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The Biden administration's executive order on supply chain resilience shines a welcome light on longstanding issues in the industry.
Launched in February, the supply chain resilience executive order (EO) calls for more extensive government involvement in business than has been the norm, according to some industry experts. But it will also provide the resources and initiative to address supply chain disruptions such as the ongoing shortages of computer chips that shut down automobile production.
However, some supply chain experts believe business leaders will take a wait-and-see attitude, and changes to address vulnerabilities must come from industry rather than government.
The supply chain resilience EO establishes two reviews by federal agencies for supply chains in selected industries. The first is a 100-day review for supply chain risks in critical products that have experienced significant issues, including semiconductors, high-capacity batteries, rare earth minerals and pharmaceuticals. The second is an in-depth, yearlong review of six industries: defense, agriculture, public health, IT, energy and transportation.
New level of government involvement
The Biden EO on supply chain resilience is a new level of involvement into business processes, said John Caltabiano, vice president of supply chain for Jabil, one of the world's largest contract manufacturing firms.
Based in St. Petersburg, Fla., Jabil manufactures products for customers in a variety of industries, including electronics, healthcare, computers and telecommunications. The company has factories in 26 countries, with the majority in Asia, Mexico and Eastern Europe.
Jabil operates a complex supply chain that sources materials and ships manufactured products all around the world, Caltabiano said.
Supply chain resilience is a key issue, and the COVID-19 pandemic as well as a host of other disruptions are making government involvement more likely than it has been previously, he said.
"Government involvement in our business was relatively limited from a disruption and constraints perspective," Caltabiano said. "Governments were there to help you do business and to allow for foreign investment. Up to four years ago, everything was about the free flow of goods all around the world, and most companies' involvement with the trade organizations and government lobbying were based around the principles of free trade."
Longstanding issues need to be addressed
Regulations that result from the Biden administration's supply chain resilience review may be needed to address vulnerabilities that have built up in the last few decades, as U.S. manufacturers moved offshore.
In the semiconductor industry, for example, only half of the number of suppliers are in operation today compared with 20 years ago, according to Caltabiano.
"Everyone had their own [fabricating facilities]. But now with outsourcing, those fabs are not in the U.S.," he said. ''Now with cybersecurity, cyber warfare and all these other issues that are front and center for companies and the technology that they buy, they worry about the risks of making their products in a place they don't understand."
The supply chain resilience EO shines a light on these issues of vulnerability that supply chain leaders have been concerned about for years, said Rosemary Coates, executive director of The Reshoring Institute, a nonprofit based in Redwood City, Calif., that consults with manufacturers on bringing operations back to the U.S.
"The EO called out semiconductors and pharmaceuticals, which is an excellent example because the building blocks for pharmaceuticals have essentially gone to Asia -- particularly to China -- over the last 25 to 30 years," Coates said. "Now we understand that if we don't have those building-block capabilities, those chemicals, then our pharmaceutical delivery in the U.S. is going to suffer. So, we need to identify those kinds of pinch points and bring that manufacturing back to America so that we are protecting our population."
The U.S. government has traditionally stayed out of heavy involvement in business, she said, but circumstances have changed.
"We've had a fundamental belief in the market economy, where winners and losers are picked by the market, not by the government," Coates said. "That was a strong policy, but the pandemic made us realize the risk in some of these areas, and the vulnerability of particular industries now has to be supported by government. So it's a recognition and a change in the way we think about risk and the policy of the government."
Rosemary CoatesExecutive director, The Reshoring Institute
Change must come from within
The focus of the Biden administration EO is valuable, but the changes have to come from industry rather than government, said Terry Onica, director of automotive at QAD, an ERP vendor in Santa Barbara, Calif., that focuses on manufacturing and supply chain.
"We have to change our thinking, and that does not require President Biden -- especially for long-term sustainability," Onica said. "I don't think he will move the dime -- the auto industry has to move the dime. Presidents come and go, but the fix for the root causes of what is going on in the industry with regard to the supply chain has to come from within."
Business leaders are likely receiving the supply chain resilience EO with a dollop of healthy skepticism because similar proclamations have been made by previous administrations, said John Piatek, vice president of consulting at GEP Worldwide, a supply chain strategy consulting firm in Chicago.
Nonetheless, the EO should spur a hard look at supply chain vulnerabilities, he said.
"Studies have shown that manufacturing jobs are not coming back to America en masse in a way to tip the balance of productivity gains around the world," Piatek said. "However, in the industries that were mentioned -- and the ones that were being hinted at -- there is a reassessment of what should be where, and most firms realize now that they were far too lean and far too focused on low-cost sourcing and supply chain, and they do mean to have this different model."
Supply chain resilience gets real
Some industries like food production are already starting to move to more flexible manufacturing methods and less complex supply chains to respond to consumer demand for more local sources and simpler ingredients, according to Piatek. But the industries specified in the EO are different because of the national security implications. They are also critical to the economy, as seen by the automotive industry's shutdown due to a microchip shortage.
"[Supply chain resilience] is not a theoretical question anymore. This is really happening today, and, if anything, the administration is going to juice this a little further," he said. "We absolutely expect to see these investments being made closer to home, but that doesn't mean we're cutting off China or Vietnam. It's going to be a repivoting, but not a total rethink."
One thing that seems certain is that governments will be more involved in trade regulations that are more geared toward constraints than free trade, Caltabiano said. No one can be sure where this will go, but companies will need to plan for it.
"What we've learned about resilience is you cannot plan for the event; that's impossible," he said. "But you build out capabilities around the people, processes and technology that allow you to manage the disruption, and do it in a way that supports your customers and markets in a resilient way -- which is about how fast you can respond to the change that occurs."
Jim O'Donnell covers ERP and other enterprise applications for SearchSAP and SearchERP.