Combating Counterfeit Parts in the DoD Supply Chain

By: Capt Jason M. Leighton

For a moment, imagine yourself as the pilot of a C-130 Hercules which you are preparing to land with a full load of cargo.  On approach, you extend your landing gear and touch down with the rear wheels first, keeping the front up and the nose landing gear off the ground.  As you ease the nose of your aircraft down and the front gear makes contact with the ground, the axle and wheel assembly break away and the underbelly of your $150M aircraft impacts the runway at over 100 knots.  You finally skid to a stop and exit the aircraft to the noise of sirens as crash and recovery personnel respond to the ground emergency.  After a thorough investigation, it is determined that a counterfeit front axle, which was made using inexpensive steel, had entered the Air Force supply chain and had recently been installed on your aircraft.  How could this have happened?  The axle looked like the real thing.  It was installed correctly and was a perfect fit.  Additionally, its record showed that the raw materials used came from approved sources, and it was built by a reputable manufacturer.  Shouldn’t there have been a system in place to prevent a counterfeit part from traveling through the supply chain?

Counterfeit… a real problem

Counterfeit parts have found their way into every branch of the DoD and pose a huge threat to our national security.  A 2012 report released by the US Senate Armed Services Committee, a congressional investigation found that in the Air Force alone, bootleg parts have been identified in aircraft produced by Boeing, Lockheed Martin, and Sikorsky—in other words, they impact the major Air Force Original Equipment Manufacturers (OEMs).  In total, 1,800 cases of counterfeit electronic parts were uncovered in items ranging from night vision equipment to Global Positioning System (GPS) navigation modules.  In response to these findings, the Committee adopted an amendment to the FY12 National Defense Authorization Act (NDAA) to “address weaknesses in the defense supply chain and to promote the adoption of aggressive counterfeit avoidance practices by DoD and the defense industry”.

As a follow-up, a 2016 Government Accountability Office (GAO) report found that while the number of counterfeit parts in the DoD supply chain decreased significantly between 2011 and 2015, there were still nearly 50 parts per year that were identified as being counterfeit.  As a percentage of total parts, this was a mere .006% of the DoD supply chain.  However, as the opening scenario illustrated, a single counterfeit part can have a disastrous impact on the Warfighter, and identifying counterfeit parts is extremely difficult when they are deliberately manufactured to pass as the “real deal”.  Moreover, the threat of counterfeit parts being introduced by US adversaries is thought to be increasing, and these subversive agents are good at figuring out ways to make their counterfeits blend in with other components.

This article outlines the problem associated with counterfeit parts in the DoD and will explore using blockchain technology platforms to address it.  Blockchain platforms are one of a number of potential solutions being investigated by researchers at the Air Force Institute of Technology (AFIT) to address the supply chain security problem.  Blockchain technology can improve the likelihood that transactional records associated with critical parts are valid and increase the traceability of parts across the supply chains.  This article will explain blockchain technologies in their current form as well as how they apply to the logistics systems in DoD and commercial supply chains.  The second and third order effects of blockchain implementation will also be explored to bolster the argument that this new technology can truly have a positive impact on the supply chain.

Blockchain Technology

Blockchain is a relatively new technology, most commonly associated as the underlying framework for Bitcoin and other cryptocurrencies.  It was conceived to prevent modification of historical transactions and allow for an unbroken chain of custody from conception to termination.  The way in which this is accomplished is by creating “blocks”, or individual records, each time an asset changes custody much in the same way that a ledger records transactional history.  The difference with blockchain however is that these ledger entries, or blocks, cannot be modified and once created are added to the end of the chain.  Using this process depicted below allows for anyone (depending on adopted business rules) to view the historical transactions along the chain which have each been validated and secured upon their creation.

The inability to modify any part of the blockchain comes from the decentralized way in which each transaction is verified, and the sum of the records are stored.  By requiring multiple decentralized nodes to verify the validity of the transaction before it can be added to the chain, the ability to falsify a transaction is negated.  Additionally, by storing the chain on distributed nodes within a decentralized network, no single node or computer has the ability to control the blockchain by itself but instead must cooperate with the entire network.

Blockchain for Air Force Supply Chains

Applying blockchain to the DoD and Air Force supply chain would allow for the decentralization and security of transactional records associated with critical parts.  Blockchain can provide the capability to view the complete history of a given part from the time it was created until that current moment.  This is a major step towards preventing the falsification or modification of documents for the purpose of passing off a counterfeit part as the “real thing”.  This would mean that all parts in the DoD supply chain would have a provenance showing when and where they were created, by whom, the time and mode of transportation, and also where they were stored.

Using blockchain to record the history of an individual part introduces additional issues which are not present in cryptocurrency; the parts that makeup a part.  Nearly every end item worth tracking will itself be made from numerous subcomponents.  For example, a simple hydraulic actuator could be made up from dozens of parts ranging from hydraulic cylinders and tubing to electrical circuitry, nuts, bolts and washers.  The possibility exists for a counterfeit subcomponent to be incorporated into a legitimate assembly thereby making that assembly unfit for entry into the DoD supply system.  To counteract such scenario, a new kind of blockchain would need to be used–a Nested Blockchain.  Nested Blockchains require that each subcomponent be tracked using blockchain from the time that an individual bolt or electrical wire is manufactured, until such time that they are mated into a final assembly.  At that time, each of the subcomponents’ blockchain would be nested into the first block of the final assembly as depicted in the below chart.  With such a robust transaction history associated to each part, algorithms could then be applied to the network to identify and flag suspected counterfeit parts.

Additionally, any counterfeit part that is identified can quickly be cross referenced to other parts that were manufactured, stored, or shipped from the same location or during the same time.  While this may seem like a futuristic use of the technology, it is not a new application of blockchain.  Commercial companies have integrated this capability as a tool to provide transparency across their supply chains and traceability as to where products came from.  One such example is Walmart, which has adopted blockchain to track from individual suppliers in China across its global supply chain.  For example, they use the blockchain to record where each piece of meat came from, its process and storage location, and its sell-by-date. The blockchain records where the animal was raised, where and when it was slaughtered, where and for how long it was refrigerated, the mode and duration of shipment, and any other important information needed for Walmart to ensure it sells a quality product.

Cost and Risk

As the saying goes, “there is no free lunch” and there are both costs and risks of adopting blockchain technology.  There will be a direct cost of developing and integrating blockchain platforms into the Air Force supply chain.  Depending on the number of equipment items and parts included in the system, the cost will be substantial.  Additionally, if the technology is adopted, the number and validity of transactional records will increase dramatically.  With the increased number of records, the need for more computing power and storage capacity will increase as well.  The increased computing and storage capacity will require a significant financial investment but will potentially require an investment in personnel to manage and build the new network.

Adopting a technology such as blockchain may seem too risky for a government organization.  This is because the very principle that makes blockchain work, decentralized records, is a vast departure from traditional records keeping practices.  The mitigation plans for this risk revolve around piloting programs before making large investments, developing sound business rules, and prioritizing the systems on which to apply the solutions by identifying and categorizing risks.  Educating decision makers and drawing from industry lessons is the best way to overcome the hurdle of the new process.  Then, testing the technology on a small scale or in a limited environment to identify other issues which could be corrected before full-scale roll out will be a key factor to avoiding large-scale failures that have derailed previously supply chain IT systems.

Way Forward

Blockchain is a new technology, and it is not a panacea solution for the Air Force supply chain.  It does, however, have great potential at helping us to identify and prevent counterfeit parts.  New technology adoption and integration is a difficult endeavor, but the DoD—although we all can provide examples of failures, has been a historical leader in developing and using new technologies.  Examples within the private industry have demonstrated that blockchain technologies can be used with great success, as companies like Walmart, IBM and Maersk are already realizing the benefits.  Introducing this technology can help prevent the inflow of counterfeit parts into the supply chain, a matter of national security, and may also unlock other unintended benefits both inside and outside the logistics community.

About the author

Capt Leighton is a Course Director at the Air Force Institute of Technology’s School of Systems and Logistics, Wright-Patterson Air Force Base, Ohio

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