Peter Guinto capped his 12-year Air Force career in procurement by serving on the federal COVID supply chain task force and becoming head of contracting for the Medium-altitude UAS Division—the unit responsible for keeping the United States’ edge in warfighting drones. These and other experiences convinced Guinto that one of the country’s most serious weaknesses is its lack of visibility and control over defense-critical supply chains—a conclusion also reached by bipartisan leaders in Congress and the White House.
Guinto joined Resilinc this past April as Vice President of Government Affairs—a career move he made after determining that Resilinc’s supply chain mapping, risk intelligence, and communications platforms offer the best and most cost-effective solutions to the supply chain problems weakening America’s security. In this Q&A, Guinto discusses America’s supply chain vulnerabilities—including China’s policy of civil-military fusion—and the strategies he believes are necessary to enable the Department of Defense, its contractors, and other federal agencies to build more resilient and secure supply chains.
You penned a Harvard Business Review article on the weaknesses in the Strategic National Stockpile (SNS). What is needed to strengthen the SNS?
Guinto: In a nutshell, the SNS—created after 9/11—had been neglected by Congress and successive administrations. A very small team of acquisition professionals was tasked with managing the SNS with very limited resources.
While the SNS has made enormous strides since the pandemic and is on the right track to assure better response in the future, to strengthen the SNS and avoid shortages of critical healthcare supplies in a future disaster, the SNS needs more resources and must be elevated to a higher profile. In particular, it must be allocated resources to update its inventory management and supply chain technology.
Let’s talk about China – known to those of us in supply chain as “the world’s factory.” What are some key areas of concern we need to be thinking about? In particular, China’s military-civil fusion.
Guinto: Military-civil fusion is China’s stated policy that directs private industry to work with the Chinese military and defense industries to advance national objectives. Essentially, the Chinese Communist Party directs and subsidizes Chinese firms to work in a predatory manner to take critical supply chain capabilities away from the United States and its democratic allies.
At the same time, we’ve made ourselves vulnerable to these tactics by outsourcing so much of what we used to produce domestically or source from reliable allies. One example is the rare earth minerals essential for many advanced technology products, both civilian and military. In just two or three years—at the end of the George W. Bush Administration and the beginning of the Obama Administration—the U.S. went from producing almost half of the world’s supply of a select group of critical rare earths to virtually none.
China’s Belt and Road Initiative is another example where civil and military purposes are combined. China invests in building infrastructure in developing countries to expand trade and geopolitical leverage, especially over mineral-rich developing countries across Africa and South America. They’ve built ports to depths greater than those needed by container ships across the globe, presumably to accommodate their large naval ships and submarines.
How can the U.S. balance China’s growing dominance of critical supply chains?
Guinto: Historically, our government has played a major role in building and strengthening economic ties with other nations. In the DOD we call this ‘soft power’—using our resources and investments in other nations to help cultivate stronger bonds and to create influence. Our allies such as Germany, France, Japan, and Australia do this as well. Unfortunately, one of the aims of Chinese military-civil fusion is to disrupt these bonds.
How do you view the supply chain and defense implications of Taiwan’s contested status?
Guinto: First and foremost, both Taiwan and China are critical to our supply chains. So, a Chinese invasion of Taiwan would make Taiwanese imports inaccessible, and sanctions against China by the Western world, like those against Russia, would seriously disrupt our imports from China. We have gotten a taste of the impact those disruptions would have on our economy over the last two-and-a-half years as China’s zero-tolerance COVID policies have periodically constrained its manufacturing industries and ports.
It’s important to point out that supply chain problems are already harming our ability to help Taiwan protect itself. As originally reported by Defense News, $14 billion worth of U.S. combat aircraft and weaponry has not been delivered to Taiwan—more than three years after Taiwan purchased it—due to shortages and delays in the supply chains of the equipment manufacturers.
What are some of the most glaring problems in the defense-critical supply chains?
Guinto: To sustain production of certain military equipment, DOD must monitor what we call “diminishing manufacturing sources and material shortages,” or DMSMS. As often happens in business, the makers of certain components will change the design specs for an item or phase it out entirely in response to changing market conditions. In some cases, they’ll exit a business line entirely due to an M&A. Yet DOD and its contractors often need such legacy items—it could be a $5 connector or a $10 transistor—to maintain and build military equipment.
Most DOD program offices have long lists of components that they expect to go DMSMS, but they generally find out late in the game that the part won’t be available. When that happens, they incur a large non-recurring engineering bill to find a new vendor or even redesign the equipment to use a part that’s still available in the market. It was when I was working in DMSMS where I began to understand the value of Resilinc’s multi-tier mapping.
Can you speak more about that?
Guinto: It became apparent that most of the DMSMS supply chain problems weren’t occurring at the tier-one direct suppliers. Instead, a manufacturer four or five tiers below was the one that decided to stop making the connector or a transistor. It could take many months or even years for that information to work its way up through the tiers for the tier-one vendor to simply learn about the problem. I saw this happen multiple times.
Because Resilinc has already mapped supply chains down through the lower tiers, and because its platform enables immediate and easy communication between the OEM customer and its sub-tier suppliers, DOD program managers could learn about impending DMSMS issues much sooner. I’m talking within hours or days instead of months. Then they could take proactive action, such as placing a lifetime buy for a DMS part before the manufacturer retools or shuts down its production.
How is Resilinc’s solution different from other vendors in this space?
Guinto: In the defense space and on the COVID task force, I saw other firms claim to be able to map our supply chains using public information and AI alone. But to use that information to drive any action in the supply chain, you need first to validate it through your vendors at each tier.. Resilinc has done most of that validation already, as it’s built its multi-tier supply chain database over 12 years. As more defense contractors get onboarded, the Resilinc supply chain maps become more comprehensive. I’d like to see DOD, its contractors and other branches of the federal government receive the supply chain resiliency benefits that Resilinc’s commercial customers enjoy. Further, AI mapping tools cannot do part-site mapping. Generally, they just validate some type of delivery between one party and another. Vendors have many customers and products, attributing one vendor relationship to all of their products creates tons of false positives and wasted time.
Multi-tier mapping of supply chains is a foundational element of supply chain risk management. It allows proactive analysis of potential risks, including those deep in the lower tiers where the makers of inexpensive commodity parts or materials can disrupt a critical defense supply chain. This capability would enable our defense contractors to move beyond the constant scrambling they do now to put out fires. Instead, they could move toward fire prevention, spotting potential issues, inherent fragilities, and key chokepoints—and address those proactively rather than months after the damage has occurred and the intelligence has finally drifted up to the tier-one supplier.
What gives you hope that America will improve its defense-critical supply chains?
Guinto: In a time of enormous political division, this is one of few areas where we actually have bipartisan support. When the Biden Administration came in, instead of dismantling what the Trump Administration had done to deter adversarial intrusion into defense-critical supply chains, it doubled down.
A bipartisan task force of the House Armed Services Committee issued a strong report last year stating that we must shore up our defense industrial supply chains or risk losing our geopolitical influence to China and other adversaries. The Chief of Staff of the Air Force issued action orders in February that included assessing and remedying supply chain vulnerabilities.
Will we have to abandon globalization and reshore defense-critical production to meet the challenges you outline?
Guinto: Globalization has been demonized in a lot of circles recently, but at the same time, Americans have benefited greatly from globalization. Companies and investors have earned better returns, and everyone has benefited from less expensive consumer goods.
But we need to look more toward regionalization and diversification. The bottom line is that we can’t abandon globalization without risking extreme inflation and losing our alliances with trade partners, it just needs to be deployed more responsibly and resiliently with transparency into all tiers as a foundational element of supply chain risk management.
Read Guinto’s recent article on supply chain regionalization in NCMA’s Contract Management magazine: Linking up with Neighbors