Biden Orders Review of Private Sector Supply Chains
March 4, 2021
(WP) President Biden signed an executive order last Wednesday calling for review, by the executive branch, of the supply chains in several industries. Companies involved in the pharmaceutical, critical minerals, semiconductor, and large capacity battery businesses are among those to undergo a 100-day review. Companies involved in other critical industries, such as energy, personal protective equipment, agriculture, and public health will be next.
Biden said the purpose of his executive order to review these critical private sector supply chains is to ensure that Americans can rely on ourselves during crisis situations. This comes on the heels of a variety of shortages experienced last year during the pandemic.
Among other things, sources say that the governmental review of these supply chains will be focused largely on the location of the suppliers. Companies will be expected to work with the government to understand the risks associated with particular regions based on the proximity of their suppliers. As such, companies will be forced to consider changing or adding suppliers to decrease the risk of potential shortages.
By its very nature, the supply chain is a complex system made up of a host of trade offs that companies must balance. For example, most manufacturers don't choose their suppliers solely on the basis of lowest cost. Such intangible concerns as reliability and quality also come into play.
Then, there are decisions about how much raw material to keep on hand as safety stock. Keeping too much leads to higher overhead costs, while not keeping enough could result in a shortage. Companies must consider a number of factors when determining how much risk is tolerable given the trade off in expense.
Manufacturers are keenly aware of the need to keep internal costs down in order to remain competitive in a free market economy. Those companies that are not able to find efficiencies, whether in operations, production processes, transportation, or some other variable, are eventually eclipsed by their rivals.
Bottom line, a successful supply chain is made up of dozens of interrelated aspects, none of which should be considered independent from the others. Whether or not government officials possess the business acumen needed to understand the finer intricacies of a well-oiled supply chain remains to be seen. The executive order states that third parties (consultants, academics, etc.) will be included in the review process. Any recommended regulatory or legislative policy changes will be considered when the reviews are completed.
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