There is no question that the ongoing novel COVID-19 coronavirus pandemic has led not only to wide scale global supply chain disruption, but a renewed emphasis on revisiting supply sourcing strategies under the context of inherent business or market risk. A herd mentality of multiple years of global sourcing predicated solely on least cost without a weighting toward needed agility and resiliency has run its course.
Within the United States, there is a debate as to what measures national political leaders will take to influence industries and businesses in decreasing supply chain reliance on certain foreign countries. The notions for a national manufacturing strategy are brewing, no doubt in conjunction with the U.S. Presidential and Congressional elections scheduled in November. Many may tend to dismiss such efforts as political theater or posturing, but we submit, these are different times.
Here is why.
In an opinion column published by Business Insider, U.S. Congressman Tim Ryan of Ohio, a Democrat, and U.S. Congressman David McKinley of West Virginia, a Republican, made the case that:
“Without the development of a new national manufacturing strategy, the same forces that drove the United States to neglect our critical supply chains will continue to put our security at-risk.”
Their editorial mentions acute shortages of medical equipment, along with other examples related to supply of rare earths essential to many high-tech products, semiconductors and electronic circuits, and precision scientific equipment needed to support both commercial markets and national defense needs.
“While US manufacturers and domestic suppliers have substantial resources, some of our capabilities and expertise have fallen behind due to this reliance on the global supply chain.”
The authors call for a Commission on Critical Supply Chains, a described independent entity that will bring together national experts to give guidance on complex and strategically important issues.
Other U.S. Congress and Senate members have called for similar actions to investigate over reliance of medical equipment, pharmaceutical, petrochemical and other supply networks.
Leading up to this pandemic, the escalating trade tensions among the U.S. and China were already causing some forward-looking businesses to begin reevaluating alternative global or regional sourcing strategies, more aligned to major markets of product consumption as a means to buffer geo-political risk.
Such calls are not just limited to political leaders, and not just in the United States. Similar debates are occurring across Europe.
Some will indeed dismiss the notions of a national manufacturing policy as that confined to nationalist or totalitarian countries. China is an example of a country that has a common strategic direction, hence that is why the country has become the global epicenter of many industry supply networks.
Counter arguments involve certain realities of today’s global supply networks, where process, manufacturing technology and logistics capabilities have matured to world-class capabilities. For certain industries, the cost of direct labor has been a determinant as are local labor laws. Advances in communication and information technology, including today’s Cloud based B2B supply chain networks have fostered more timely communication, collaboration and decision-making across global borders.
How many consumers really question why Apple’s iPhone supply network has total manufacturing concentration across China? The answer is high levels of manufacturing efficiency and agility at lowest cost, including factories that employ hundreds of thousands in workers. The other reason is access to China’s huge consumer market.
Specifically regarding the U.S., decades of supply chain outsourcing has hollowed out any semblances of inherent supply chain maturity within certain industries such as high-tech and consumer electronics. But, U.S. policymakers are now orchestrating, through confrontation with China, a return of state-of-the art semiconductor and high-tech manufacturing supply network capability within the U.S.
Branded high-tech companies have already initiated efforts to alter sourcing to other Asian nations such as Vietnam, Malaysia, India, the Philippines or other countries. However, a significant unknown remains, the capabilities and/or responsiveness of local logistics and transportation infrastructure in the existing and post-COVID environments.
For other industries such as medical supplies, personal protective equipment, generic or proprietary drugs and medicines, the notions of lowest cost, least regulatory sourcing led to the stark awareness of total dependency on foreign sourcing. There are already moves underway to change this risk profile. Yesterday, U.S. based hospital supply provider Premier announced both a minority equity stake and associated multi-year three-year strategic supply deal with medical mask provider Prestige Ameritech Ltd. to build out mask manufacturing capacity within the U.S. In its reporting, The Wall Street Journal characterized the move as: “an early effort to reverse decades of outsourcing of medical-equipment production.”
Additional Food for Thought
As Supply Chain Matters has noted in multiple prior commentaries related to global supply network sourcing, when political actions become active, with armies of industry lobbyists making the rounds of political capitals, good intentions turn to political horse trading, often diluting the original intent. In other words, money and power are the determinant. That does not aide businesses in their needs to rationally manage supply network risks, particularly small and medium businesses that power Main Street economies.
When all of this occurs in the backdrop of a highly charged U.S. election cycle, anything can happen, or not happen.
The best that can happen is that any of such Commissions or bodies recruit the most experienced and unbiased experts in strategic supply chain sourcing, supply chain network design and logistics. Lockout the lobbyists and let the experts examine the most strategic U.S. markets, associated supply networks and required people, process and systems capabilities.
We suspect that the end result would a profiling of either global-wide, regional, or ad-hoc local supply networks each catering to certain industry needs, both in long-term strategic, tactical, or ad-hoc capacity dimensions, supported by advanced technologies.
The COVID-19 disruption not only exposed significant vulnerabilities, but opportunities as well. Digital processes and additive manufacturing technologies allowed domestic auto companies to produce human ventilators, sporting goods makers to produce needed PPE equipment and so forth. The virus also uncovered that ingenuity vs. political posturing leads to more pragmatic and positive outcomes.
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