The CARES Act – A Supply Chain Perspective

The Coronavirus Aid, Relief, and Economic Security ActOn Friday, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act’’(Congress.gov). The Act is being called the largest financial assistance bill in US history. And the document itself is equally large. The PDF copy of the bill I read is 335 pages in length, so there is extensive detail and legal terminology included. Given the recency and length of the document, I thought it would be helpful, timely, and relevant for me to take this opportunity to call out some of the provisions I believe are of greatest relevance to the logistics and supply chain function.

The Medical Supply Chain

Medical Supply Chain Security

The CARES Act calls for the research and examination of the US medical supply chain by the National Academies of Sciences, Engineering, and Medicine. The purpose is to evaluate the dependence of the United States on critical drugs and devices that are sourced or manufactured outside of the United States. There has been notable discussions on news programs about the shortages of medical supplies and the percentage of generic drugs that are sourced from overseas, and this provision is directed at obtaining a comprehensive understanding of the medical supply chains supporting the needs of the country.

CARES directs the National Academies to provide in its report recommendations that may include a plan to improve the resiliency of the supply chain for critical drugs and devices, address any supply vulnerabilities or potential disruptions, promote supply chain redundancy and contingency planning, encourage domestic manufacturing (emphasis mine) and evaluate the economic impacts of doing so, improve supply chain information gaps, improve planning considerations for supply chain capacity during public health emergencies, and promote the accessibility of such drugs and devices.

I foresee this research project stimulating a number of changes to the US medical supply chain. Most notably, I foresee a substantial amount of drug and medical device production reshoring in the near future. I believe it will be in the form of risk management and redundancy planning, where a certain percentage of medical supplies deemed critical are produced domestically, while the remainder and likely the majority if that is currently the case, continue to be produced overseas. This approach can reduce risks while also minimizing the economic impacts from domestic production cost increases. Secondarily, I foresee an increased presence of centralized planning within medical supply chains. Most likely, I believe this will be operationalized through government guidelines and reporting mandates (as alluded to in the following section). Doing so will enable the private sector to remain in control of its operations while providing the government with the ability to analyze interdependencies between the various entities that make up the end-to-end supply chains. Finally, I foresee a greater emphasis being placed on the management of the information flow along the extended supply chain. I believe this will increase adoption of track and trace software, supply chain visibility solutions, network design applications, and supply chain risk management.

Manufacturer Reporting Requirements

The Act also contains a subpart on preventing medical device shortages that includes directives for companies to notify the government at least 6 months in advance of permanent discontinuances in the manufacture of certain medical devices or interruption in the manufacture of such devices that is likely to lead to a meaningful disruption in the supply of that device in the United States. The government will then distribute information on the discontinuance or interruption to appropriate organizations such as physicians and supply chain partners. This provision is assumedly to formalize a process that provides stakeholders with time to establish alternative supply sources or plan for contingencies.

Air Carrier Support and Air Service Continuity

There is a lot of support for the air carrier sector in the economic stabilization section of the Act. A provision on the continuation of air service authorizes the Secretary of Transportation to require an air carrier that is receiving certain loans or loan guarantees to maintain scheduled air transportation service. Of particular consideration is the air transportation needs of small and remote communities and the need to maintain well-functioning health care and pharmaceutical supply chains. In addition, an excise tax holiday is being applied to kerosene used in commercial aviation – reducing tax burden on aviation fuels. The Bill also directs the Secretary to preserve aviation jobs and compensate workers through financial assistance up to $25 billion to passenger air carriers, $4 billion to cargo air carriers, and $3 billion to contractors.

Final Word

The CARES Act includes language that broadens the reach of the Defense Production Act of 1950, basically stating that previously referenced requirements shall not apply. Finally, the Bill authorizes the US Postal Service to borrow money from the Treasury in the amount up to $10 billion.

As I stated at the beginning of this post, the Bill is 335 pages in length, and therefore includes an extensive number of provisions and requirements that I have not listed. I recommend speaking with a legal professional for advice. Also, there is a great deal of support for the average American that I have chosen to exclude due to the logistics focus of this article. For a more general overview, I recommend the US Chamber of Commerce.

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