President Biden’s 100-Day Report
BY DANIEL J. FINKENSTADT, MAJ, USAF, PH.D. AND ROBERT B.HANDFIELD, PH.D
Welcome to Supply Lines, a bimonthly column about the intersection of supply chain management and contract management.
In June the White House released Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broadbased Growth: 100-Day Reviews under Executive Order 140171 with reviews by the Commerce, Defense, Energy, and Health and Human Services departments. These reviews were conducted in response to Executive Order 14017, America’s Supply Chains2.
The order states that the policy of the United States is to strengthen the resilience of America’s supply chains and ensure that we have “resilient, diverse, and secure supply chains to ensure our economic prosperity and national security.” The supply chain weaknesses and failures laid bare by the COVID-19 pandemic prompted the order.
The 100-day report is a massive 250 pages of dense detail and analysis. Here we provide the major focus areas and takeaways along with our own analysis of its findings. The 100-day report “Bottom Line Up Front” summarizes key recommendations from each of the departments. According to the report, supply chain resiliency matters for three reasons:
1) National security – The report outlines growing and immediate concerns about the defense industry’s reliance on limited domestic suppliers and suppliers from competitor countries, along with global supply chain disruptions. The United States lacks the innovation, skills, and production facilities necessary to develop innovations essential to military readiness such as lithium-ion battery development and production, and domestic semiconductor production3.
2) Economic security – Steady employment and smooth operation of critical industries require supply chain resilience and security. The departments find that disruptions of strategic and critical minerals would cause the most economic harm to essential nondefense industries.
3) Technological leadership – Domestic innovation requires a robust and diversified industrial base. The report finds that innovation will follow manufacturing. For example, semiconductor investments in Korea and Taiwan have dramatically outpaced those in the United States, putting the country in danger of losing ground in terms of quality, cost, and experienced workforce. The national security concerns are directly related to the potential loss of U.S. ability to innovate. Economic stability is tied to a workforce that can keep pace with global innovations and improvements in quality and skills. Risk is enhanced by outsourcing critical manufacturing to regions where the United States does not have reliable access to supplies in times of high global demand. Outsourcing also reduces domestic capability and innovation leadership. Primary drivers of U.S. supply chain vulnerability include the following:
1. Insufficient U.S. manufacturing capacity: A loss in manufacturing capacity has led to a loss in innovation capabilities. The United States has outsourced manufacturing to low-cost countries since the 1980s. Bringing it back presents significant challenges.
2. Misaligned incentives and shortterm thinking in private markets: U.S. market structure fails toprovide quality, sustainability, or long-term productivity incentives for firms in the focal supply chains. Buyers continue to reward low-cost Asian competitors over higherpriced domestic products.
3. Industrial policies adopted by allied, partner, and competitor nations: As U.S. investments in domestic production infrastructure have declined, other nations’ have increased.
4. Geographic concentration in global sourcing: Low-cost production and effective industrial policy have enabled a few countries to dominate critical supply chains. U.S. national well-being and the interests of these countries don’t always align.
5. Limited international coordination: Leading up to the COVID-19 crisis, the United States had underinvested in diplomatic efforts to build collective supply chain security with our allies. Coordination with allies is essential because the United States cannot manufacture everything it needs. Domestic supply chain strength and global independence are achieved through sophisticated awareness of worldwide supply chain risks. Strength and independence promote the security of national needs first, with “a ‘cold eye’ on global impacts.”4
As a result of the 100-day report, the Biden administration promises to:
1. Support American workers and innovation.
2. Invest in sustainable supply chains at home and abroad.
3. Combat unfair trade practices.
4. Establish a whole-of-government effort to monitor and address transitory supply chain challenges.
The report provides a detailed summary of recommendations. Table 1 lists each recommendation area and explicit action provided in the report. We provide our assessment in terms of suggestions, concerns, and positive highlights within the report recommendations.
In accordance with the February Executive Order (EO), the report focuses on four major supply chains:
1. Semiconductor manufacturing and advanced packaging
2. Large capacity batteries (mainly for electric vehicles)
3. Critical minerals and materials
4. Pharmaceuticals and active pharmaceutical ingredients (APIs)
Below we summarize risks and recommendations within each area. We recommend reading the entire report for the specific opportunities, challenges, source-mapping and global footprint of each supply chain.
Semiconductors and Advanced Packaging (Department of Commerce)
The report characterizes semiconductors as “the DNA of technology.” They are used in products ranging from phones to computers to cars. The significant shortage of these vital chips in the past year and a half has disrupted these and many other industries. The report lists five essential segments to semiconductors: Ɂ Design: U.S. semiconductor design companies are robust and worldleading but dependent on China for continued profit growth.
- Fabrication: The United States lacks sufficient capacity to manufacture semiconductors.
- Assembly, Test and Packaging (ATP) and advanced packaging: The United States relies heavily on Asian sources, lacks necessary materials, and is not a costeffective location to develop a robust semiconductor manufacturing industry.
- Materials: Semiconductor manufacturing requires hundreds of materials. The United States produces many of the gases and wet chemicals needed. Foreign suppliers dominate silicon wafers, photomasks, and photoresists.
- Manufacturing equipment: The United States has a significant share of global production, but U.S. manufacturers are heavily reliant on sales to non-US companies.
- Fragile supply chains: Many inputs, industry concentration, and geographic concentration exist in critical supply chains.
- Malicious supply chain disruptions: Insertions and disruptions—an estimated $100 billion in revenue is lost annually due to counterfeiting.
- Use of obsolete and generations-old semiconductors challenges the continued profitability of companies in the supply chain. For example, the U.S. military needs old chips to support aging equipment, but companies no longer are making them.
- Customer concentration and geopolitical factors: Dependence on China for sales revenue and potential for international conflict. For example, Micron relies on China for 57 percent of its revenue and over a quarter of Intel’s revenue comes from China sales. This leads to electronics production network effects and an ongoing erosion of the U.S. microelectronics ecosystem as manufacturers seek to be geographically closer to their customers.
- Human capital challenges: Highly skilled workers are in short supply domestically. For example, international students make up approximately 60 percent of high-skilled semiconductor-related graduate students.
- Intellectual property theft: “IP theft has been a key pillar of Chinese strategy,” according to the report.
- Challenges in capturing the benefits of innovation and aligning private and public interests.
- Promote investment, transparency, and collaboration in partnership with industry, to address the semiconductor shortage.
- Fund the current bipartisan legislation: the Creating Helpful Incentives for Production of Semiconductor (CHIPS) for America Act in the fiscal 2021 National Defense Authorization Act.
- Strengthen domestic semiconductor manufacturing.
- Support manufacturers, particularly small and medium sized businesses.
- Build a diverse and accessible talent pipeline for semiconductor jobs.
- Engage with allies and partners on semiconductor supply chain resilience.
- Protect any U.S. technological advantages in semiconductor manufacturing and advanced packaging through export controls and foreign investment reviews.
Large Capacity Batteries (Department of Energy)
Large or high-capacity batteries are used in electric vehicles (EVs), for stationary storage, and for many defense applications. China has subsidized much of its EV market, making it hard for U.S. companies to compete.
- Weak domestic production: diminishing manufacturing sources and material shortages; limited domestic support; need to transition and build a skilled workforce.
- Foreign dependence: supplies from single-source nations and potential adversaries; geopolitical issues, including export restrictions and environmental and human rights concerns; market/economic shocks such as irrational price spikes and natural disaster/climate shocks such as COVID-19 and extreme weather.
Critical Minerals and Materials (Department of Defense)
Critical minerals and materials are those needed by military, industrial, and civilian sectors during a national emergency but not domestically available or produced in sufficient quantities to meet the need. The current list comprises 35 identified minerals and 250 materials. Minerals and materials must be extracted as raw material, then refined, manufactured, cut, and polished into final products. Special steps occur within this supply chain, each of which can take years of specialization to master. The process to develop a mineral-based materials project takes at least 10 years and is no easy task.
- Concentration of supply
- Single-source suppliers
- Price shocks
- Human capital gaps
- Conflict minerals and organized crime
- Forced labor
- Non-availability of domestic stockpiles during a national defense emergency
- Stimulate demand for end products using domestically manufactured high-capacity batteries. Support demand for batteries in the transportation sector; electrify the federal vehicle fleet and state, local, and tribal government fleets; electrify school and transit bus fleets; support the build-out of EV charging infrastructure; establish strong energy efficiency and tailpipe emissions standards for all vehicles; support demand for batteries for the utilities sector; accelerate federal battery storage procurement.
- Strengthen responsibly sourced supplies for minerals used in batteries. Invest in targeted, mineral-specific strategies, especially in domestic extraction and refinement of lithium, nickel, and cobalt. Raise labor and environmental standards for battery production; strengthen U.S. battery recycling using targeted incentives and increased standards.
- Promote sustainable domestic battery materials, cell, and packaging production. Catalyze private capital with grants and loans; leverage the advanced technology vehicle management loan program; introduce supportive tax credits; use federal procurement and financial assistance.
- Invest in people and innovations central to maintaining a competitive edge in the battery market. Invest in the next generation of battery and EV industry workers; increase funding for research and development (R&D) to expand uptake and reduce supply chain vulnerabilities.
- Develop and foster new sustainability standards for strategic and critical material-intensive industries; establish a U.S. government sustainability leader.
- Expand sustainable domestic production and processing, including recovery from unconventional sources and recycling.
- Employ the Defense Production Act and other programs.
- Convene industry stakeholders to expand production.
- Promote interagency R&D to support sustainable production and a technically skilled workforce.
- Increase U.S. stockpiles.
- Collaborate with allies and partners, and strengthen global supply chain transparency.
Pharmaceuticals and Advanced Pharmaceutical Ingredients (APIs) (Department of Health and Human Services)
Medicines and their active ingredients are key to national defense and health. The supply chain for these products begins with raw materials such as solvents or reagents, which are combined with chemicals and purified to create the desired APIs. Drug manufacturers combine APIs with inactive ingredients such as water and lactose to shape final dosage forms (FDF). The Food and Drug Administration approves all API sites, raw material controls, and FDF manufacturing. Forty-eight percent of FDF facilities and 27 percent of API facilities for FDA-approved drugs are in the United States. However, 63 percent of generic FDF and 87 percent of generic API manufacturing occurs abroad. Generics are approved under abbreviated new drug approvals (ANDAs) and comprise most of the pharmaceutical market5 .ANDA drugmakers do not have to show clinical data to support safety and effectiveness; they simply must prove that the generic drug is scientifically bioequivalent to a previously FDA-approved drug.
Unique challenges in this market increase risks:
- Low volume and low margins for many generic drugs are barriers for new entrants.
- Some countries use anti-competitive actions to obtain market share.
- Distribution contracts tend to be sole source and lead to sourcing consolidation.
- The complexity, vastness, and multinational nature of drug supply chains and the corresponding overdependence on foreign entities that may prioritize their national interests above trade in an emergency.
- Reduced incentives for existing manufacturers to invest in upgrading equipment, improving supply chains, or expanding capacity.
- Lack of redundant manufacturing capacity.
- Just-in-time inventory management limits the ability to respond to surges in demand.
- Geographic concentration of manufacturers puts production at risk from natural disasters or climate change.
- Drug shortages, API facility locations, and availability of sterile injectables cause specific risks. Notably, most shortages are for generic drugs, the bulk of which are produced in China and India.
- Improve data and promote quality, diversification, and redundancy.
- Provide investment and financial incentives to boost production.
- Invest in R&D.
- Create transparency.
- Improve information and data collection.
- Explore creation of a virtual strategic stockpile of API reserves, finished doses, and other critical materials managed by the strategic national stockpile.
- Harmonize with partner nations the review and response to supply chain risks.
These recommendations fall into what we call the Six Ds of domestic supply chain immunity:
- Delivery, and
The report and our experiences researching post-COVID-19 supply chain disruptions demonstrate that data is paramount. The report emphasizes this necessity regarding pharmaceuticals and APIs. HHS is aware that it lacks visibility into supply chains and that this represents a wider problem of data quality and management in these markets. Data drives decisions, and decisions are key in mitigating and responding to major supply chain disruptions. Decisions are no small matter in the post-pandemic supply chain world. Where companies and governments inject investments and influence affects countries’ ability to respond in the near and long term. Investments in EV batteries must include data on the ability to dispose of them. Investments in critical minerals require data on the time needed to stand up operations and ways to streamline approval processes for venture projects. Visibility of demand and supply will require development of control towers for material monitoring, improved market intelligence, and greater coordination among key industry players.
Governments and industries must coordinate efforts to stimulate and meet demand, in part by sharing data to create a free and open demand signals for products. Standing up microelectronics production in America may not yield the soughtafter benefits if we cannot generate enough demand to sustain manufacturing capability on shore.
The report focuses heavily on R&D investment. Without clear, accessible data, design investments may be misplaced or even forfeited.
We must create strong mechanisms for safeguarding and enforcing U.S. intellectual property.
Even with enough of the right data to make the decisions and sufficient demand to design the best possible supply chain strategy, product mix, accessibility and resilience, we must deliver and act independently of unreliable foreign actors. Delivery requires larger investment in critical human capital. We must consider fair labor practices as a supply chain safeguard, not just a social good. Outsourcing critical skills to low- or no-cost countries does more than just reduce our resiliency; it prevents development of core competencies and future innovators.
Dependence is a central foil of supply chain immunity. We must develop stronger supply chain independence and more dependable global supply partners to bolster data, decisions, demand, design, and delivery of critical goods and services, especially during global emergencies. CM
1 Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broadbased Growth, June 2021.
2 https://www.federalregister.gov/documents/ 2021/03/01/2021-04280/americas-supply-chains
3 Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broadbased Growth, June 2021.
4 Handfield R, Finkenstadt DJ, Schneller ES, Godfrey AB, Guinto P. A Commons for a Supply Chain in the Post-COVID-19 Era: The Case for a Reformed Strategic National Stockpile. Milbank Q. 2020;98(4):1058-1090. https://doi.org/10.1111/ 1468-0009.12485.
5 89 percent of drugs dispensed, yet only 26 percent of total drug costs, according to Cedars Sinai: https://www.cedars-sinai.org/blog/ generic-vs-brand-name-drugs-whats-thedifference.html
6 Taken from 100-day report page. 217.
Daniel J. Finkenstadt, Maj. (USAF), Ph.D.
- Assistant Professor, Graduate School of Defense Management, Naval Postgraduate School
- Editorial Board of Journal Logistics and the Journal of Contract Management
Rob Handfield, Ph.D.
- Bank of America University Distinguished Professor of Supply Chain Management, North Carolina State University
- Director, Supply Chain Resource Cooperative (http://scm.ncsu.edu/).
- Also serves on the Faculty for Operations Research Curriculum, North Carolina State University
Disclaimer: The views, positions, and opinions in this paper reflect those of the author and do not reflect the official position of the Department of Defense, Naval Postgraduate School, or Department of the Air Force
Acknowledgement: Many of the details and insights in this paper were aggregated by Air Force students in MBA Course MN3306, Enterprise Sourcing at NPS. Those students include: Pete Barringer, Jayke Cross, Willis Crouch, Brett Hagen, Sherry Jacobson, Therysa King, Ian Larsson, Matt Marshall, Geer McGee, Mitch Mickley, Craig Miles, LaDon Morris, Kevin Peaslee, Lane Spinks, Patrick Stark, Piara Swank, and Lee Whitworth.