The Biden administration has launched a White House Council on Supply Chain Resilience to address America’s persistent supply chain challenges, and experts see this as a promising strategy to tackle inflation by enhancing supply stability.
Wharton professor Marshall Fisher, an expert in operations, information, and decisions, praised the initiative, stating, “I would give it an A-plus for what it’s trying to do.” However, he noted that its success would depend on execution details as it’s in its early stages.
This council was introduced as part of a comprehensive plan encompassing nearly 30 actions aimed at bolstering critical supply chains essential for economic and national security. The strategy involves utilizing the Defense Production Act to boost domestic manufacturing of essential medicines and implementing administrative measures to enhance data sharing and develop strategies to mitigate disruptions that have caused shortages.
Despite the pandemic subsiding, supply shortages persist, leading to concerns about offshoring and rising prices in the face of diminishing supplies. Retail food prices surged by 11% from 2021 to 2022, the most significant increase in four decades.
Fisher highlighted that this approach represents a unique method of addressing inflation. Traditionally, the Federal Reserve addresses inflation by raising interest rates to manage demand, but Fisher emphasized that inflation results from an imbalance between supply and demand. Thus, focusing on improving supply chain resilience can be an effective approach to combating inflation.
The offshoring of manufacturing has been prevalent since China’s emergence as a low-cost manufacturing hub in the late 1970s. Fisher noted that while offshoring provides cost advantages, it also exposes supply chains to vulnerabilities such as natural disasters, political instability, and more.
However, he cautioned that determining which products are essential for domestic production would be challenging. Fisher expressed skepticism about the complete reshoring of manufacturing and emphasized the advantages of participating in the global economy. International trade fosters alliances and influences, benefiting both the U.S. and other nations.
Fisher also raised concerns about the absence of mention of less developed nations in the plan, which play a significant role in global manufacturing. He advocated for including these nations in the initiative to ensure a holistic approach.
In conclusion, supply chains have garnered unprecedented attention due to recent shortages of essential products. While this strategy to address supply chain challenges is promising, its success will hinge on effective execution and a balanced approach to domestic and global manufacturing.
As Fisher humorously noted, “All my career, I’ve pretty much labored in obscurity, studying supply chains. Suddenly, it became front-page news, but not exactly good news.”