Stress testing federal supply chain resilience

COVID-19 vividly illuminated the fragility of many organizations’ supply chains. The unprecedented disruption to both supply and demand – for example, the global scramble for protective personal equipment at the start of the pandemic – and the frequent lack of corresponding transparency created a significant threat to the stability of many supply chains and negatively impacted government’s ability to mount an effective response.

From these challenges came a heightened awareness of just how impactful disruptions can be on global supply chains and why it’s so important to prepare for them.

Given the importance of preparedness, Accenture has launched an initiative with the Massachusetts Institute of Technology (MIT) to deliver new insights into supply chain resiliency, including for the federal government. The goal is to create a standardized, data-driven assessment of supply chain resilience and business continuity, similar to the financial stress tests implemented after the 2008 financial crisis.  

Specifically, the supply chain resiliency stress test looks at the potential for operational and financial risks created by major market disruptions, disasters, or other catastrophic events. It leverages Accenture’s supply chain expertise and MIT’s data science capabilities to quantify supply chain resilience into a single index.

For the federal government, a better understanding of supply chain vulnerabilities through a simulated stress test could drive new levels of resiliency. It could help agencies maintain mission continuity and meet citizens’ needs in times of crisis by enabling them to proactively assess risks and prepare for potential disruptions.

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Government's unique supply chain challenges

Government agencies must follow established federal acquisition rules in support of a robust supply chain, but the sheer scale and complexity of government operations can create greater challenges. There’s a lack of end-to-end visibility, with deep and often unrecognized or underappreciated layers of interdependency among manufacturers, contractors, and end users.

Concerns about counterfeit electronics, especially with the Department of Defense, have shined a spotlight on supply-chain issues in recent years and spurred progress in addressing potential risks. And yet, as COVID-19 and the PPE crisis have shown, the government still may not have a very solid grasp of where goods come from or how readily they may be available, especially in times of unprecedented need.

With insights derived from the stress test, government entities could take action to focus investments and safeguard mission-critical supplies.

How the stress test works

Mature supply chains do a good job of modeling the impact of common risks on operations. Where challenges often arise is planning for low-probability, high-impact events—think Hurricane Katrina, the Fukushima earthquake and tsunami, or a factory fire at a critical supplier – that can cripple a supply chain overnight. Researchers led by MIT’s Dr. David Simchi-Levi created a model for assessing these risks with a focus on determining their time-to-recover (TTR) and time-to-survive (TTS) as measures of their overall risk exposure. In any given scenario, if the TTR exceeds TTS, the supply chain would face a disruption as it executes its mitigation plans.

The stress test uses these models to assess an organization’s ability to sustain its supply chain in the face of potential disruptions. It leverages data to create a “digital twin” of an organization’s supply chain, then deploys against that model a range of potential scenarios – events that could impact the organization’s ability to serve citizens, employees, and society. These might include sudden spikes or drops in demand, the shutdown of a major supplier, scarcity of a critical raw material, or disruption of a key port.

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Based on these inputs, the stress test can deliver key insights into the resiliency of a given supply chain, helping an organization evaluate its own readiness for different scenarios, as well as bring to light unknown risks.

With solid metrics describing an organization’s ability to react to a disruption scenario, the organization can take actions to rethink its approach and better prepare for the future. Leaders can re-prioritize and reconfigure manufacturing strategies and fine-tune their requirements for supply chain participants and partners. They could also build strategic reserves of products in anticipation of disruptive events.

The stress test in action

To illustrate how the stress test might be used to identify critical vulnerabilities in the supply chain, imagine the number of parts and repairable items associated with the vast number of critical weapon systems used by the Department of Defense. The scale and criticality of these items have been the source of scrutiny and debate for decades.

However, programs such as the Department’s Weapon System Support Program (WSSP) have largely focused on criticality identification and associated inventory policies instead of the extended supply chain vulnerabilities associated with these parts. Application of the supply chain resiliency stress test would allow the Department to gain greater insight regarding geographic, geo-political (e.g., foreign ownership), and financial risks associated with the manufacturers and suppliers of these critical parts (TTR, TTS) and develop appropriate mitigation strategies based on the probability and severity of the disruptions.

With such an example in mind, one can easily think of the supply chain dependencies of other critical federal programs and functions and how those federal agencies and organizations could successfully employ the supply chain resiliency test.

Resilient supply chains make the federal government stronger and more responsive, ready to meet the double missions of citizen service and national security even in turbulent times, and in the face of ever-changing circumstances.