to government now here, creating a shared service approach to build supply chain resiliency, shared service. You hear in other contexts in the government arena. Tell us what you mean by that.

Dan Chenok So the concept is that there are many players in many different supply chains, health care, food production, delivery of materials for building, etc. The technologies and approaches and analytics approaches can be common across different kinds of supply chains. So the concept we had is rather than set up lots of different centers of excellence to do design development, technology process, that there were pockets of excellence that could be captured in a center that would be operated, let’s say, by a center of government agency like GSA, but we didn’t recommend that specifically, to provide to the agencies the ability to have these kinds of technology capabilities and process capabilities in place. It didn’t have to reinvent it on their own.

Tom Temin Yeah, because basically right now, every department and every independent agency to some degree does its own procurement and there’s often not a lot of collaboration.

Robert Handfield I would say people like to say, well, the government is the biggest buyer in the world. It is, except that it’s not really leveraging the collaborative strength of all these different agencies that are essentially siloed and doing everything independently. And the idea of a shared service would be one that does really three things. The first is providing access to data on what are some of the potential risks of disruption out there. And you can’t manage what you can’t see. So we need some kind of monitoring service to be able to provide warning of, Hey, there’s something bad going on in Chile or in South America that could impact our supply chains. We also need to have market intelligence. I wrote a book in 2006 called Supply Market Intelligence, and I’ve studied the intelligence services, and it’s exactly the same processes we need to be able to do. What if analysis to wargaming and understand how we can mitigate these potential threats. And then we need that expertise. We need people who know what to do with this information. One of the insights was that people working in places like the national stockpile, they did not have an acquisition background. They didn’t even know how to source stuff. So we need to have the right people with the right skills in this kind of a shared service environment.

Tom Temin We’re speaking with Dr. Robert Handfield. He’s a professor in the Poole College of Management at North Carolina State University, and with Dan Chenok, the executive director of the IBM Center for the Business of Government. And then your step two I really liked was diagnosed the acquisition ecosystem. And by that you didn’t mean necessarily the federal acquisition system. There’s a million people diagnosing that. There’s about five commissions at work right now on different parts of it. You meant something else entirely, correct?

Dan Chenok Yes. So the idea is that there are risks at multiple stages of the ecosystem, and that’s well before a formal procurement is done, and it’s after a procurement is awarded in terms of execution and delivery of equipment. And regardless of the delivery mechanism, whether it’s a shared service or some other type of governance approach, having the ability to kind of look end and add opportunities and risks and basically link with suppliers, many of whom are not in the government, some of whom have formal contract relationships and some of whom don’t, and some of whom are buyers or users of the government service once it’s acquired and delivered. So sort of taking that end approach is something that we found was critically important to identify the risks of each stage. Because if one thing goes wrong, especially upstream, it has a lot of implications for the downstream delivery of the supply chain.

Tom Temin Yeah, and this is not just in the military domain, although that comes to mind initially, because what they buy is so complex and noncommercial versus what for the most part, the rest of the government buys are the same commodities that everybody else buys.

Robert Handfield And the other thing I’ll say, Tom, which is really important, is the government does a lot of acquisition and the Department of Defense does a lot as well. But they rely on their vendor primes and they’re assuming that these primes and what they call tier one suppliers do have visibility and are monitoring what’s happening upstream. Well, that’s a huge assumption that is usually incorrect. Usually they have no idea where their stuff is coming from beyond their immediate suppliers. And very often what we found is that these disruptions occur way upstream in what we call the tier three or tier four or even a tier five supplier. And it may be raw material, it may be a supplier going out of business may be like during COVID, we saw the zero COVID disruptions that were shutting down manufacturing sites in China. So there’s any number of different events that can cause these disruptions. And usually we don’t know about it until it’s too late till stuff stops showing up at our loading dock. We’re like, oh, what happened? Well, it’s too late. We need to be more proactive about that.

Tom Temin Yeah, it used to be the automobile industry at one time, up until, I don’t know, maybe the eighties were masters at supply chain and they even got into the books of their suppliers and their suppliers plans in such a deep way that it made the government look like pikers. When doing accounting rules, that’s not the case anymore. It doesn’t seem to be with what you look at the performance of that industry.

Robert Handfield Well the automotive industry in particular, and I interviewed the head of General Motors Supply Chain Resilience Group, and they are making big investments in supply chain resiliency. And one of the things they’re doing is they are mapping out these multi-tier supply chains. They’re figuring out who is their tier two supplier in this component, who is their tier three. And I asked them, Well, how are you getting this information? Are you using AI or technology, he goes, No, we simply asked them.

Tom Temin Right. How about that?

Robert Handfield How about that? Right. And and so we have to be able to leverage and collaborate with our suppliers. And I don’t think technology solutions are going to give us the right answers here.

Tom Temin Yeah, ask the white paint supplier, where do you get your titanium dioxide? You’re going to be able to make us white paint. And one other thing I wanted to ask about, because there’s a lot of good points in your report here, but the idea of design thinking to develop key supply chain components, design thinking. Tell us more about that one.

Dan Chenok That’s a process of bringing together different stakeholders. Oftentimes when you think about sort of supply chain communication, you’re talking about each tier, what sort of bilaterally, if you will. So the idea is let’s bring together all the different players in a particular as much as or many of them to kind of map out the process, see where the bottlenecks might be occurring, identify ways that they can sort of do the change management work to make the process smoother and do that before, as Rob said, you sort of turn to the technology solution, the design thinking can then help with designing the requirements for the technology. But this is a discipline that hasn’t really been used a lot in this part of the government and could be very helpful.

Tom Temin All right. And briefly, you had these discussions of these great thinkers from the different organizations you met in two cities to have these discussions. Where are you sending this report around? Who should read this?

Dan Chenok So there’s a lot of interest in the report already. We have interest from Capitol Hill. There’s been a recent piece of legislation introduced on supply chain efficiency for a future crisis. And so we’re in discussions there. We were in discussions with GSA around around this. And and a lot of the agencies who participated in the report and you can see the names of the agency participants in the appendix have been interested in following up on. And Rob’s been talking to folks in his neck of the woods as well.

Robert Handfield Yeah, I’ve talked to a couple of different senators offices and they’ve got real interest, especially when it comes to drug supply. And there’s continues to be shortages of common generic drugs, even Adderall and in some cases statins. And there’s greater concern about, hey, where is this stuff coming from? And turns out most of the active pharmaceutical ingredients are coming from China or India. And so there’s there’s movement on Capitol Hill to start building domestic capabilities in some of these high impact areas that impact our health.

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