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Call to review critical supply chains praised, questioned

The Biden administration is requiring federal agencies to conduct a review of critical supply chains, dividing analysts on what they see as the potential long-term effects.

After facing shortages of medical equipment and now computer chips due to the COVID-19 pandemic, President Joe Biden signed an executive order calling for a review of vulnerabilities within U.S. critical supply chains.

Biden's EO, which he signed Wednesday, instructed federal agencies to conduct two reviews. The first is a 100-day review of four classes of products, including semiconductors as well as pharmaceuticals and their active ingredients. The second is a more in-depth, year-long review of six sectors including public health and information and communications technology.

"This is about making sure the United States can meet every challenge we face in this new era -- pandemics but also in defenses, climate change, cybersecurity and so much more," Biden said in remarks before signing the EO. "And the best way to do that is by protecting and sharpening America's competitive edge by investing here at home."

While industry analysts agreed the review is good in the short term, they disagreed on what the effects of the review may mean in the long term. Some expressed concern that the review could result in harmful changes to globalized supply chains and noted that bringing manufacturing back to the U.S. will require more skilled labor than the country currently has. Others see the EO as a good first step toward addressing critical vulnerabilities and security concerns. 

"I am delighted that the administration is looking at supply chains in a comprehensive way across the federal agencies. I think that is a great start to understanding what of our products are critical and vulnerable," said Julie Swann, head of the North Carolina State University industrial and systems engineering department. "I say critical meaning we need them to function in society; I say vulnerable meaning that they could be impacted by various kinds of disruptions."

A good first step

The executive order recognizes how globalized supply chains turned into a weakness during a critical time. In his remarks, Biden touched on the dearth of personal protective equipment (PPE) for front-line healthcare workers, which was caused by a reliance on global markets affected by the pandemic.

"That should never have happened," Biden said. "And this will never happen again in the United States, period. We shouldn't have to rely on a foreign country -- especially one that doesn't share our interests or our values -- in order to protect and provide for our people during a national emergency."

Looking ahead, Swann said the review could prompt the federal government to consider investing in domestic manufacturing, implementing regulation requiring buying a percentage of products made in America or even bringing more production back to America.

"I hope that the executive order is not the end of what we're going to do," she said. "This is just the beginning, from my viewpoint, of what we should be doing because we have lots of sectors of our society that are dependent on supply chains that are vulnerable." 

Dana Gardner, president and principal analyst at Interarbor Solutions, said a review of critical supply chains is long overdue and sees this as an opportunity for the federal government to fix not just existing problems, but to uncover other potential supply chain vulnerabilities.

Supply chain management

"The more long-term solution is to put in place the means to get in front of these issues and not wait for them to become a crisis," he said. "Not wait for industries to be shackled like the chip shortage has done, not to have PPE shortages when you have a pandemic but anticipate what's going to need to be in place should crises occur."

Simon Ellis, program vice president for supply chain strategies at IDC, said there is an increased appetite in the U.S. to make sure certain products or components are made locally so that in the event of a disruption such as a public health crisis, a natural disaster or a geopolitical situation, the U.S. "doesn't find themselves on the wrong end of a shortage."

But Ellis also sees the downsides in the push for more U.S.-made products.

Potential concerns

Bringing production back to the U.S. could also result in a skilled labor shortage if major changes are made following the review of critical supply chains, according to Ellis.

"The semiconductor facilities that produce chips, the reality is most of them are not based in the U.S.," he said. "If part of 'Made in America' means the foundries and production facilities for chips need to be in the U.S., that's a major undertaking because we don't have the infrastructure and may or may not have the skilled labor force to manage those facilities."

Mandating that products be made in the U.S. could also raise their prices, he said.

"The million-dollar question in some ways has always been, 'Are U.S. consumers willing to spend more on made-in-America products?' Because they will cost more," he said. "So much demand is outside of the U.S. as well, it means we have to worry about cost competitiveness."

I would be worried there are going to be restrictions or even requirements that a certain percentage of these chips be made in the U.S., which may or may not be economically sensible.
Rick WhiteFormer U.S. representative (R-Washington)

Rick White, a former U.S. representative (R-Washington) and a strategic advisory board member for business consultancy Alliantgroup, said that while it's a good time to review the country's critical supply chains, he's concerned about what the federal government will do once the year-long review is completed.

While the effects of any decision may not be immediate, he said CEOs and CIOs should be planning for a situation where they're asked to make more of their product or buy more of their supplies in the U.S. -- something he believes will be detrimental to products like computer chips.

"The reason they're offshore now is because for over 35 years, CIOs and executives have tried to figure out the most efficient way to make these computer chips," White said. "They're a mass-produced product now, but they're highly technical and they've got to be done right. And you've got to make sure you get it from somebody who's actually going to produce a quality chip but also at the lowest possible price because it's a big component of what your products are going to cost. I would be worried there are going to be restrictions or even requirements that a certain percentage of these chips be made in the U.S., which may or may not be economically sensible."

How the reviews may affect manufacturers and IT suppliers is not yet known. But Biden did say he would implement recommendations as they come.

"We're not going to wait for a review to be completed before we start closing the existing gaps," he said.  

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