On Jan. 25, President Joe Biden signed an executive order aimed to boost domestic manufacturing in an act that will "support manufacturers, businesses, and workers to ensure that our future is made in all of America by all of America’s workers. America’s Workers." While also making use of the Defense Production Act, the order touts it will ensure that when the federal government spends taxpayer dollars, they are spent on American-made goods by American workers and with American-made component parts.
While the order's impacts on the US manufacturing supply chain are more straightforward — aiming to reshore and elevate domestic supply chains — its impacts will surely go beyond just where products are made and by whom. One underreported aspect is the impact the Buy American order will have on manufacturers' digital efforts. Suppliers overall had already been increasing investments in digitizing more aspects of their business, but how will the order and its push for increased domestication affect the rate of those efforts?
To dive into this topic, we recently spoke with Bobby Bono, Industrial Manufacturing Practice Leader at PwC, to get his thoughts. See our conversation below:
IEN: What do you think the Buy American Order means in terms of digital channels going forward for both the B2B and B2C manufacturers?
Bobby Bono: B2B and B2C manufacturers are digitizing their operations and supply chains for many reasons. Prior to the pandemic, many companies had already begun their digital journey and the pandemic has caused many manufacturers to accelerate their plans. The Buy America Order is one of the reasons to accelerate a company’s digital plans but not the most compelling. Manufacturers' most compelling reason to digitize its operations are because their customers are demanding it.
As COVID-19 changed the world, customer needs changed as well. The pandemic has transformed consumer priorities, behaviors and digital expectations, forcing manufacturers to rethink how they work. Which shifts in customer preferences do manufacturers expect to impact them the most in the years to come? Our data indicates that increasing demand for transparency and digital channels will have the greatest effect.
IEN: The term 'Smart Factories' has been commonplace for most of the past decade. What impact do you see the Buy American Order having on the rate of 'Smart' adoption within factories, and how big of a challenge will it be to simultaneously scale up cybersecurity measures?
Bono: Similar to digital channels, the Buy American Order will have an effect on the adoption of Smart Factories but it is not the most compelling reason for adoption.
Attention to cybersecurity will be critical for manufacturers as they increase adoption of digital channels and Smart Factories. Cybercriminals were looking to take advantage of disruptions in the manufacturing industry during the pandemic, and will continue post-pandemic. It will be critical for companies to scale up cybersecurity measures simultaneously with smart adoptions. Failing to do so will leave businesses vulnerable and at a greater risk for cyber attacks.
IEN: Certainly, keeping a higher portion of supply chains domestic has its benefits, but in this age of economies that are hyper globalized, it seems almost impossible. From a supply chain standpoint, how do you see the Buy American Order impacting procurement decisions for US manufacturers?
Bono: The pandemic had a significant impact on companies reassessing where they procure raw materials and where they set up manufacturing sites to keep up with demand. The Buy American Order is a new added layer to consider when making those decisions.
At one point, many manufacturers had a significant portion of their supply chain in China. With the current state of trade between the US and China, rising tariffs and labor costs, that strategy many no longer make sense. The USMCA also set up Mexico as a more attractive option, giving companies the opportunity to reshore parts of their supply chain to North America. Many companies have embraced a hybrid supply chain model where a portion of production and suppliers remain in Asia, while another part is based in Mexico and a third in the US.
The Buy American Order impacts federal purchasing and for many global US companies, that is only one part when it comes to their customers. There will likely be an impact on some procurement decisions when it comes to the US supply chain, but it will not impact procurement for the products that are being shipped to Europe and Asia, for example.
IEN: What investment priorities should manufacturers consider in the next six months, and how does that differ from how they should prioritize investments in the longer term?
Bono: Looking at the next six months, 45 percent of manufacturers are focused on digital sales and marketing. Shifting to digital was necessary during the pandemic, and many customers now prefer it. Digital expectations will continue to be top of mind for the next six months, and an even larger priority over the next 1-2 years (67 percent).
However, digitizing should be combined with other investments as well, such as cybersecurity and the workforce. Twenty-six percent of manufacturers view cybersecurity and risk management as a priority in the next six months. With digitization comes greater risk, and cybersecurity cannot be an afterthought.
Additionally, the manufacturing workforce is evolving. The emphasis on digital requires a new set of skills, and companies across industries such as manufacturing are looking for this expertise in available candidates. Instead of looking to hire externally to fill roles, businesses should look within and upskill their people to work with new digital technologies. Without prioritizing people, companies will be months into a digital transformation with no one skilled to see it through.
IEN: What other considerations should manufacturers consider as they look to the future?
Bono: There is a clear emphasis on cybersecurity – it is not a nice to have, but an imperative. Having a solid cybersecurity system is just as important for your customers as it is for the business, and relates back to building a trusting and lasting relationship. Manufacturing companies should prioritize solutions that curb cyberattacks in the immediate and long term. Cybersecurity can help companies ensure the foundation of their business does not crumble.