Biden’s review of US supply chains stirs experts from the procurement world to react

As the world takes in US President Joe Biden’s latest executive order (EO) on domestic sourcing of currently imported critical components, primarily computer chips and medicines, to help the US become less dependent on foreign supplies, Spend Matters turns it eye to the general thoughts of the procurement sector.

The executive order (a means of issuing federal directives by the president of the United States that manages operations of the federal government) is intended to help protect the US economy from the supply shortages experienced during the pandemic that forced car manufacturers to cease production owing to lack of semiconductors, left healthcare workers without crucial PPE and spread concern over the availability of critical drug ingredients for the pharmaceutical industry. A hundred-day review of critical supply chains will now begin.

Our chief research analyst recently penned some thoughts on LinkedIn, which sparked an interesting string of dialogue: Various people from the procurement world chipped in with mixed feelings about the effectiveness of this motion.

Voices from procurement

Robert Handfield PhD, author at Supply Chain Resource Cooperative and Bank of America University Distinguished Professor of Supply Chain Management at the North Carolina State University Poole College of Management, gave a reality check on supply chain vulnerabilities, in which he explains that:

“The 100-day review will be followed by a longer yearlong review of a broader set of critical supply chains, including the energy sector, personal protective equipment, agricultural products, the transportation industrial base and the public health and biological preparedness industrial base.” (Biden says this will “help address the vulnerabilities in our supply chains across additional critical sectors of our economy so that the American people are prepared to withstand any crisis and rely on ourselves.”)

Handfield takes the stance that the statement “reveals a profound naiveté of supply chains, which is common in both politicians and the public. Most individuals’ understanding of the complexity of global supply chain designs is limited, and few realize that re-shoring (although not directly referenced in the EO) all manufacturing back to the US with the flip of a switch (or the passing of an Executive Order) is impossible in the context of global trade …” Read his full thoughts here.

Peter Smith — author of Bad Buying, ex CIPS President, formerly Spend Matters Europe MD and one-time procurement advisor to the UK government — echoed a similar sentiment when talking to us:

“Of course it is good to see political leaders thinking about issues of supply chain risk and resilience. The idea that a country should be more self-sufficient when it comes to critical goods or materials — or foodstuffs, or military equipment — seems sensible. But in practical terms, there are real issues and barriers. For instance, we have started manufacturing more PPE in the UK following the shortages of last year. Some local firms have invested in additional capacity. But now that the market has returned to more normal pricing, will hospitals be prepared to pay a premium for UK-made masks and gowns? How long before the newspapers start complaining about a waste of taxpayers’ money on pricy ‘made in the UK’ goods? And in areas such as semiconductors, how do you persuade business to make major investments in new capacity, unless you guarantee funding or a future stream of orders, which again is likely to be very expensive compared to global market pricing. I do believe governments have to think carefully about these issues, and some change is needed, but it is naïve to think there are simple solutions or that any country can quickly make all its critical supply chains risk-free.”

Dr. Kristina Soukupova, President at Defense and Security Innovation Hub and Aerospace and Defence Practice Director at I3CAS, added that “this is nothing new in the world of defense. In case of war, for example, a country doesn’t want to be reliant on someone else.”

“It’s a matter of national security,” she tells Spend Matters. “On the one hand, you want to be self-sustainable. You can’t have another country providing you with weapons, radios, etc. On the other hand, there is not a single country in the world that is actually self-sufficient when it comes to military equipment. It’s more a question of who do I buy from? Who do I trust?”

“This is when it does become a political question rather than an economic one,” she said in response to the argument that continuity of supply and national security should never become partisan debates.

“So this is why these supplies can be very expensive, because you want to buy from your allies, not your enemies. When it comes to certain technologies you need to know exactly what’s in them and where the components came from. You cannot risk opening up your systems to countries that know them better than yourself. So it’s a very problematic balance, and it boils down, in many cases, to a political decision that is not always about the price.”

“The problem, from what I can see, is that there is no way we can control visibility to the very last component in our sophisticated and complex systems. When we buy a computer, we know the chips are made in China — that’s just how it is and has been. If you put a computer chip in a weapons system that can kill people, you want to have full visibility and control of it — that’s a question of possibility. This dilemma has come up before in the security arena but ends up with people shrugging their shoulders because the Chinese are the main manufacturers that can make chips at a certain price. Even with home-grown technology in the shape of start-ups, the military is reluctant to buy emerging tech from them, because they can’t be sure the start-up will survive the next five years, and they need their systems to be maintained for longer than that. So from a security point of view, it makes perfect sense to have chips made in the US, only then will you know whether there are any insecurities.”

Many thanks to our contributors for these insightful comments, and we’ll be continuing our ‘voices’ theme in a second post when we’ll be asking other experts for their views on: how these executive orders tend to be implemented; what shape the review might take; who is responsible for it; the impact on agencies; who will undertake assessments; whether there is a resilience framework used in federal government, and more. We welcome your comments too of course.