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Supply Chain Industry Updates

Biden’s Supply Chain Review is Underway and McKinsey Has Some Thoughts

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President Biden last month tasked the federal government with conducting a 100-day risk assessment of semiconductor, high-capacity battery, strategic materials and pharmaceutical supply chains. A year-long review of supply chains of agricultural commodities, food products and other sectors was also launched.

“Many in the private sector are eager to help the government in this exercise and are working to conduct risk reviews of their own supply chains,” notes McKinsey & Co.

You can count McKinsey among those eager companies. In a recent self-published article, the firm offered several suggestions to help support the Biden Administration’s executive order (EO), including centralizing information sharing among government departments through a “supply chain center of excellence.” Another proposal would be to take advantage of the expertise of industry associations or companies, perhaps even embedding their staff within government teams. “That could help provide the government with a head start on their analysis by sharing what the industry already knows and has found in the relevant supply chains and industrial bases,” McKinsey noted.

None of this will be easy, of course, because as McKinsey noted, the average large company has more than 5,000 suppliers. This means “each industrial base named for review in the EO will potentially consist of hundreds of thousands of suppliers that need to be discovered and assessed,” it said.

McKinsey shared four observations it has made from conducting its own risk assessments of clients’ supply chains:

  • Global supply chains are stretched and U.S. supply chains face additional headwinds. One headwind is that U.S. firms are “expected to deliver a 12 to 14% return on capital versus 9% or lower for Asian and European firms. This expectation has in part led to U.S. domestic demand for high-end manufactured goods being satisfied by imports, a trend found only in the United Kingdom and the United States among high-income countries,” McKinsey noted.
  •  Cracking the supply chain risk problem requires new data and analytical methods. “Automation and machine learning aggregate and structure large volumes of information while experts review and refine the machine outputs to tune the results,” it said. “When this process is done correctly, a well-trained machine can help target valuable and irreplaceable expert time to the most critical areas of supply chain vulnerability.”
  • Demand for supply chain talent is outstripping supply. This calls to mind recent speculation by Gartner that Gen Z will play an important role in the continuing evolution of supply chain automation.
  • Supply chain resilience capabilities are needed for the long haul. “The government has a unique opportunity under this EO to build a capability that will serve the nation for decades,” McKinsey noted.

The full McKinsey article — “Effectively Implementing President Biden’s Supply Chain Review” — can be accessed here.

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