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Mitigating Supply Chain Risk: What the Military Does and You Should Too

By Greg Grindey  October 11, 2017

Militaries around the world have been trying to introduce commercial best practices to the way they do business for many years.  However, the commercial industry may be able to learn a trick or two from the military as well, particularly with respect to risk in their supply chains.

Since at least the time of Alexander the Great, military leaders have understood the importance of logistics and a resilient supply chain to success on the battlefield.  Beginning in 2001, the United States Department of Defense (DoD) and its coalition partners began to fight a war in Afghanistan, a land-locked country on the other side of the world with countries on its borders that were not always friendly to the coalition and its aims.  When one considers the fact that approximately 80 percent of the cargo that the DoD sends to fight a war is transported by surface ships, this situation presented one of the most challenging logistics situations in modern warfare.

With no seaports, logistics in Afghanistan was going to require the assent of at least one other country for the US and its allies to be able to send supplies overland to support their troops.  Support by airlift, while theoretically possible at least in the short term, was not a viable long-term option due to the estimated cost of ten times per-pound to airlift cargo into Afghanistan versus on-land costs.  For the first eight years of the war, the country that provided the sole overland access to Afghanistan was Pakistan, which allowed the DoD and its partners to use its port at Karachi to offload cargo which would then be transported by truck to Afghanistan over their road network and then through one of two border crossings into Afghanistan as depicted below.  This set of routes were called the Pakistan Ground Line of Communication, or PAKGLOC.

While this worked for many years, logistics planners came to realize that having just a single avenue to support their deployed troops was a tremendous risk to bear and required some transformative thinking to avoid potential catastrophe.  What would happen if Pakistan and the US had a disagreement and Pakistan cut off access to its ports and roads?  The potential costs in terms of money and combat effectiveness were huge and needed to be assessed and addressed.

In 2008, United States Transportation Command (USTRANSCOM) planners began to look at creating a new network of ships, rail, ferries, and trucks to link logistics bases in Europe and the US to Afghanistan via surface routes to the north of Afghanistan, what came to be known as the Northern Distribution Network (NDN).  Establishing such a network would require diplomatic efforts between the US and many countries in the region, including Russia, Georgia, Kazakhstan, Tajikistan, Azerbaijan, and Uzbekistan.  Part of that effort was diplomatic, to try to identify what would be acceptable to each country that would need to be traversed in terms of types of cargo allowed (militarized vehicles, foodstuffs, building materials, general cargo, etc.), and what the costs would be for access.  Another part of that effort was analytical, with USTRANSCOM modelers building detailed network optimization models using LLamasoft’s Supply Chain Guru® and other modeling tools.  This analysis was designed to see how much additional capacity could be expected to result from the NDN and what the costs of using such a route would be.  It also entailed exploring a multitude of potential options to decide on which combination was the best to provide a hedge against the risk of a potential loss of the PAKGLOC access routes.

Those efforts eventually were successful, and the US-led coalition was able to negotiate several routes to supply forces in Afghanistan that used two new border crossings in the north of the country, these routes collectively became known as the NDN.  Figure 2 illustrates the NDN route structure that developed over time.  In 2009, fuel and non-lethal cargo began shipping along the NDN and eventually military equipment also began to flow on these routes.  The complexity of the routes and the purposefully wide range of countries involved made the cost of transportation over these new routes more expensive and the time to traverse them generally longer than what was observed over the PAKGLOC, but these routes provided a critical fallback position in case of a loss in access to the Pakistan routes.  The extra time and costs (which were approximately double what the costs for cargo on the PAKGLOC) incurred to use the NDN were accepted as a necessary cost of doing business to make sure that the coalition did not leave thousands of deployed troops without a logistics network to support them in the case of a falling out with Pakistan.  By March 2010, the Commander of USTRANSCOM reported to Congress that while the PAKGLOC remained the primary route (50%), 30% of supplies were now flowing on the NDN with approximately 20% flowing by air.

So, what makes this piece of history interesting to business leaders?  If this were an example of the military creating an insurance policy for an event that never occurred, it might be an example of being overly conservative and cautious.  However, in this case the insurance policy did pay off and the transformation of the military supply chain to a more flexible and robust system proved to pay back the additional investment many times over.

In November 2011, there was a border skirmish between coalition forces and Pakistani border troops that resulted in 24 Pakistani soldiers being accidentally killed by US helicopters.  As a result, Pakistan closed the border and access to the PAKGLOC indefinitely, demanding a high-level apology from the US and other concessions.  While the PAKGLOC was closed, coalition forces shifted their supply lines to the NDN to the maximum extent possible and by February 2012, 85% of fuel flowing into the theater was traversing the NDN along with a much larger share of other cargo.  This shift and expansion led to costs of approximately $100 million per month along the NDN during the closure as opposed to around $17 million before it.  However, those costs were dwarfed by the approximately five times the cost per pound that it would cost to shift all that cargo to airlift.  Eventually, diplomacy won out and in July 2012 Pakistan reopened the PAKGLOC to coalition forces and the flow of good eventually returned to near the pre-closure levels.

Business leaders, like military leaders, need to identify areas of risk and determine how vulnerable they are to those risks.  Modeling can be a powerful tool to examine “what if” scenarios to see the likely results of a risk scenario playing out.  It can also be a means to determine the effectiveness of mitigation strategies to reduce the exposure, just as the DoD did with its NDN strategy.  In the short term, these strategies can cost more, but if the contingency plan comes to be needed, it can make the difference between not surviving and thriving in a crisis.

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[1] Source: Wikipedia (https://en.wikipedia.org/wiki/NATO_logistics_in_the_Afghan_War#/media/File:NATO_supply_routes_through_Pakistan.svg)

[2] Source: The Jamestown Foundation (https://jamestown.org/program/russia-shutters-northern-distribution-network/)