Over the course of the past 50 years, the U.S has organized its economy following the theory of comparative advantage (see Ch. 2 in your Heizer/Render/Munson OM text). That means outsourcing to whatever external organization can provide the good or service at the best price. For much of this half century, the most cost-efficient strategy has been outsourcing to Asia. But outsourcing the wrong activities can be a disaster, as we now see in the coronavirus epidemic.
Critical supplies like medical equipment, pharmaceuticals, and food have been outsourced to China. “Most Americans know their iPhone comes from China but they do not know that more than 80% of all of their antibiotics, vitamin C and tilapia, 50% of their cod and apple juice, and 34% of their mushrooms come from China as well,” says one OM professor .
So I guess we shouldn’t be surprised by The Wall Street Journal headline (April 2, 2020): “Why the Richest Country on Earth Can’t Get You a Face Mask.” Indeed, Americans are asking why the most technologically advanced nation in the world can’t provide its citizens and health-care workers with lifesaving medical equipment.
Years of underinvestment in pandemic planning is a big part of the answer. But as in the pharmaceutical sector—highly dependent on Chinese and Indian producers—a reliance on global supply chains is also making life difficult for Western hospitals struggling to source gear. 85% of global medical mask-production capacity is in China. It is also a major producer of the polypropylene fibers that filter out dust and pathogens in the N95 respirators medical professionals rely on. The U.S. said in early March that it has only about 1% of the medical masks it would need to combat a year-long epidemic.
When the pandemic ends, one of the enduring changes it causes could be a major reassessment of complex global supply chains for critical medical goods.
Classroom discussion questions:
- What are the advantages of outsourcing?
- Why can’t the U.S. produce the billion masks it needs this year?
How true!. Any nation is better equipped if it can take care of the supply of the essentials like food, medical items, and safety systems, being self reliant. The issue here is the price. Outsourcing is too tempting when someone offers the items at lower price than what it would cost to produce within the country. Typical “Make or Buy” decision of OM. But when it comes to testing times time like during a pandemic, the weaknesses get exposed.