Along with PPE, social distancing, and WFH, supply chain was one of the most urgent yet perplexing terms on the minds of business leaders in 2020. Its status and importance were cemented with President Biden’s executive order designed to shore up critical components and improve the resiliency of America’s supply chains. While met with enthusiasm by many, a more robust and further reaching program that improves supply chain agility through investments and incentives that encourage digital transformation would be better suited to achieving this resilience.
The Need for Supply Chain Resilience
Early last year, the pandemic forced most supply chains to grind to a halt because demand dried up or safety concerns closed factories and suppliers. Throughout the remainder of the year, many experienced uneven restarts as the pandemic waxed and waned across the globe. Into this mix, an America First strategy urged companies to reshore manufacturing and supply chains as both a patriotic duty and a business imperative against future disruptions.
Now, spurred on by a global chip shortage that has crimped the production of everything from automobiles to mobile phones, the Biden Administration’s new executive order hopes to ultimately increase the domestic production of critical materials. In the President’s own words: “We need to stop playing catch-up.”
Initially, the order mandates a 100-day review of supply chains in four key areas: semiconductors, large-capacity batteries, pharmaceuticals, and rare-earth elements. President Biden is also asking for a future, one-year review of supply chains in six larger sectors that include technology and food production. This approach envisions that a mix of production incentives, job training programs, business loans, and potentially the limiting of some imports can encourage domestic production and head off future shortages of critical goods for key consumer and business products.
Digital Transformation Enables Agility
While this approach can certainly be successful, it is also a Band-Aid of sorts that misses some of the larger challenges of operating complex supply chains within a global environment. A challenge that grows even more difficult when localized – or worse, global – disruptions can sabotage production.
To facilitate these operations and ensure the smooth functioning of supply chains without the need for policy or trade interventions, we need to accelerate the pace of digital transformation within the sector. While raw material shortages, armed conflict, outbreaks, and other disruptions will be ever-present threats, an agile and digitally enabled supply chain will create the kind of resilience that can circumvent these issues or supplement supply on-the-fly with a minimum of time and cost escalations.
Of course, supply chains have a long way to go to realize true digitization and the promise of Industry 4.0. Supply chains are made up of a long continuum that begins with product design and its choice of production processes and raw materials, continues through materials sourcing and product manufacturing, and involves shipping and logistics throughout.
Within this complex interplay, there are multiple types of technologies being used and various levels of digitization in action today. Some companies are still relying on phone calls and spreadsheets to place orders, while others are engaging online through custom APIs and a digital thread. Advanced manufacturers might be leveraging artificial intelligence and automation on the factory floor while we’ve seen others struggle with basic WiFi setups.
In short, the challenges are robust but the need and opportunities are enormous. This is especially true in times of crisis, when the advantages of having a digitally enabled supply chain becomes obvious.
Ultimately, every industry and company have unique supply chain demands and constraints. It is impossible for a one-size-fits-all approach to supply chain management, which means that only priority industries or components can be resolved through mandate. So, while the Biden Administration’s executive order might be a necessary short-term fix, it must be supplemented with investments and incentives that will produce truly long-term solutions.
The next phase of this effort should be to augment the planned 100-day review with a commitment to supporting U.S.-based business investments in digital transformation efforts.
At a minimum, these investments should include grants for businesses seeking to make the digital transition, a commitment to improving high speed Internet infrastructure and rural broadband access, benchmarks for technology education standards beginning in high school, and workforce training programs. The keys will be facilitating the move by companies and ensuring that our workers are ready to step into the new demands and jobs created by this transformation.
And given that 90 percent of companies surveyed in the 2020 State of Manufacturing Report indicated a desire to enact a digital strategy, but only 14 percent said they have adequate funding to activate their strategies, this government augmented support would be eagerly embraced by business leaders.
By modernizing America’s supply chains, we can create resilience AND agility to help companies overcome even the most severe of future disruptions and ensure a steady flow of goods. After all, it was only 30 short years ago that Shenzhen, now considered the “world’s factory,” was a sleepy fishing village.
Jean Olivieri is the COO at Fictiv.