The Supply Chain Matters blog highlights today’s executive order signed by U.S. President Joe Biden that calls for the review of the global supply chains utilized in four key industries to determine whether U.S. firms are too reliant on certain global suppliers.

 

Background

Within our research arm’s recently published 2021 Predictions of Industry and Global Supply Chains (available for complimentary downloading in our Research Center), we included a prediction on supply network resiliency. Our prediction is that augmented resiliency in global supply network strategies is now far more important to assuring business growth.

What was likely the most important takeaway from the pandemic disruption in 2020 was that supply network sourcing strategies predicated solely on lowest cost producer exposed critical vulnerabilities to businesses and that considerations for business continuity and assessment of supply risk are more significant for corporate board rooms and investors. Such risks include sole sourcing of deemed critical components, global transportation or added cost and service level risks.

We noted that for certain industries, geo-political and deemed national strategy policies are now a further influence that supply chain management teams need to pay close attention to. Such policy concerns surround the need for more responsive healthcare supply and administration networks in time of national emergency such as a global wide or domestic pandemic.

Another looming policy concern is described as the evolving new “cold war’ or forced de-coupling among the U.S. and perhaps other nations and China relative to deemed strategic technology development and component supply needs.

Supply chain logistics

Biden’s Executive Order

President Biden’s new executive order will reportedly institute 100-day reviews of supply networks related to semiconductor computer chips, critical minerals such as rare earths utilized for electronics manufacturing, large-capacity batteries utilized in electrically powered vehicles, pharmaceuticals, and their critical active ingredients (API’s).

A senior administration official has indicated that these reviews seek to determine whether U.S. firms are too reliant on foreign producers, including China, or that the risks of supply disruption or timely response are such to be a national policy concern. Further noted is whether such risks are posed by over dependence on competitor nations, as well as broader risks.

We would add that concerns regarding over reliance on foreign based semiconductor chip production seems to be also shared in Europe. Bloomberg recently reported that the European Commission is considering a review of existing reliance on semiconductor chip components utilized for automotive and defense sectors, as well as an assessment of existing EU based capabilities.

The Biden executive order will reportedly further involve year-long reviews involving 6 industry sectors: energy, defense, food production, public health, information technology and transportation.

An administration official indicated that the industry reviews will be modeled on evaluations conducted by the U.S. Defense Department to evaluate and strengthen the defense industrial base.

According to a published report by Politco, a second senior official clarified: “Resilient supply chains are not the same thing as all products being made in America. That is not our intention here.” That statement of clarification from our lens, was directed to allied nations the difference among the Biden Administration’s order vs the actions of the previous U.S. administration’s “Make America Great” policies.

In a prior Supply Chain Matters blog we highlighted the Biden Administration’s direct efforts for broadening the use of the Defense Production Act to boost production and supply of COVID-19 vaccines as well as spur more domestic production of deemed critical healthcare personal production equipment such as face masks, gloves, gowns, and face shields.

Politico indicated in its reporting that how the White House prods companies remains to be seen and could span either expanded use of the Defense Production Act or working with the U.S. Congress to legislate incentives and programs to facilitate key suppliers to establish more of a U.S. based presence.

What especially caught our eye was Politico’s citing of a statement from one other senior administration official:

We’re going to get out of the business of reacting to supply chain crisis as they arise and get into the business of getting ahead of future supply chain problems.”

That indeed is clarified thinking and definition related to supply network resiliency.

 

Additional Thoughts

As we have noted in prior Supply Chain Matters commentaries related to supply network resiliency, there are differences among specific industry existing sourcing practices and politically driven assessments under the umbrella of national security.

Manufacturers and suppliers assess key regions of product demand as well as market growth opportunity. They initiate strategic sourcing predicated on access to such markets as well as sourcing of components that provide either the highest level of technology innovation, inherent transportation, and logistics infrastructure collectively at lowest landed cost. All three factors are sometimes difficult to weigh and balance.

Attractive government incentives or added policies provide a further significant influence, and that is an area that may well be dynamic in the coming months. While the Trump Administration tended to overreach on definition of national security related to manufacturing and sourcing. The Biden Administration seems to be undertaking a more pragmatic approach, but at the same time incorporating recent learnings and risk exposures uncovered by the global pandemic.

In our prediction related to 2021 supply network resiliency strategies, rather than review of options that prevailed in 2019 and 2020, the agenda turns to assessing increased regulatory influences and their impacts.  In some specific industries it can be establishing a definitive timetable for alternative global sourcing of key high-risk components.

Common belief is that the wholesale changing of strategic sourcing can take quite several years, and indeed many companies are making assessments as to various supply chain sourcing options. However, we caution that today’s news is should not precipitate a wait and see approach.

If your industry segment turns out to be deemed a component of national policy than the sourcing strategy will have added considerations to weight. Chief Procurement Officers and strategic supply management specialists will have to re-think these added geo-political dynamics occurring in the global and regional trade landscape.

Economists and futurists are viewing these trends as a movement that eventually leads toward more regionalized product demand and sourced supply networks, that line up with broader trade alliances focused on Asia, the European Continent, North America and Latin America.

The takeaway is that supply chain resiliency is being reassessed by both specific industries and by nations.

 

Bob Ferrari

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