White House releases findings from supply chain-focused executive order

Following an executive order issued by the White House in February, entitled “America’s Supply Chains,” calling for a 100-day review to identify near-term steps it can take, including with Congress, “to address vulnerabilities in the supply chain” for four groups of critical goods, this week the White House issued key findings from the reviews directed under the Executive Order, in addition to immediate actions it will take to “strengthen American supply chains to promote economic security, national security, and good-paying, union jobs here at home.”

The four groups of critical goods cited by the White House in February included:

• APIs, the part of a pharmaceutical ingredient that contains the active drug, with more than 70% of API production facilitators supplying the U.S now offshore and the work through this executive order will complement the ongoing work to secure supply chains needed to combat the COVID-19 pandemic;
• critical minerals for defense, high-tech, and other products ranging from rare earths in electric motors and generators to carbon fiber for airplanes, with a focus on ensuring the U.S. is not dependent;
• semiconductors and advanced packaging, areas in which the U.S. established these technologies, and have since underinvested in production and subsequently hurt its innovative edge, as other nations have upped their investments; and
• large capacity batteries, like those used in electric vehicles, as the U.S. takes action to handle the climate crisis it expects to lead to large demand for new energy technologies, with a focus on identifying supply chain risks, and also focus on leading the electric vehicle production supply chain

With the 100-day supply chain assessment review period now complete, the White House yesterday issued its findings for four critical products, including: semiconductor manufacturing and advanced packaging; large capacity batteries (such as those used for electric vehicles); critical minerals and materials; and active pharmaceutical ingredients (APIs).  

“The Administration is taking immediate action to address vulnerabilities and strengthen resilience with the launch of a new effort aimed at addressing near-term supply chain disruptions,” read a White House statement. “And, pursuant to E.O. 14017, it is crafting strategies for six industrial bases that underpin America’s economic and national security, which will be completed within a year. The supply chain reviews reinforce the need for the transformative investments proposed in the President’s American Jobs Plan. These efforts are critical because, as the COVID-19 pandemic and resulting economic crisis have shown, structural weaknesses in both domestic and international supply chains threaten America’s economic and national security. While amplified by the public health and economic crisis, decades of underinvestment and public policy choices led to fragile supply chains across a range of sectors and products. Unfair trade practices by competitor nations and private sector and public policy prioritization of low-cost labor, just-in-time production, consolidation, and private sector focus on short-term returns over long-term investment have hollowed out the U.S. industrial base, siphoned innovation from the United States, and stifled wage and productivity growth.” 

The 100-day review is replete with myriad supply chain items on which the U.S. intends to execute upon, including: securing an end-to-end domestic supply chain for advanced batteries, with the DOE’s Loan Program Office leveraging the roughly $1.7 billion in loan authority in the Advanced Technology Vehicles Manufacturing Loan Program to support the domestic battery supply chain; invest in sustainable domestic and international production and processing of critical minerals; partnering with industry allies and partners to address semiconductor shortages; and establishing a new Supply Chain Disruptions Task Force to provide a whole-of-government response to address near-term supply chain challenges to the economic recovery, led by the Secretaries of Commerce, Transportation, and Agriculture, with a “focus on areas where a mismatch between supply and demand has been evident.

Another key takeaway from the executive order’s findings focused on developing a comprehensive trade strategy to support fair and resilient supply chains by developing as comprehensive trade policy to support supply chain resilience and U.S. competitiveness.

“Supply chain resilience should be incorporated into the U.S. trade policy approach towards China, including in the ongoing review of U.S.-China trade policy,” said the White House. “The Administration should also examine existing U.S. trade agreements to identify ways to strengthen collective supply chain resilience.

Kamala Raman, Vice President, Analyst, for Gartner’s Supply Chain Practice, said that this report summarizes many of the same issues Gartner has pointed out with supply chain resilience.

“Primarily that a slow and steady migration of supply chain jobs and capabilities to low-cost locations has reached a critical mass, short term profitability skews incentives towards cost efficiency over investments in longer term resilience which are hard to quantify, and we have to acknowledge that we’re in a world where industrial policies and support for manufacturing industry in other countries should be matched by the United States government,” she said. “The recommendations are again no surprise—to rebuild U.S. manufacturing capabilities and a supply chain ecosystem with a mix of carrots in the form of direct cash infusions and grants, incentives to consumers and loans. The sticks will come in the form of international trade enforcement mechanisms. Other recommendations include leveraging the government’s buying power to favor domestic manufacturing, invest in R&D for critical industries and support the creation of a workplace that values workers, quality and the environment.”

Raman explained that some short-term actions are likely to have quicker effect, such as direct grants and loans to help companies bridge the cost gap to manufacturing in the U.S., but most of these require long term attention.

“For example, incentivizing small and medium enterprises is not done overnight,” she said. “These companies are often weaker than their bigger customers and less inclined to invest in redundancy or even, in creating visibility to the extended supplier network. Similarly for R&D. It will have to be a mix of investments in government research institutions and support for private companies.”

What’s more, perhaps the biggest issue, or what Raman called the elephant in the room is the availability of qualified labor in the U.S.

“Fixing this will be the work of years or decades,” she said. “Our concern is whether the commitment to this cause will continue as today’s capacity constraints ease up and Covid (hopefully) soon fades into the rearview mirror.  We’re also pleased to see recommendations that highlight collaboration with friendly countries. Look—the wage differential between high- and low-cost countries or the geographic concentration of certain raw materials will mean that certain capabilities are not going to come to these shores. Collaborating with other countries to improve resilience in the entire ecosystem is a smarter move than going it solo. Finally, the cryptic bullet on creating a data hub to monitor near term vulnerabilities is interesting—first, there are many vendors who already do this, so why reinvent the wheel. Second, this is just scratching the surface of a more holistic approach to collating manufacturing data - the big cloud giants are all into manufacturing data, analytics and technology services to digitize and optimize operations. This space will be interesting to watch if it can help bridge the digital divide between the sophisticated larger manufacturers and some small/medium scale enterprises.”

Raman concluded by noting that Gartner is pleased to see bipartisan support to strengthen U.S. supply chains, while cautioning that the U.S. reached this place over multiple decades and trying to strengthen U.S. manufacturing will require not only short-term financial commitments but longer-term structural commitments and public-private partnerships that place American people (workers) and the planet over short term profitability.   

Johnathan Foster, Principal Consultant for Proxima, a firm that analyzes everyday supply chains, logistics, infrastructure and more for today’s biggest companies, said that the White House Executive Order’s findings will open dialogue about constraints that are hamstringing all supply chains and not just the focus group.

“Freight and supply chain issues tend to be agnostic with common symptoms and issues,” he said. “Solving for one issue naturally solves for another. Strategically though, it is important to lift these constraints on strategic items such as computer chips to impact the automotive industry which helps many types of industries beyond the chip industry such as the steel, rubber, plastic, and of course the supporting manufacturing sectors. It is equally important to solve many other issues which help everyone’s supply chains.”

As for the message the executive order sends to business leaders, Foster explained that supply chains have never been more important to companies and their respective health/viability of these supply chains are now considered a national interest.

“If companies have not invested in improving their talent, strategies, and visibility in this area they are impacting the long-term health of their respective companies,” he said. Supply chain leaders are needed and deserve a seat at the respective decision table.”