U.S. Unveils Measures to Build Supply Chain Resiliency but Best Bet, at Least for Now, Lies in Alternative Supplier Sourcing

The Biden Administration has announced plans to strengthen the resiliency of critical U.S. supply chains to keep American industries humming over the long term, and safe from shortages that were accentuated by COVID-19, denting earnings prospects in more than a few sectors of the economy.

But while there is no doubt that the wide-ranging measures – published at the end of a 100-day review mandated by Executive Order in February – will significantly help buffer the U.S. through future bouts of turbulence, it leaves businesses wanting answers that can resolve today’s challenges in the immediate term.

Research by Descartes Datamyne supported the conclusions of the Biden Administration ahead of the announcement of its plans, giving high vulnerability scores to the key supply chains of semiconductors, large capacity batteries, pharmaceuticals and ingredients, and strategic minerals, which were the focus of the original review. Major recommendations by White House planners for these key industries included:

• Investing US$50 billion into the semiconductor industry to expand U.S. manufacturing and research and development as well as protect American technological advantages;
• Providing multi-billion-dollar funding to spur consumer adoption of electric vehicles, and support domestic production of advanced and next generation battery cells for these vehicles;
• Increasing investments in new pharmaceutical manufacturing processes; and
• Creating a sustainable inventory of strategic minerals by working with “allies and partners to diversify supply chains away from adversarial nations and sources with unacceptable environmental and labor standards.”

The recommendations will likely achieve their goals once Congressional support is achieved where required and when government agencies and businesses hunker down to start the actual work to make the plans a reality.

However, nothing will materially change overnight. Improvements will certainly be measured in years, probably at least a decade, since the major infrastructure developments currently being discussed by political and business leaders normally occurs over the long-haul.

A case in point: the recommendation to establish a new Supply Chain Disruption Task Force to address near term challenges is a good one, especially now that the government has identified other areas of the economy that need help – namely homebuilding and construction, transportation, and agriculture and food. But it would be overly optimistic to think that benefits here could trickle down to businesses sooner than later.

Organizations should certainly place confidence in the supply chain resiliency plans unveiled by the Biden Administration; however, given the positive effects will not likely be felt in the very near term, businesses need a strategy now to help address the challenges of today, which could get worse before they get better.

For instance, the White House recommendations also discussed strengthening international trade rules that support fair competition abroad via trade enforcement mechanisms. This is a similar tactic adopted by the previous administration, especially with regards to duty and tariff hikes on Chinese origin products, which at the time caused U.S. importers to scramble for less expensive alternatives.

A potential strategy combines a number of steps including supply chain risk assessment, a process of continuous improvement, and alternative supplier sourcing in overseas markets.

For businesses wanting to mitigate supply chain risks in the short run, the strategy that gives competitive advantage lies in understanding a broad range of supplier markets – including those that organizations are not familiar with. They would examine import duty rates and what is influencing momentum up or down, commodities produced and trade flows. This strategy applies to all companies the world over, not just those in the U.S.

The question being asked is: What can organizations do now to mitigate risk? One avenue companies can evaluate now is how to access inventories across more supplier countries and hedge their bets by reducing the risk of over-reliance on either one or a small number of nations or suppliers. To effectively mitigate risk, the steps that turn strategy into reality are as follows:

• Identify new suppliers: Research markets to be aware of as many supply options as possible. Look at the commodities being produced on a per market basis, the trade volumes and flows and combine that with production capacity and labor availability. In this way, organizations may find a diamond in the rough – a source of alternative supply.
• Analyze economic viability: Perform detailed cost-benefit analysis, including HTS/HS code classification and landed cost calculations to build a supply chain that maximizes profit.
• Vet new suppliers: With all new trade partners, there is a need to screen them against denied and restricted parties lists to help ensure that companies are not doing business with those named in one of the hundreds of government and other official watch lists of so-called bad actors.

While the Biden Administration’s plan to strengthen key U.S. supply chains will bear future fruit, some companies must take concrete action now. Even in the future, however, alternative supplier sourcing will still be an important business strategy because it gives organizations the opportunity to examine all available options – at home and abroad.

Descartes can help businesses reduce supply chain disruptions by tracking import and export patterns, keeping pace with changing trade policy changes, managing trade compliance requirements, among others.

Organizations across all industries benefit from our solutions that help to initiate growth strategies, explore new markets, simplify trade data research, better classify goods, reduce duty spend, and minimize the risk of transacting business with denied parties.

Supply chain disruptions will occur, but with Descartes’ solutions in place, businesses will be able to build more resilient supply chains and be better prepared to minimize the impact of future disruptions.