News this weekend from Reuters that the U.S. Justice Department is investigating Honeywell’s import and export processes because the company included Chinese parts in equipment it built for the F-35 fighter jet. According to the article:
The precise nature of the investigation could not be confirmed. Typically, however, DCIS [Defense Criminal Investigative Service] export investigations focus on whether a company violated the Arms Control Export Act by sending overseas products or technical specifications for items on the U.S. Munitions List without first obtaining a U.S. government license. The sensors and F-35 specifications in this case may be subject to the U.S. Munitions List. In terms of import violations, DCIS often investigates whether companies have engaged in fraud by misleading the Pentagon as to the origin of foreign parts.
The investigation is still in the early stages, and a lot of the details regarding Honeywell’s trade processes and controls are unknown, but based on the information provided in the article, here are two takeaways all companies involved in global sourcing and trade should consider:
Trade compliance is a highly strategic and risky supply chain process. Unfortunately, as I discussed back in November, many companies view trade compliance as simply paperwork and a cost center. I don’t know how Honeywell manages this process, but when you have other large and well-respected companies using Excel spreadsheets to manage some of their global trade processes, it’s clear that many companies are not investing adequately in software technology to help them streamline, automate, and control their global trade processes. Is your company falling short in this area too?
Map your supply chain to improve visibility and mitigate risks. Companies need to rethink supply chain risk management, and it begins by mapping their supply chains. The sad reality is that most companies have blind spots in their supply chains, which seems to be part of the problem in Honeywell’s case based on this excerpt from the article:
Honeywell [moved production of the sensors from China to Michigan in late 2012] after the origin of the sensors was discovered during a comprehensive review of the supply chain for the F-35, the newest U.S. warplane.
That was carried out by Lockheed after another key supplier, Northrop Grumman Corp, discovered it had used non-compliant magnets made in Japan in building the jet’s advanced radar system.
Why did it take a “comprehensive review” by Lockheed — after the jet has been in production — to learn that sensors for the F-35 fighter jet were being manufactured in China? A similar question applies to Northrop Grumman. The answer is that few companies invest the time, money, and resources to map their supply chains in sufficient detail and keep the information updated.
Ask yourself these questions: Do you know where the manufacturing facilities of your suppliers (and their suppliers) are physically located? Which parts are manufactured at each location? Do you track the history and frequency of disruptions that occur at each facility and geographic region, due to either natural forces (hurricanes, floods, earthquakes, etc.) or other factors (labor strikes, power outages, quality issues, etc.)?
If your answer is “no” to most of these questions, then it’s only a question of time before you get blindsided by a supply chain issue or disruption. Start mapping your supply chain today, or be prepared to pay a big price down the road.
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