Is the White House’s New Directive on Supply Chain Resilience Merely a Buzzword or a Genuine Solution?
As we head into the holiday season, you should expect the next several articles to be related to supply chain issues. And nothing says festive supply chain more than an initiative straight from the White House to safeguard supply chains and ensure that everyone gets their gifts on time…only to be returned (more on this next week).
In the wake of President Biden’s announcement regarding a new directive featuring 30 actions to bolster supply chain resilience, a crucial question arises: Is this initiative a meaningful solution to the challenges we face, or is it merely another buzzword in the complex world of global trade and economics?
We heard a lot about the notion of supply chain resilience when, during the COVID-19 pandemic, it was difficult to get PPE, toilet paper, Kettlebells, and cars. But COVID-19 seems to be in the rear-view mirror, and we now face the specter of inflation. So will these actions genuinely address inflation and the ongoing supply chain disruptions, or is it a case of fighting yesterday's battles?
Let’s start with the basics.
Understanding Supply Chain Resilience
So what is supply chain resilience if not just another buzzword?
Supply chain resilience involves the capacity to anticipate, adapt, and recover from disruptions. Supply chains aim to maintain a steady flow of goods and services, even in the face of unforeseen challenges. Resilient supply chains are robust and adaptable, and recover quickly from disruptions, whether geopolitical, climate-related, or other, while maintaining supply continuity and minimizing impact on costs and service levels.
The Supply Chain Risk Management Leadership Council has delineated five distinct levels of maturity in managing supply chain risks, offering a comprehensive framework for organizations to assess and enhance their risk management strategies.
At Level 1, termed ‘Reactive,’ organizations typically respond to supply chain disruptions as they occur, without prior planning or strategies in place. These are usually local businesses like small bookstores or startups.
Progressing to Level 2, ‘Aware,’ companies gain awareness of potential risks but lack a systematic approach to manage them —usually witnessed in growing companies that recognize risks but lack comprehensive strategies.
Level 3, ‘Proactive,’ marks a significant shift as organizations begin to anticipate and prepare for potential disruptions, implementing strategies to mitigate risks. These are firms such as national retailers.
Advancing to Level 4, ‘Integrated,’ risk management becomes integral to the supply chain process, with cohesive strategies and practices embedded across the organization. Examples could be large corporations like Ford or Pfizer.
Finally, at Level 5, ‘Resilient,’ companies achieve the pinnacle of risk management maturity. They have robust systems to manage and mitigate risks and possess the agility and adaptability to recover from disruptions quickly, ensuring the continuity and efficiency of their supply chains in the face of various challenges. This stage includes industry leaders like Apple or Amazon.
To determine the maturity level of each firm, the council outlines 5 factors:
In terms of Leadership:
In terms of planning:
As businesses grow and evolve, they tend to move up these levels, enhancing their risk management capabilities. In other words, not all firms need or can be resilient.
The White House’s Steps to Enhance Supply Chain Resilience
The initiative includes establishing the Council on Supply Chain Resilience, utilizing the Defense Production Act, enhancing cross-governmental data sharing, investing in infrastructure, conducting a quadrennial supply chain review, emphasizing smart manufacturing, and strengthening global partnerships.
The first question is, “Why now?”
This graph is the answer the White House offers:
But the correct answer is: the upcoming elections, the belief that Biden must somehow show that he’s trying to curb inflation, as well as the belief that inflation (as shown in the graph) is critically determined by supply chain issues.
The announcement credits the Inflation Reduction Act with the shift in the graph and now looks at the next phase:
“These efforts helped unsnarl supply chains, re-normalize the flow of goods, and lower inflation. From October 2021 to October 2023, supply chain pressures as measured by the New York Fed declined from near-record highs to a record low, helping lower inflation, which has fallen by 65% from its peak. Today, President Biden is building on this progress by announcing bold new actions to further strengthen supply chains, lower costs for families, and help Americans get the goods they need,...”
But the question remains: Is this performative supply chain management (in other words, pretending to help) or a real change? And what are the downsides?
The Right Stuff
The actions to bolster supply chain resilience as part of the broader “Bidenomics” agenda mark a significant step toward addressing some of the most pressing supply chain challenges that the U.S. faces.
Let’s start with what the White House got right, considering the five levels of supply chain risk management maturity we discussed above: Reactive, Aware, Proactive, Integrated, and Resilient.
1. Establishing the Council on Supply Chain Resilience (Leadership):
Creating the Council on Supply Chain Resilience, co-chaired by senior officials and involving various government departments, is a commendable action. This move reflects a transition from a Reactive (Level 1) approach to at least an Aware (Level 2) or even Proactive (Level 3) stage. By centralizing leadership and responsibility, the Council can spearhead comprehensive strategies to address supply chain vulnerabilities, signaling a shift toward more integrated (Level 4) and resilient (Level 5) supply chain management practices.
2. Cross-Governmental Supply Chain Data-Sharing Capabilities (Planning):
Developing cross-government partnerships for improved supply chain monitoring and strategy is a move toward Integrated (Level 4) and Resilient (Level 5) supply chain management. In particular, the new Supply Chain Center of the Department of Commerce embodies an Integrated approach by combining industry expertise, data analytics, and collaborative efforts across government and private sectors.
3. Investments in Domestic Supply Chains and Infrastructure (Implementing):
The substantial investments in domestic food supply chains, clean energy supply chains, and defense-critical supply chains exemplify an Integrated approach. These investments are aimed at building a robust and self-reliant supply chain infrastructure within the U.S., which is crucial for achieving Resilient (Level 5) supply chain management.
4. Quadrennial Supply Chain Review and Smart Manufacturing Plan (Improvement):
The commitment to a regular supply chain review and the development of a nationwide plan for smart manufacturing demonstrate a long-term, strategic approach to supply chain resilience. This initiative indicates progress toward an Integrated (Level 4) level, where risk management is an embedded, continuous process.
5. Global Partnerships and Collaborative Efforts:
Engaging in global partnerships and collaborative efforts, such as the early warning systems for semiconductor disruptions and the Global Regulatory Working Group on Drug Shortages, shows a recognition of the interconnected nature of global supply chains. These actions reflect a move toward a more Resilient (Level 5) supply chain system, acknowledging the need for global coordination and cooperation.
6. Multimodal Freight Office (Planning):
The Biden Administration’s comprehensive plan to strengthen supply chain resilience includes a significant development: the launch of the Department of Transportation’s (DOT) Multimodal Freight Office. The Multimodal Freight Office, formed as part of the Bipartisan Infrastructure Law (BIL), is tasked with the crucial responsibility of maintaining and enhancing the United States’ multimodal freight network. The establishment of this office represents a move toward higher levels of supply chain maturity, particularly integrating (Level 4) and resilience (Level 5). By focusing on multimodal freight, the initiative acknowledges the complexity of modern supply chains and the need for a diversified, adaptable, yet integrated (in other words, central) approach to freight and logistics. The collaborative nature of this office, working in tandem with the Bureau of Transportation Statistics, signifies an integrated approach to supply chain management.
I have mentioned several times that our infrastructure is crumbling. The U.S. depends on freight; as we want products faster and cheaper, freight logistics is a part of it. The U.S. has always been very fragmented in its decision-making. With this initiative, the country is beginning to resemble countries that have a much more robust process and governance model, such as Germany and Korea. Germany’s efficient transportation networks and robust industrial base serve as a model for long-term infrastructure development in supply chain resilience. For example, Germany already has a 2030 multi-modal transportation and logistics plan.
Overall, it’s a very promising set of steps.
But… there’s always a but…
Let’s start with the fact that Biden’s administration claims the initiative’s goal is to ensure that costs for families will decrease.
Resilience costs money. Everything we discussed above, from mapping to ensuring data, analytics, and infrastructure investment, costs money. There is a clear tradeoff between building a resilient and efficient supply chain. Resilience is a lot like responsiveness. Not all responsive supply chains are resilient, and vice versa, but the tools to build responsive supply chains are a lot like those used to build resilient supply chains, which means they cost money.
And just like the debate between efficient vs. responsive supply chain, the question is whether you have the right supply chain that is directly related to what customers want. Customer demands for cost efficiency and rapid delivery can strain supply chains, particularly during disruptions. Companies must balance these expectations with resilient practices, which may sometimes mean educating customers about the need for more sustainable and resilient supply chain practices. However, educating customers means that not all customers may be convinced. Will families be willing to pay for products that come from a more resilient supply chain just because they are resilient? I don’t think so. What are the implications? In the long run, it’s going to be hard to sustain a resilient supply chain without reverting back to an efficient one...
When we look at why firms don’t build resilient supply chains, it’s because the payoff is only in the long run. Focusing on immediate returns often overshadows the crucial need for long-term resilience planning. Investments in resilient infrastructure and technologies may not yield immediate profits, but they are essential for sustainable growth and risk mitigation. Strategic foresight is needed to prioritize long-term stability over short-term gains, particularly in a rapidly changing global market.
But there is another risk, which is that the solutions focus too much on the short run. President Biden’s establishment of the White House Council on Supply Chain Resilience primarily addresses immediate, temporary supply chain issues, but it may overlook deeper, structural changes necessary for long-term resilience. A closer examination reveals two critical areas where the initiative could be more comprehensive:
1. Port Congestion and Infrastructure Challenges.
The initiative responds to current supply chain bottlenecks, such as port congestion, by rerouting ships and managing traffic at major ports. However, this approach is a short-term fix. There is a lack of emphasis on investing in long-term port infrastructure improvements and expansion, which are essential for handling increasing global trade volumes and preventing future bottlenecks.
2. Underinvestment in Supply Chain Digitalization.
Another significant omission is the limited focus on digitizing supply chains. While the initiative addresses some aspects of supply chain resilience, it doesn’t sufficiently prioritize the integration of digital technologies. Modern supply chains require advanced digital infrastructure for efficient operation, including IoT and AI for real-time tracking, predictive analytics, and secure, transparent operations. Convoy’s attempt to create a more efficient market for freight, for example, stumbled on the lack of such a complete digital system.
My final comments is whether supply chain resilience is really the government’s job (beyond, you know, food, medical, and defense. Or Guns, Germs, and Steel if you will).
The COVID-19 pandemic, referred to by many erroneously as the “first global supply chain crisis,” has brought unprecedented attention to the vulnerabilities of global supply chains. In response, the concept of “resilience” has gained traction. However, this focus on resilience can be interpreted as potentially reinforcing and justifying the dynamics of concentration in leading firms and a shift in national income from labor to capital. This critique aligns with Karl Marx’s observations of capitalism, where dynamics of concentration and centralization are intrinsic, often leading to uneven geographical development and geopolitical tensions. I’m not a Marxist, but we can’t disregard it completely.
As some argue, the resilience agenda may be serving to concentrate capital further and intensify geopolitical competition. This agenda includes strategies like supply chain mapping, enhanced surveillance, re-shoring or near-shoring production, and leveraging new technologies for greater control over labor. Such strategies, while aimed at mitigating risks, might escalate capitalism’s inherent tendencies and lead to heightened labor exploitation.
The U.S. response to the supply chain crisis, particularly under the Biden administration, has a marked geopolitical dimension. The resilience concept is being used to advocate for diversification away from over-reliance on China, thereby feeding into broader geopolitical objectives of containing China’s economic rise. This strategy includes advocating for reshoring or near-shoring production, potentially leading to enhanced power for giant corporations, which are just better suited to be more resilient and intensified labor exploitation under the guise of resilience.
There are many challenges in implementing and building resilient supply chains in the U.S.
Achieving resilience in supply chains transcends governmental policy and requires an integrated approach involving both the public and private sectors. Collaboration is key, where policies provide the framework, and businesses implement practical, on-the-ground solutions.
I already discussed how local policies were used to enable supply chain restructuring, but this was a rare occasion. The U.S. can draw valuable lessons from countries like Korea and Germany, which boast advanced supply chain infrastructures. These nations demonstrate the effectiveness of robust logistical networks, advanced technological integration, and efficient transportation systems. Emulating these models can help the U.S. enhance its supply chain resilience, particularly in areas like port efficiency and digital logistics networks.
The strategic partnership between CJ Logistics and the Korea Ocean Business Corporation to construct large-scale logistics centers in the United States exemplifies an innovative approach to enhancing supply chain resilience through public-private collaboration. This initiative, uncommon in the U.S., marks a significant investment in bolstering the import-export capabilities essential for global and South Korean companies. By strategically positioning these logistics centers in major U.S. hubs and integrating advanced technologies, the partnership aims to streamline the supply chain process and create new job opportunities, showcasing the potential of such collaborations to strengthen economic ties and enhance global supply chain competitiveness.
Conclusion: Moving Beyond Buzzwords to Real Solutions
Overall, the White House’s initiative on supply chain resilience rightly focuses on cross-sector collaboration, global partnerships, proactive risk management, and strategic investments in critical areas. While the initiative shows a promising shift from reactive to proactive, integrated, and resilient supply chain management practices, the real test will be in the effective implementation of these actions and the ability to adapt and further develop these strategies in response to emerging global supply chain challenges. If executed effectively, the initiative can position the United States to recover from current supply chain disruptions but to also build a more robust, agile, and resilient supply chain infrastructure for the future.
But, while the Biden administration’s supply chain resilience directive is a significant response to current global challenges, its broader implications in the context of global and geopolitical dynamics warrant a deeper examination. The concept of resilience, while ostensibly aimed at stabilizing and strengthening supply chains, may, in fact, be reinforcing the concentrated nature of global supply chains, raising concerns about its long-term impact on global economic stability, labor rights, and geopolitical relations.
It’s crucial to ensure that the strategies employed today in enhancing supply chain resilience do not inadvertently lay the groundwork for future challenges, requiring a careful balance between immediate solutions and long-term sustainable practices.