Biden era brings more supply chain scrutiny
- By Jarrod McAdoo
- Feb 18, 2021
President Joe Biden’s executive order "Ensuring the Future Is Made in All of America by All of America's Workers,"[i] includes a renewed focus on governmental procurement agencies. The executive order requires agencies to adapt rapidly, and ensure proper reporting and compliance. What’s more, diversifying the supplier pool will now be of critical importance.
This order affects federal agencies’ direct purchase contracts[ii] for goods and services. But these recent changes are just the latest in a series of rules impacting government procurement.
Prior to Biden’s order, two significant changes to Federal Acquisition Regulation (FAR) clauses had already been implemented under the previous administration as part of the Buy American Act (BAA)[iii]. One increased domestic content requirements, while the other raised the price preference for domestic products.
Notably, restrictions for commercially available-off-the-shelf iron and steel products were revived, requiring both the end product and 95% of the components to be sourced domestically.
The most recent policy changes revise the definition of American-made products and raise local content requirements further. Specifically:
- Domestic content requirements and evaluation preferences provided by the FAR for domestically manufactured goods increased from 50% to 55%.
- Pricing preferences for domestic suppliers increased from 6% to 20% for large organizations, and from 12% to 30% for small businesses.
The new executive order requires the FAR council to review these changes and consider proposing additional changes, which are likely to result in tighter restriction on foreign procurements. Additionally, the executive order also makes it more difficult for federal agencies to issue waivers to allow governmental agencies to purchase goods overseas.
The Impact on Procurement
While opinions vary on the impact these changes will produce, one thing is certain: governmental vendor supply chains are now under intense scrutiny.
As a result, their procurement teams are under pressure to track and report on vendor contracts. They must assess their supply chains, identify and monitor country-of-origin requirements in their contracts, and determine where changes to their manufacturing processes are needed in order to comply with the new rules. Importantly, government vendors will need to rapidly discover and on-board domestic suppliers in an organized and thoughtful manner, to make sure those new sources are compliant with the revised BAA.
While these represent challenges, there are also great opportunities. The increased price preference for domestic suppliers, especially small businesses, gives organizations the opportunity to rapidly advance their supplier diversity and CSR initiatives, which have seen increased emphasis in 2021.
Doing all of this will require procurement organizations to collect, curate, analyze, and store a tremendous amount of data. They’ll have to track and assess supplier qualifications, performance and risk on an ongoing basis, and ensure they have a backup plan if a new and unproven supplier doesn’t work out. They’ll also need to analyze and report on all of this information in a timely and consistent fashion.
eProcurement Solutions Simplify Discovery, Onboarding and Reporting
Complying with the new regulations using legacy systems and manual processes will introduce complexity and frustration, while putting extra strain on resources that are already spread thin. That’s why forward-thinking government agencies are digitizing processes by adopting eProcurement solutions. These solutions replace time-consuming and manual processes with powerful automated workflows and integrated compliance and document management, enabling procurement teams to adapt quickly to changing regulations.
Let’s examine key capabilities of an eProcurement solution that can help public procurement teams navigate the most recent regulatory changes and adapt quickly as they continue to evolve:
- Supplier Discovery: Identifying existing and emerging domestic suppliers will be a key challenge and could be a significant bottleneck. To overcome this challenge, organizations should look at supplier discovery solutions that go beyond the limitations of traditional closed supplier networks to identify as many suppliers as possible using proactive technology like AI. These solutions need to be able to discover and curate information on new suppliers quickly, including such qualifications as quality, diversity, and sustainability to support effective and efficient vetting. Additionally, they must integrate and efficiently pass the supplier information into the organization's supplier management systems to qualify, onboard, and manage suppliers. Traditional closed, static supplier discovery networks, often plagued by outdated information, will no longer be sufficient.
- Rapid and collaborative onboarding: Guided onboarding processes and collaboration capabilities will speed the onboarding process and improve supplier management programs. Suppliers can manage their own information and provide updates as they add capabilities and qualifications. This capability reduces the chance of outdated information and provides a basis for continuous improvement. Self-service capabilities also offload some of the heavy lifting from the procurement team so they can focus on strategic activities.
- Public reporting and transparency: Data and documents are stored and protected in a single repository, providing rapid access for compliance investigations and audits. Public access to solicitations, awarded contracts and the end-to-end bid management process via a public portal satisfies transparency requirements with little human intervention, helping to cement public trust.
- Performance and risk management: Automated scoring and predictive analytics help with ongoing risk and performance tracking and assessments, and ensure continued regulatory compliance across the pool of suppliers.
Adjusting to the Changing Compliance Landscape
It is anticipated that the changes set forth by the Biden administration are the tip of the iceberg, and new restrictions and policies will emerge. Digitizing supplier discovery and management processes now will be essential to enabling government procurement teams to adapt quickly and comply with confidence.
Jarrod McAdoo is a senior product marketing manager at Ivalua, a provider of global spend management cloud solutions.