Supply chains as front-page news? That would have seemed unlikely—until the pandemic exposed many of the vulnerabilities in the far-flung networks that connect manufacturers, suppliers and buyers around the globe.
At first, the impact mostly reflected rapidly shifting patterns in demand, whether in PPEs or work-from-home and consumer products. But a subsequent spending boom left companies struggling to find import capacity on key trade lanes. Flotillas of container ships waited outside ports, wreaking havoc on shipping schedules, and importers struggled to hire enough truck drivers or warehouse workers to move all the cargo. As bottlenecks spread across the economy, they in turn exacerbated the shortages, as companies resorted to excess ordering and stockpiling.
The disruption exposed deep interconnections in supply chains, and just how dependent some sectors like the auto industry were on a few semiconductor factories in Taiwan, or the pharmaceutical sector on Chinese ingredients and chemicals. This challenged companies and governments worldwide to question their dependence on distant suppliers and logistics links that might be prone to interruption.
As a result, “resilience” has become the new watchword, writes The Wall Street Journal (Dec. 11. 2021) . How quickly can a company or a country bounce back from an interruption in the supply of critical products, components or raw materials? What if China suddenly cuts off U.S. access to rare-earth minerals, semiconductor chips or the ingredients used to make antibiotics and other drugs? But if we equate resilience with domestic self-sufficiency, we would have to relocate chip packaging, materials supplies, tool sources and much more from across Asia and Europe.
So who doesn’t want a resilient supply chain? But while there are some things that companies and governments can—and will—do to increase their ability to respond to future shocks, these will all come with costs. For instance, if better resilience means a more geographically diversified supply base, we will get some of it from “China +1” strategies that many companies are already implementing. Politically sensitive gear such as telecom and computing equipment have been in the lead, with firms shifting production to Southeast Asia and Mexico.
Will Americans pay higher prices for goods made in the U.S.A.? That is still a hard sell, so the real question is: how much of that kind of production will move back into the country? Not only will the finished products likely be costlier, but somebody has to pay for the transition costs—the move, the training, bringing in suppliers.
Classroom discussion questions:
- Describe the supply chain risks listed in Chapter 11.
- What are the difficulties in making supply chains more “resilient”?