Issues in Developing Supply Chain Strategies

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2 Issues in Developing Supply Chain Strategies Breakout Session # D03 Jim Kirlin, President, Kirlin Consulting, LLC Allie Stanzione, Senior Contracts Manager, General Dynamics March 31, :30 3:00 pm

3 Purpose Illustrate the Issues in Developing Supply Chain Strategies

4 Agenda The Case for Developing Supply Chain Strategies The Key Issues for All Supply Chain Strategies Current Issues Case Study

5 Agenda The Case for Developing Supply Chain Strategies The Key Issues for All Supply Chain Strategies Current Issues Case Study

6 The Case for Supply Chain Strategies What is a Supply Chain Strategy? Subcontracting is a Key Part of the Supply Chain Subcontracting is Important Subcontracting is Complex Subcontracting is Global

7 What is a Supply Chain Strategy? A Supply Chain Strategy answers: What should I buy? Why should I buy it? Who should I buy it from? Where should I buy it? How should I buy it? When should I buy it?

8 Subcontracting is a Key Part of the Supply Chain

9 Subcontracting is a Key Part of the Supply Chain The Supply Chain Pie Quality Subcontracting Receiving Inventory Control Supply Chain Subcontracting Packaging Logistics

10 Subcontracting is a Key Part of the Supply Chain The Battle of Supply Chains: Assembling the Best Team We are Subcontracting We will assimilate you Resistance is Futile!

11 Subcontracting is Important Subcontract Management is responsible for the majority of the contract value Value of Contract Prime Subcontracts

12 Subcontracting is Important Subcontract Management Responsibilities Cost Schedule Performance

13 Subcontracting is Important

14 Subcontracting is Complex Increased Transparency on the Spend In-house Who? What? Where? How? Subcontracting

15 Subcontracting is Complex Who? Prime 1 st Tier Subs 2 nd Tier Subs Distributors Vendors

16 Subcontracting is Complex What?

17 Subcontracting is Complex Where?

18 Subcontracting is Complex How? 9. Maintain Subcontract Records 1. Define Requirement 2. Source Responsible Subcontractors 8. Closeout Subcontract 3. Solicit, Evaluate, and Select Subcontractors 7. Pay Invoices 4. Document Compliance and Award Subcontract 6. Deliver Subcontract 5. Manage Subcontract

Functions Export Import Property Subcontracting

19 Subcontracting is Complex Program Management Contracting Finance Coordination with other Functions Export Import Property Subcontracting Technical Quality Ethics and Compliance Logistics Legal Production

20 Subcontracting is Global Apollo 8 December 1968 The first humans to see the earth as a whole planet

21 Subcontracting is Global

22 Agenda The Case for Developing Supply Chain Strategies The Key Issues for All Supply Chain Strategies Current Issues Case Study

23 The Key Issues for All Supply Chain Strategies Due Diligence Ethics Compliance

24 Due Diligence TWO QUESTIONS Party Due Diligence: Should I deal with this person? Transactional Due Diligence: Should I do this transaction?

25 Ethics The principles of conduct governing an individual or a group

26 Ethics

27 Ethics It s a Red World

28 Compliance Substantial Third Party Risk Exposure In House Risk Third Party Risk

29 Compliance Flow Down of Requirements

30 Compliance Consequences

31 Compliance Consequences

32 Ethics and Compliance Values Based Ethics and Compliance: Outbehave your competitors

33 Agenda The Case for Developing Supply Chain Strategies The Key Issues for All Supply Chain Strategies Current Issues Case Study

34 Current Issues Cyber Security Counterfeit Parts Conflict Minerals Human Trafficking

35 Current Issues Cyber Security Counterfeit Parts Conflict Minerals Human Trafficking

36 Cyber Security The Problem Cyber threat is the number one strategic threat to the United States (DoD, Cyber Strategy, April 2015)

Cyber Security Adequate Security Contractors and subcontractors are required to provide adequate security on all covered contractor information systems.

37 Cyber Security Adequate Security Contractors and subcontractors are required to provide adequate security on all covered contractor information systems. Protection Against Unauthorized Release The Government shall protect against the unauthorized use or release of information that includes contractor attributional/proprietary information. Support services contractors directly supporting Government activities related to safeguarding covered defense information and cyber incident reporting (e.g., forensic analysis, damage assessment, or other services that require access to data from another contractor) are subject to restrictions on use and disclosure of reported information. Source: SUBPART SAFEGUARDING COVERED DEFENSE INFORMATION AND CYBER INCIDENT REPORTING (Revised October 21, 2016), Policy.

38 Cyber Security Reporting Contractors and subcontractors are required to rapidly report cyber incidents directly to DoD. A cyber incident that is reported by a contractor or subcontractor shall not, by itself, be interpreted as evidence that the contractor or subcontractor has failed to provide adequate security on their covered contractor information systems, or has otherwise failed to meet the requirements of the clause. Source: SUBPART SAFEGUARDING COVERED DEFENSE INFORMATION AND CYBER INCIDENT REPORTING (Revised October 21, 2016), Policy.

39 Current Issues Cyber Security Counterfeit Parts Conflict Minerals Human Trafficking

40 Counterfeit Parts The Problem In 2013, the import value of integrated circuits was $231 billion DoD Responsible for One Per Cent of Total World Demand for Integrated Circuits DoD Other

41 Counterfeit Parts The Problem Which is the Original?

42 Counterfeit Parts Used and non-authentic counterfeit electronic components are widespread throughout the defense supply chain; over the past two years alone, more than one million suspect parts have been associated with known supply chain compromises 1. The problem is pervasive, with both expensive and inexpensive electronic parts being targeted. Counterfeit, or otherwise suspect electronic components, present a critical risk for the Department of Defense (DoD), where a malfunction of a single part could lead to system failures that can put warfighter lives and missions at risk.

43 Counterfeit Parts Common threat modes Recycled components that are sold as new Unlicensed overproduction of authorized components Test rejects and sub-standard components sold as high-quality Parts marked with falsely elevated reliability or newer date of manufacture Clones and copies, which may be of low quality, or may include hidden functionality Components that are covertly repackaged for unauthorized applications

44 Counterfeit Parts A Solution: A dielet that authenticates the electronic component for less than a penny per unit Size of dielet I m authentic! I ve been tampered!!!!

45 Current Issues Cyber Security Counterfeit Parts Conflict Minerals Human Trafficking

Conflict Minerals Dodd-Frank Act (2010), Section 1502 Requires certain companies to disclose their use of conflict minerals if those minerals are necessary to the functionality or production of a

46 Conflict Minerals Dodd-Frank Act (2010), Section 1502 Requires certain companies to disclose their use of conflict minerals if those minerals are necessary to the functionality or production of a product manufactured by those companies. Under the Act, those minerals include tantalum, tin, gold or tungsten. Concerns that the exploitation and trade of conflict minerals by armed groups is helping to finance conflict in the Democratic Republic of Congo (DRC) region and is contributing to an emergency humanitarian crisis.

47 Conflict Minerals The Problem

48 Conflict Minerals Where?

49 Conflict Minerals What are the Conflict Minerals?

50 Conflict Minerals

51 Current Issues Cyber Security Counterfeit Parts Conflict Minerals Human Trafficking

(FBI) Modern slavery, trafficking in persons, and human trafficking have been used as umbrella terms for the act of

52 Human Trafficking After drug dealing, trafficking of humans is tied with arms dealing as the second largest criminal industry in the world, and is the fastest growing. (FBI) Modern slavery, trafficking in persons, and human trafficking have been used as umbrella terms for the act of recruiting, harboring, transporting, providing, or obtaining a person for compelled labor or commercial sex acts through the use of force, fraud, or coercion. (Department of State website)

53 Human Trafficking The United States Government has adopted a policy prohibiting trafficking in persons including the trafficking-related activities of the clause

54 Human Trafficking Contractors, contractor employees, and their agents shall not (1) Engage in severe forms of trafficking in persons during the period of performance of the contract; (2) Procure commercial sex acts during the period of performance of the contract; (3) Use forced labor in the performance of the contract; (4) Destroy, conceal, confiscate, or otherwise deny access by an employee to the employee's identity or immigration documents, such as passports or drivers' licenses, regardless of issuing authority;

55 Human Trafficking Contractors, contractor employees, and their agents shall not (5) (i) Use misleading or fraudulent practices during the recruitment of employees or offering of employment, such as failing to disclose, in a format and language accessible to the worker, basic information or making material misrepresentations during the recruitment of employees regarding the key terms and conditions of employment, including wages and fringe benefits, the location of work, the living conditions, housing and associated costs (if employer or agent provided or arranged), any significant cost to be charged to the employee, and, if applicable, the hazardous nature of the work; (ii) Use recruiters that do not comply with local labor laws of the country in which the recruiting takes place;

56 Human Trafficking Contractors, contractor employees, and their agents shall not (6) Charge employees recruitment fees; (7)(i) Fail to provide return transportation or pay for the cost of return transportation upon the end of employment (see clause for extensive details) (8) Provide or arrange housing that fails to meet the host country housing and safety standards; or (9) If required by law or contract, fail to provide an employment contract, recruitment agreement, or other required work document in writing.

57 Human Trafficking Contractor requirements. The Contractor shall (1) Notify its employees and agents of (i) The United States Government's policy prohibiting trafficking in persons, described in paragraph (b) of this clause; and (ii) The actions that will be taken against employees or agents for violations of this policy. Such actions for employees may include, but are not limited to, removal from the contract, reduction in benefits, or termination of employment; and (2) Take appropriate action, up to and including termination, against employees, agents, or subcontractors that violate the policy in paragraph (b) of this clause.

58 Human Trafficking Other Duties (see clause) Notification Remedies Mitigating and aggravating factors Full cooperation Compliance plan Subcontracts

59 Purpose Illustrate the Issues in Developing Supply Chain Strategies

60 Summary

61 Agenda The Case for Developing Supply Chain Strategies The Key Issues for All Supply Chain Strategies Current Issues Case Study

62 Case Study Time Introduction of case: Discuss and answer question: Share answers with session: Total time for case study: 4 minutes 10 minutes 16 minutes 30 minutes

63 Case Study Situation You are a prime with a U.S. Government contract You will issue a Request for Proposal to potential subcontractors to build a circuit board to your company s drawing Subcontractors will need access to information that is classified and that is controlled by International Traffic in Arms Regulation (ITAR)

Case Study Your task: Develop a list of questions that you will ask, or information that you will require from, your potential subcontractors Hint: Ask questions or

64 Case Study Your task: Develop a list of questions that you will ask, or information that you will require from, your potential subcontractors Hint: Ask questions or obtain information to answer these due diligence questions Party Due Diligence: Should I deal with this person? Transactional Due Diligence: Should I do this transaction?

65 Thank You!

EXECUTIVE ORDER STRENGTHENING PROTECTIONS AGAINST TRAFFICKING IN PERSONS IN FEDERAL CONTRACTS

EXECUTIVE ORDER STRENGTHENING PROTECTIONS AGAINST TRAFFICKING IN PERSONS IN FEDERAL CONTRACTS EXECUTIVE ORDER - - - - - - - STRENGTHENING PROTECTIONS AGAINST TRAFFICKING IN PERSONS IN FEDERAL CONTRACTS By the authority vested in me as President by the Constitution and the laws of the United States