The challenge of the COVID-19 pandemic lies in the unprecedented scope of its impact, both in terms of human lives and what it reveals about the United States’ dependence on foreign goods.
Many critical supplies such as personal protective equipment (PPE), ventilators and life-saving medicines are manufactured overseas, and subject to all kinds of disruptions. In response, supply-chain teams are applying their creativity to reverse the momentum of the past decades and bring supply lines back to the U.S. for some key goods.
Politicians are floating ideas, but they need private-sector leaders to propose a workable plan. With constituents demanding a solution, lawmakers on both sides of the aisle are eager for a realistic and affordable proposal. The innovation and courage of supply-chain leaders will inspire tactical solutions that can address our new national priority of ensuring more resilient and reliable supply lines.
One such proposal to keep Americans safe is to focus on four key areas, represented by the acronym SAFE: Source, Activate, Fabricate and Extend:
Although focused on American needs, these same principles are most likely valid for any country that has found itself in the same predicament. Let’s review each in detail.
Source in America. Sourcing strategies detail the needs for goods and services, and map them to their respective supply lines. Establishing sources that are closer to home would require companies to review their product requirements through multiple layers of suppliers. This litmus test would expand those metrics that are currently used — features, price, and quality — and extend them to include reliable U.S.-based sources of supply. Naturally, obstacles exist. Let’s address a few of them.
Cost of manufacturing. This was one of the key justifications for moving manufacturing offshore in the late 90s. How do we bring it back? For one, the labor cost component of manufacturing has been steadily lowered as new automation tools have been developed. Thirty years ago, when labor was in the 30% to 40% range of the cost to manufacture goods, a trip to a Chinese factory would undoubtedly include a catwalk tour of huge assembly rooms lined with low-cost laborers, busily assembling widgets by hand. Today, the trend is for more automated factories, which lower the labor component and reduce profit-and-loss pressures. U.S. leadership in factory automation will undoubtedly accelerate this trend.
Access to rare earth materials. Rare earth materials are composed of 17 metallic elements that are almost exclusively mined in regions over which China has a strong influence. To solve this problem, we need production methods that facilitate a more assured source of supply from friendlier places and within environmental safeguards that we and our customers can accept. Absent those, we would have to include this topic in upcoming trade negotiations, or invest in technology strategies that obviate the need for these elements in end devices. We are beginning to see innovations in this area from several U.S. companies, and are encouraged by their progress.
Multi-tier supply-chain visibility and management. When we buy a TV set, we can see the brand logo. That brand conveys a certain level of comfort based on what we know about the company. The set, however, is a combination of elements from thousands of different suppliers. At the core, supply-chain risk management is transparency into multiple layers of suppliers. The technology and databases that provide transparency to who and where subcomponents are made, even down many layers of production, already exists. We need to coordinate and leverage such data for our national interests. Our ability to peer into the future is only as good as the tools we employ.
Integrating priorities for the environment, sustainability and ethics with supply-chain risk. A decade ago, conflict mineral legislation caused companies to look well beyond their second and third layers of suppliers into their ultimate sources of supply. Recently, consumers and corporate board members have increased pressure on operations teams to understand environmental, sustainability and governance (ESG) requirements for material components. Multi-tier visibility has become a serious business, with significant consequences. Sourcing strategies now and in the future must consider the overall standard of care that suppliers offer. I believe this standard will transform into its own set of metrics, with companies working hard to score high grades to achieve competitive advantage. Companies that can do it all — act in an environmentally friendly manner, exhibit strong governance on ethical issues, and become part of the nation’s manufacturing reserve force — will be rewarded by their customers and investors.
Activate private and public sectors and coordinate “all of America.” Responding to a crisis such as this one calls for a significant level of coordination, not only across local, state and federal agencies, but also in coordination with private industry. We’ve seen fuel cell and automobile manufacturers work with their state and federal resources to identify how they can adjust operations to support the needs of this crisis. These lessons need to be institutionalized and built upon.
Ideally, a federal agency would pre-identify companies that could participate. These companies would draw on existing standards of governance to coordinate internal resources to be ready when the next disruption occurs. Supply-chain risk specialists, sitting inside these companies, would play a central coordinating role. They would warn the government of pending threats as viewed by the private sector, and be the conduit back to their employers for threats identified by governmental agencies. As there are many potential threats to consider, this is a full-time role that needs senior-level access and credentials. A company or country’s future could be at stake, and needed response times are short.
Fabricate what we need either for stockpiling for immediate consumption. When the next pandemic comes, the U.S. supply chain should be better prepared. The centralized effort we set up during the “activate” phase would make us quickly made aware of emerging problems, and help us to coordinate with the resources we have identified so far. These marshalled supply-chain resources could swiftly identify and scope out the situation, choose the appropriate threat-deterrent plans and models, and be ready for activation. Factories will be re-missioned and goods deployed, as opposed to meeting and deliberating.
With preliminary forecasting backed by the best predictive models, we could have developed stockpiles that would help us get through the first wave of a crisis. Stockpiles aren’t a complete panacea, though. Like lettuce on a grocery shelf, materials lose efficacy over time. These stockpiles will need to be managed, updated, and refreshed to be effective when needed.
Minimum-wage laws, immigration policy, capital equipment tax incentives, and corporate tax competitiveness all must be brought to the table to craft a public-supportable solution. Companies will undoubtably need some form of government incentives and support to physically move their factories and then, once here, offset the differences in labor costs. Post-COVID-19, public backing for such funding might be more generous now than ever before. Politicians have sensed this shift, and are floating statements to assess support.
Extend U.S. goods to needy citizens, and extend our thinking to the next threat. The last important leg of the supply-chain team is logistics. As discussed earlier, marshalling the nation’s transportation network would be a critical part of a boots-on-the-ground approach. Logistical details would have been predetermined and practiced. And therein lies the final satisfaction — getting what’s needed to whoever needs it.
It’s critical that we extend our thinking beyond the current day. If we’ve learned nothing else during this pandemic, it’s how difficult it can be to predict the future. We know nothing about what might be around the corner for our next catastrophe. Maybe it’s a pandemic, and if so, will its impact be exactly like COVID-19, or will there be other needs? Will we need face masks and respirators, or will it be heart monitors and blood pressure cuffs? Whatever our next menace is, preparation requires extending our planning horizon.
Taking stock of our circumstances and making the necessary adjustments will be a challenge for supply-chain leaders. Like the move overseas many decades ago, a few early adopters took the brave step of shifting their supply-chain infrastructures based on their view of the future. That change helped them to survive and thrive for the years that followed. Now, for some supply chains, the underlying assumptions around cost and strategy have changed. Supply-chain leaders need to be checking their current reality and summoning the courage to make the necessary adjustments. Political leaders are hungry for an implementable plan that comprehends globally complex supply-chain problems. Absent this bravery, we’re likely to be unprepared for the next great disruption.
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