CFR and U.S. Department of Commerce Supply Chain Summit

Please click here to view the full agenda with all speakers.

The Supply Chain Summit, cohosted by the Council on Foreign Relations and the U.S. Department of Commerce, explores efforts taken by government and industry to shift from reacting to global supply chain disruptions to proactively strengthening supply chain resilience.

The event gathers leaders from industry, government, academia, and civil society to collaborate and share best practices for preventing and addressing supply chain vulnerabilities, including launching a new supply chain risk assessment tool.

This summit is presented by RealEcon: Reimagining American Economic Leadership, a CFR initiative of the Maurice R. Greenberg Center for Geoeconomic Studies.

FROMAN: Well, welcome, everybody. My name is Mike Froman. I’m president of the Council on Foreign Relations. And it’s really a great pleasure and honor to be collaborating with the Department of Commerce and the Supply Chain Center on this important conference.

It’s a particular pleasure to have Secretary Raimondo here and Tom Polen, the CEO—chairman, CEO, and president of Becton Dickinson, one of the leading medical device and medical equipment companies in the country. We’re going to be talking about that as well. And we’ve got a great group here in person, and I understand we have several hundred more that are listening and participating online, so thank you all for joining us.

Madam Secretary, let me start with—let me start with you, the whole purpose of this conference and the work on supply chains. For years, our whole focus in international economics was on efficiency, and companies put their supply chains wherever it made the most sense to get the cheapest product for consumers. Now we have focused not just on efficiency, but on resilience, redundancy, diversification, national security. Those are all likely to make products at the end of the day more expensive. How do you think about that tradeoff, how to balance it? And what—are there limiting principles in your mind about how much needs to be made in the U.S., how much can be made in trusted partners like Canada, Mexico, Europe, elsewhere; and then how much we can actually rely on imports from China and elsewhere?

RAIMONDO: Yeah. Thank you. Thank you for hosting. And thank you, Tom, for coming.

This is incredible to me that we could pack a room—(laughter)—of this size with such serious high-level people to talk about supply chains. I’m not sure we could have filled the room, you know, pre-COVID, five years ago.

FROMAN: I’m not sure we could have filled the stage. (Laughter.)

RAIMONDO: Well, you’re a big draw, so maybe we could have.

So, first of all, this right here I view as a partially mission accomplished, which is to say having an extreme focus in the private sector and public sector on supply chain resiliency is more than half of the battle, right? Like, monitoring, being proactive, strategic, comprehensive, collecting the—finding the chokepoints, and targeting, and getting ahead of the problems, these are things that the government hasn’t done a fantastic job of, to say the least, and private industry really hasn’t either. So the fact that we’re here and engaged in this way is the way we will solve these problems.

In fact, Tom and I got to know each other in COVID. I was a brand-new secretary of commerce. You were struggling to get access to semiconductors that go into all your medical devices. And we—I’m not exaggerating—you would call me for want of a single chip or small handful of chips, and I would, like, get on the phone and call the CEO of Texas Instruments. So that’s not scalable. (Laughter.)

POLEN: Not at all.

RAIMONDO: So I realized—

FROMAN: But we’ll be giving out her number at the end of this. (Laughter.) If any of you have issues, you can give her a call.

RAIMONDO: Yeah. So I realized, like, holy cow, we need to do something better, which is what Grant Harris has done an amazing job doing, and I assume we’ll get into the tools he’s built and such.

But, look, the question you asked is really hard. You know, we can’t really answer it properly here because the biggest lesson I’ve learned is that supply chains are complicated and the answer is often in the minutiae, you know, I find. I have learned that you have to get deep into the supply chain and figure out where are the chokepoints and points of vulnerability, and then sort of do your best to make sure you have some amount of resiliency or redundancy.

And it’s true what you say about efficiency. I think if—like anything in life, if you focus obsessively on a single metric, you do—you do—

FROMAN: Over-rotate.

RAIMONDO: Over-rotate or under-rotate on the risk. You know, if all you focus on, for example, is return and you ignore liquidity, you reduce the risk illiquidity here. If all you focus on is profit and price, you undervalue the risk of lack of resiliency. So it’s true, you know, China has provided an incredibly inexpensive place, but you know, we have other friends and allies around the world. And I was just in Costa Rica, for example; a lot to like about Costa Rica. It’s a democracy as it relates to packaging and assembly for semiconductors. I spent a huge amount of time in Malaysia, the Philippines, et cetera.

So, you know, it’s a balance. It is a balance. And I think what we have to do is, like I said, get ahead of it. And if you—if you are utterly reliant on a single country for a product that you really need, there’s a cost to that, too, if you’re actually baking in the full cost of that risk. And I think it’s worth working with the government to try to figure out how to find some resiliency.

FROMAN: One of the—one of the issues around friendshoring or relying on other countries for some of this is, is it the country or the company that matters? Are we OK with Chinese companies moving to Mexico and exporting product from there? Is that reducing our dependency on China, or is it—does it matter whether it’s rules of origin or rules of ownership?

RAIMONDO: Lookit, first, when it comes to China specifically, you know better than I do that, as we were just saying, it’s not a discussion. China puts BYD factory in Mexico. That’s a Chinese company. If China decides to subsidize a company or, you know, overly subsidize an industry, I think you can expect that that’s going to distort the global market and hurt U.S. companies no matter where it is. So I’m not going to, like pretend to talk about the details of trade with this guy, but I am highly skeptical of any Chinese company no matter where it is precisely because these supply chains are so complex it’s pretty easy for them to obfuscate the level of their subsidy and dumping; and to pinpoint it and accept it hurts us, it shows up at some point in time in the global market when they have so much control. It’s a leverage point. It’s a leverage point. And as long as they decide to play nice it can be OK, and the minute they decide not to they can control the global price and it could cause a lot of pain.

FROMAN: I’ve watched with great admiration the way you’ve brought your private-sector and governor’s experience to the Commerce Department. It really transformed the Commerce Department, I believe—chips investments, broadband investments, Inflation Reduction Act really bringing a lot of private-sector capability to the Commerce Department. One of those areas in the area of supply chains is this new tool that you are developing and rolling out. Tell us about Scale and how it’s going to help us avoid the kind of disruptions that we saw during COVID.

RAIMONDO: Yeah. I love this tool. If you haven’t seen it, you should check it out.

By the way, you’re very kind what you said about the Commerce Department and me. Just to put a fine point on what Mike just said, in the next few months every month, September to December, the Commerce Department is aiming to deploy the same amount of capital each month that the traditional Commerce Department did annually. So, like—

FROMAN: It’s a big transformation.

RAIMONDO: It’s big.

FROMAN: Including people that you have been able to attract.

RAIMONDO: Including people. You know, the chips team—

FROMAN: Process.

RAIMONDO: —is a couple hundred people. They were zero people. They are—the supply chain office that Grant has started did not exist when we—when we started.

So the Scale—so, first of all, under Grant’s leadership we have created a supply chain office. As I said, I didn’t think it was scalable for CEOs to call a secretary and me to call other CEOs. (Laughs.) So I also didn’t think—you know, we would get these requests from the White House, and I would—I would, like, call a guy, and he would whip up an Excel spreadsheet—not exaggerating—(laughter)—around how we would figure out what was going on in the supply chain. So we built an office, and then we said, OK, we need some analytics.

And today we’re unveiling the Scale tool. It’s impressive in its scope. It has all the data on the—on all domestic production, so it’s massively comprehensive. And it tries to take into account all of the various factors that can affect a supply chain. It’s geopolitical risk, but not just geopolitical risk. It’s inputs and materials and where are they concentrated. It’s labor shortages. It’s climate issues. So there’s this part of the tool where it’s kind of a spiderweb of risk, and you can decide once again in a proactive way that the key piece of this puzzle—you know you’re in trouble when you can’t get hold of a chip. How do you get ahead of that, right?

So you could say—like, I just—things that I’m worried about is the supply chain for AI datacenters. Everybody knows power is an issue. OK, fine. Everyone’s focused on that. But how about the racks and the components and the cooling systems for an AI datacenter, which are different from a cloud datacenter? And, like, what are the components in a liquid cooling system? So we’re doing an analysis, and you can get really granular and look at this web and say—and then evaluate the risk. Evaluate the risk, right? As you say, like, yeah, we can handle that level of risk, whatever it is, and vis-à-vis the cost that’s a risk we can handle, or not.

And so that’s—we’re just trying to get much more sophisticated, proactive, comprehensive around our supply chains, and then of course work with industry. We have an amazing supply chain. Is Jeff Wilke here?

POLEN: I think he is. Yeah.

RAIMONDO: Jeff and Ursula are co-chairing this incredible advisory board to us. The thing is, it just—it has to live. This has to be a living, breathing thing. We have to be, like, a constant pitch and catch with industry.

FROMAN: Tom, let me turn to you with that about industry. We were—in the—in the green room beforehand you were telling the story about the U.S. government calling up your company in the context of World War II, saying we’re worried about German U-boats and the effect it could have on your factories on the coast; we’d prefer for you to move inland.

POLEN: Yes.

FROMAN: That’s, I guess, a public-private partnership of sorts. How do you think about the role of the private sector, your experience of working with Commerce? And you became CEO of this incredibly important medical device and medical equipment company just as COVID was hitting. What lessons do you draw from COVID for supply chain resilience and what BD is doing about it?

POLEN: That’s a great question, actually. And we are one of the largest manufacturers in Nebraska now due to that request—(laughter)—from the government, just during World War II.

RAIMONDO: That’s pretty good. Good.

POLEN: And I’ll be going there on Thursday.

Actually, I met Secretary Raimondo—you may remember this or not—while you were governor of Rhode Island—

RAIMONDO: Yeah.

POLEN: —which we have one of our businesses headquartered in, right at the start of the COVID pandemic. And it was—it, obviously, just shows the hand(s)-on nature, which will be no surprise to anyone who knows the secretary, where the first thing during COVID, when testing was scarce, was getting swabs. There was a big run on swabs. You couldn’t get them. And I got a call from Secretary Raimondo and said—

RAIMONDO: I do.

POLEN: —my Department of Health needs swabs. Here’s the catalog number. Can you get these to me immediately? There’s no other governors who called me at that—at that time to get into that level of detail, to specifically get something for the people of their state. And I think that resonated with me from that moment on, just—(inaudible)—oh my God. (Laughter.)

RAIMONDO: By the way, he delivered. I do—I remember that vividly. And you did deliver, for which I’m grateful.

POLEN: And it was—you know, it just really showed, again, the hands-on approach and making things happen that has, obviously, characterized, you know, the Commerce Department.

RAIMONDO: Thank you.

POLEN: As you said, the time of COVID, I started about three months—it was not part of my thirty-, sixty-, ninety-day plan—(laughter)—but it certainly became then immediately. And so our goal was to do three things. For those not familiar with BD, we’re often known as a backbone of health care. While we often have large, $5 million robotic systems and plantable stents and grafts, we also make the products that really run health care. So think about needles, syringes, catheters, hernia meshes, Vacutainer tubes—something we invented that collects your blood—et cetera. And so when the COVID pandemic struck, we focused on three things. One was get people diagnosed, get people vaccinated, and for those who were sick help them get well.

And that really took, you know, a whole different level of supply chain coordination that we could never have done alone. Ultimately, at the end of the day as we focused on those three things, we were one of the first two companies on the planet to develop a rapid COVID test. Something that takes us three years we did in three months.

RAIMONDO: Amazing.

POLEN: We ended up scaling and making an extra 2 billion syringes to deliver 2 billion doses of COVID vaccine around the world. And we ended up scaling as field hospitals were set up around the country and around the world. Things like infusion pumps, medication dispensing systems, IV sets, catheters were needed at scales that hadn’t been produced. We literally opened new factories that didn’t even exist to be able to produce and meet those needs. And none of that could have happened without the support of the government, and certainly the Commerce Department and the White House.

And as I think back on those moments, the anecdotes, whether or not it was products when the L.A. ports were backed up and we had raw materials coming in that if we didn’t get them in there would be a shortage of being able to collect blood, they were rerouted, right, by the government. When we needed product air freighted in, ultimately, our products, because we were one of the first in the markets with rapid testing, they ended up—70 percent of nursing homes in the U.S. ended up with our diagnostic tests if you remember when there was huge mortality happening among patients in nursing homes. It was to get that under control. And those were air freighted in on Air Force jets, actually, into the country to help make sure that that was addressed.

That really just was a big eye opening into, you know, the importance of how industry can never do these types of unbelievable things on their own, and vice versa, right? It’s a true partnership between the two entities.

And what that taught us longer term, we’ve always had a very strong resilience program. We focus a lot on resilience. It’s part of our obligation to our customers. Of course, patients, health-care providers rely on us. Every year we go through with medical staff, our financial team, and also our operations team, and we look at everything we make from different angles, right? What’s the importance to patients? How much does that provide to the company’s profits, to keep us resilient? And what are the manufacturing implications of those? And we double down, and we invest in secondary sources, making sure there’s alternative supplies. After COVID, one of the things we did was we took AI and machine learning, and we created what we call our N-level system, which, as Secretary Raimondo alluded to, we go down to N-level suppliers—so a supplier of a supplier of a supplier—could go all the way down to your N-level of a supplier to understand what could happen.

An example of that was actually during the COVID pandemic, when we put this AI machine learning tool in. We found that there’s—the paper industry in Finland was going to go on strike. And that was deep, deep, deep down in the supply chain. Comes to be that about 80 percent of all paper used in labels that go on medical devices and drugs come from Finland. You never would have guessed that. And so suddenly there is this flag of we’re going to have a massive shortage of labels that can be sterilized of a special type that can go on medical devices. And we were able to work, find alternative suppliers, and keep our devices going. And I know pharma went through the same process because those types of systems were in place. This is just a good example of the system that, for example, Grant and the team have developed here, and how that can have a benefit, you know, across many, many industries.

FROMAN: Let me ask one more question of Tom, then we’re going to open up to the audience. So please be ready for your questions.

The medical area that you work in, this seems to be an area where the U.S. still is quite dominant globally. How concerned are you about Chinese competition in this area? What do you see coming from China in terms of investing in this sector? And how does that—how does that get incorporated into your strategy going forward?

POLEN: China for us is—so we serve all—our focus is on advancing the world of health. And so China is an important market for us that we manufacture in China, for China, particularly our core medical devices, for the same reason that we manufacture in the U.S., for the U.S., right? Health care security is national security for countries around the world. And so we often have a local manufacturing strategy for those critical devices, because it’s important to nations around the world. Those critical devices that we sell in Europe we mostly make in Europe, because they view that from a security perspective. We do the same thing here.

Again, we spent a lot of time looking to make sure that we’re not reliant upon one location for supply of those critical devices as well. And, you know, we have a very specific process that we go through, the one I described earlier, where we look at where is there risk of single sourcing and making sure that we’re investing to diversify to multiple suppliers so that we don’t get into those issues.

FROMAN: Great. OK. I think we have time for a couple of questions. Yes, this gentleman here.

Q: Thank you very—thank you very much. Damon Porter, life member the Council.

When we talk about supply chains, often the question of what’s being imported—raw materials, active ingredients, finished goods. But I’d like to know a little bit more about exporting. And so we’ve seen a lot of discussion around tariffs as a tool for domestic supply chain resiliency. We’ve also been hearing a lot about export controls. And how do we strike the right balance in terms of not stifling innovation and the ability for the United States to export what we do best around the world, as well as inviting retaliation particularly from China?

RAIMONDO: Yeah.

FROMAN: I swear I didn’t put him up to that. (Laughter.)

RAIMONDO: I don’t believe you. I think both tariffs and export controls should be used in a way that is as narrow as possible to protect our national security. And anyone who works for me, knows I strongly believe we should not use export controls, particularly, as way to give the U.S. economic advantage. That’s not what they’re used for. That’s not right. That’s not fair. But it’s hard. You know, I mean, these are tough decisions, because increasingly, more than ever, technology is our weapons of war. You talked about AI, especially true.

And so, you know, the dual use area of technology is really complicated. So we’re constantly checking ourselves, literally constantly checking ourselves. What are we doing here? Are we trying to give ourselves some kind of commercial advantage? Are we trying to—we don’t—I want to be very clear. We do not want to hold back China’s economy, or any other country’s economy. That is not in our interest. So constantly ask ourselves, are we doing—are we holding back their economy? Or is it really, truly narrowly tailored to protect our national security? And there are difficult judgment calls, but that’s the principle,

And I think similar with tariffs. You know, we want to trade with China. We want to trade more with China. But the truth of it is, you know, they don’t always play by the rules. And so medical devices, for instance, you know, if China were to develop their medical device industry through subsidies to a level that they could control the price, or distort the price, that hurts BD. That’s bad for America. So, you know, that’s why I get paid the big bucks, to make these decisions, as they say, or not. (Laughter.) It’s hard, but that is the principle that we do. And that’s why I’ve been so focused on talking with industry.

But, I’ll tell you, listening to you talk, sometimes—you know, people say it often. Mostly my family tells me that I’m a nerd. And it’s a fact. However, with supply chains it’s lifesaving. It’s not that I—that we just enjoy getting into the weeds of getting down to the N-supplier. It’s that it really saves lives. And your company is a perfect example of that. So I constantly am motivating the team to try to say, it isn’t about the data. It’s not about the tool. It’s not about how cool the Scale tool is. It’s about if we do this right we really will save lives, in America and all over the world. And so if—you know, like, if you try to focus on the person at the end of all this data, I think that is motivating.

FROMAN: Another question. Yes. You might introduce yourself.

Q: Shannon O’Neil from the Council—Shannon O’Neil, from the Council on Foreign Relations.

And I know it’s not all about the data, but let me ask you about the data. Because talking with various companies, you don’t actually—it’s some of them don’t actually know down their supply chain where things come from. And I’m sure the paper example was one that probably you didn’t know right off the top of your head when that came about. So as you bring out Scale, what are the data sources you already have? What are the data sources you need? Where do you need to go get them? And sort of, how are, you know, private companies, or academics, or others—how are you kind of bringing in these different scales? Because I can imagine you need so many different sources from around the world to really make this robust.

RAIMONDO: Yeah. I should—let me say a couple things, and then I don’t know if you want to answer that, Grant. Tom is—BD, under his leadership, is, in my experience, quite a bit further ahead of many, many companies that we deal with. Which is a credit to you. I’m constantly surprised in dealing with companies how they’re really not in touch with the vulnerabilities in their supply chain. Which is not a criticism of any particular company, it’s just a reality. Like, if it’s not broke—you know, if it’s not broken, don’t fix it. I mean, COVID was such an eye opener.

The supply chain with which I have become exceedingly familiar is the semiconductor supply chain. And it’s unbelievable to me—unbelievable to me how we are, as a world, in many cases dependent on, like, a single company in Japan for a chemical that goes into, you know, every substrate of every chip. Or, a single company in the Netherlands, and not just ASML, that provide—or Germany, that provides a component in a light source

that goes into, you know, 90-plus percent of all equipment. It’s remarkable.

So, you know, the thing about the Commerce Department, one of the reasons—Commerce is ideally suited to build this tool, number one, because we interface with industry. But, number two, we have tons of data. So the Bureau of Economic Analysis, we collect all the data for the Census, all the data under the GDP, all the data, et cetera. So we have all of those data sets. And then what other—what else have you combined?

FROMAN: Yeah, microphone here.

Q: Yeah, I’m three minutes away from describing all that, so. (Laughter.)

RAIMONDO: Oh, OK. So maybe wait.

FROMAN: Stay tuned for our second session.

RAIMONDO: But I can tell you, we check everything with industry. That’s the thing we’ve become quite focused on. Like, does this make sense to you? Does this fit with what you’re seeing?

FROMAN: Our last question. There was somebody in the back there. There you go, gentlemen on the aisle. There we go, coming behind you.

Q: There we go. OK. Jonathan Gold with the National Retail Federation.

Secretary Raimondo, thank you very much for your comments this morning. Obviously, supply chain is kind of the lifeblood for many industries. And we continue to face many different challenges, both import and export. However, we have an event coming up potentially on the horizon next couple of weeks, with the potential shutdown of all the East Coast and Gulf Coast ports because of the ongoing labor negotiations between the ILA and USMX. Has the administration been looking at the potential impact this could have, obviously, looking at all the other industries we’ve had—all the other examples we’ve had, from COVID, from the, you know, Baltimore bridge going down, this could be pretty significant.

I know my members are extremely concerned. They’ve taken action to ensure continuity for their supply chains. But what is the administration doing to ensure that we don’t see a massive labor disruption in the next couple of weeks, because of negotiations? Obviously, we’d love to see the parties stay at the table and negotiate. It’s the best way to get a deal. But how do we ensure that that’s going to happen, and we don’t see a coast-wide strike on October 1^st?

RAIMONDO: Yeah. I will say, I am not familiar with the details of that. So I would—I can get information. I’m sure DOT, Department of Labor, and the White House—I do feel confident that my colleagues are all over that, because, unfortunately, we have some experience with it. So we’ll have to get back to you. I would say your question gets back to what I was saying before about the web of risk. Labor is a big deal. Labor shortage, strikes, the ports. We’ve had a lot of challenges in the administration with the ports. President Biden cares deeply about labor, as you know. And so we’ve—he has tried, with his leadership, to avert strikes. We recently averted an American Airlines strike. You know, you made your example of labor, there’s going to be a strike.

POLEN: We’re very pleased, actually, that the railroad strike was averted.

RAIMONDO: Right.

POLEN: That was one, though, that, because we had known about it, we actually have our own railroad spurs off of—BD spurs, off of the main railroads. Because we produce so many billions of units, we need our own—we bring in resins on cars. And so when we heard of that strike, we parked six cars full of resins just in case—on our spurs—just so that we didn’t shut down our factory, so the patients weren’t impacted by the strike. But again, that’s just an example of how you have to connect contingency planning from manufacturing, particularly for things where people die if they don’t get medical devices. Integrating the importance of this work that you’re doing with labor being a component that needs to be considered in that.

RAIMONDO: Yeah, absolutely. By the way, to your point, as I’m listening to you I’m thinking that’s amazing. And I hope every company’s listening. It’s also expensive. Your original question, it costs some amount of money to build that in. But, you know, insurance costs money. Other forms of risk mitigation and redundancy cost money. And so when running businesses, I think the big lesson is to take into account the real cost of the risk of supply chain vulnerability, not sugarcoat that risk. Price it in adequately, and then, you know, make your decisions like you do with the rest of your business.

FROMAN: Terrific. Please join me in thanking Secretary Raimondo and Tom Polen for—(applause)—

RAIMONDO: And Mike Froman, fabulous.

(END)

This is an uncorrected transcript.