Background

In late February, U.S. President Joe Biden issued an Executive Order that called 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. This order instituted 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).

Yesterday, the White House announced the creation of a Supply Chain Disruptions Task Force to Address Short-Term Supply Chain Discontinuities. The document reportedly served to highlight the key findings from the 100-day reviews directed under the February Executive Order along with immediate actions the Biden Administration is initiating to strengthen U.S. supply chains.

 

Report Highlights

In essence, the report indicates that the Biden Administration is crafting strategies for six industrial bases that underpin U.S. economic and national security which will be completed within a year. Further noted is that this continuing effort is an initial step: “in a whole-of-government effort to strengthen domestic competitiveness and supply chain resilience.”

The report includes a slew of recommendations that among others calls for rebuilding America’s production and innovation capabilities and longer-term competitiveness. There is an acknowledgment that the U.S. cannot address supply chain vulnerabilities alone, and must collaborate with global countries, including use of diplomatic tools to encourage and facilitate more resilient supply chains. The effort is described as developing a comprehensive trade strategy to support fair and resilient supply chains. In fact, the word resiliency is frequently mentioned in the report.

A recommendation includes a request for the U.S. Congress to directly fund at least $50 billion in investments to advance domestic manufacturing of critical semiconductor components.

Key Findings and subsequent actions called for included, among others:

  • Partnering with industry, allies, and stakeholders to address semiconductor supply needs. The action calls for the Department of Commerce to support nearly $75 billion in direct investments from the private sector in U.S. semiconductor manufacturing and R&D. The agency is directed to facilitate information flow among semiconductor producers and suppliers, as well as end-users. A further statement specifically indicates: “Building on the success of recent engagements with Japan and the Republic of Korea, including the announcement of more than $17 billion in U.S. semiconductor investments by leading companies n ROK, the Administration will strengthen engagement with allies and partners to promote fair semiconductor chip allocations, increase production and promote increased investment.

 

  • Support of domestic production of a deemed 50-100 critical drugs and medicines that will be the focus of an enhanced onshoring effort. Efforts call for the Department of Health and Human Services (HHS), building on current public-private partnerships, to establish a public-private consortium for advanced manufacturing and onshoring of domestic essential medicines production. HHS will make an initial commitment of upwards of $60 million to; “develop novel platform technologies to increase domestic manufacturing capacity for API”, in an effort to reduce reliance on global sourcing, particularly during times of increased public health need. A statement in the report acknowledges that a drive toward lower costs as well as unfair trade practices have led to a hollowing out of domestic production. Acknowledged is that about 87 percent of API production facilities for generic drugs are located overseas, essentially in China and India.

 

  • Secure an end-to-end domestic supply chain for advanced batteries, calling for the S. Department of Energy to release a 10-year National Blueprint for Lithium Batteries, along with leveraging $17 billion in loan authority to support a domestic battery supply chain. The report further indicates that the effort means: “seizing a critical opportunity to increase domestic battery manufacturing while investing to scale the full lithium battery supply chain, including the sourcing and processing of the critical minerals used in battery production all the way through to end-of-life battery collection and recycling.”

 

  • On the latter note is an action noted as investing in sustainable domestic and international production and processing of critical minerals. The S. Department of Interior will establish a working group consisting of other U.S. Federal agencies to identify sites where critical minerals could be produced and processed domestically while adhering to environmental, labor and sustainability standards.

 

A further section calls for “Building Fair and Sustainable Industrial Bases”, described as a series of actions to be taken across the U.S. Federal Government to support supply chain resilience, workforce development, production innovation and strong sustainability actions. Outlined are further actions addressing the creation of national Registered Apprenticeship Technical Assistance Centers of Excellence to support needed skills development, investments in sustainable supply chains leveraging the buying power of the U.S. Federal government, and a $4 billion investment on rebuilding U.S. food supply chains for food production and distribution. Of further interest was a statement that President Biden will convene a global forum on supply chain resilience that will bring together key government officials and private sector stakeholders to develop common approaches to supply chain challenges.

On the tactical side, the Administration will establish a new Supply Chain Disruption Task Force to provide a whole-of-government response to address ongoing near-term supply chain challenges and economic recovery. This task force will be jointly led by the Secretaries of Commerce, Transportation and Agriculture.

 

Supply Chain Matters Perspectives

As noted in our February commentary that highlighted the initial Executive Order, there are differences regarding how manufacturers, retailers 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 the lowest landed cost. All three factors are sometimes difficult to weigh and balance. There is a further reality that in some specific supply networks, the U.S. has lost any notion of global competitive supply network capabilities, either because certain large companies have and continue to favor perceived lowest cost regions, or that the economics of skilled labor, supply and overhead costs do not favor U.S. sourcing.

Political forces on the other hand have to weight national and economic security concerns, more so than ever.  Prior to, during the COVID-19 pandemic, and now as economies try to bounce back, significant supply network vulnerabilities have been exposed. While the former Trump Administration tended to overreach on the 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.

This interim report at the surface seems to be action oriented as well as comprehensive.

We were disappointed to the lack of mention in the area of medical personal protective equipment and supplies (PPE), which was part of the original Biden Executive Order. There are now building reports of oversupply of N95 medical grade face masks as well as protective equipment, and now U.S. based suppliers who augmented supply needs are starting to shed workers because of current oversupply. This has been a common theme among prior national health emergencies and once again, domestic PPE producers are being burned as certain global countries flood the market with excess supply and lower pricing to maintain market share.

Because this is a governmental driven effort, this report includes not only strategic but near-term tactical and operational efforts including the termed creation of a Supply Chain Disruption Task Force. This is likely an attempt to appease various industry lobbying groups as to U.S. companies not getting short-changed or hindered by various global based government actions, including China. If that effort can be deemed useful, it will be in removing obvious obstacles related to extreme price and supply fluctuations in the costs of energy, transportation and strategic commodities, paving the way for various multi-industry supply chain management teams to restore demand and supply balance.

All aside, the good news thus far is that a call to action has begun, efforts are being defined and perhaps some progress can come of this effort. That is, of course, if supply chain resiliency does not turn out to be a flash point for partisan politicking and ongoing gridlock.

For multi-industry supply chain management teams residing in the U.S., the current cascading supply and transportation network disruptions will continue to consume activity levels, and as such, further deficiencies will become apparent.

 

Bob Ferrari

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