“The pandemic has highlighted a lot of supply chain weaknesses that Congress and other policymakers across the government are grappling with today.”
Supply chains are a complex national issue – and a strategic issue for almost every organization. In fact, the Executive Order specifies new actions that must be taken to shore up inventories and supply chains against future nationwide disruption. That means some organizations have to factor in new requirements at the same time they are considering the risks specific to their supply chains.
The past, current and ongoing evolution of supply chains requires each organization to regularly recalculate the changing variables in its own unique equation. Grant Thornton Advisory Services Principal Jonathan Eaton said that recent events, emerging trends and the Executive Order have highlighted ten important interdependencies that every organization should factor into its supply chain equation.
Ten supply chain interdependencies
- The potential impact of new legislation
New laws are almost inevitable. They may be prompted by the 100-day or one-year reviews, or by a range of other factors. The question is: What forms will they take, and will they offer carrots or brandish sticks?
- The regulatory implications of new legislation
New laws often mean new regulations. These regulations could affect anything from the inventory organizations must maintain to the manufacturing capacity they must create.
- The emergence of reshoring incentives
Reshoring incentives may alter the geographic reach of manufacturing or recenter inventory, posing special problems for pharmaceuticals and other sectors where it is difficult to certify new suppliers.
- The likelihood of revenue, tax and cost impacts
Moving operations onshore could be revenue-neutral, but may trigger a higher (28%) tax rate, generate additional costs and could require legal restructuring.
- Issues with labor availability
There’s a widespread shortage of both direct labor and contract labor, with these shortages affecting both companies and their supply chain partners.
- Changes in the minimum wage
The movement to raise the minimum wage to $15 an hour could create a battle for workers at the lower end of the wage spectrum.
- The need for redundant inventory
Building redundant inventory, which is specifically mentioned in the Executive Order, could be especially challenging for organizations that use debt to fund the inventory. Plus, prolonged shelf lives could mean that inventory would need to be discounted or discarded.
- The addition of new contract manufacturers
Many companies lack the capacity, physical assets or labor to generate redundant inventory, so they will look to contract suppliers. Unfortunately, the scarcity of such manufacturers, and the likely intensity of the demand, could drive up cost.
- The reality of supplier set-up times
New capacity isn’t quick to create, whether it’s in an organization’s own facility or at a trusted supplier.
- The requirements of certification programs
Certification programs are a necessary addition to setup time for sectors like pharmaceuticals, even if capacity and other elements are already in place.
“I think there are a number of other interdependencies, and we could break each of those down, but that would be kind of my top ten list,” Eaton said. He added that organizations should also observe some recent lessons learned about how to balance their supply chain equations.