As much as we’d like to believe that our supply chains are both quick enough to react to major disruption and flexible enough to maneuver around major obstacles, the global pandemic has taught us that often isn’t the case. It is the single major weakness of most supply chains, an inability to react to a sudden and massive large-scale disruption, which can include pandemics (such as Covid-19) massive weather events, and a myriad of other setbacks. This lack of resiliency is most notable in supply chains for life sciences, health care, and food industries in particular.
The Chinese market is massive, for one thing, and most companies can’t afford to withdraw completely, otherwise, they might lose any competitive edge they might have had.
After COVID broke loose around the world, the current administration issued a call for companies that have offshored their production to Asia, (China, in particular) to bring it back stateside. However, for many companies, this proves to be challenging and counterproductive. The Chinese market is massive, for one thing, and most companies can’t afford to withdraw completely, otherwise, they might lose any competitive edge they might have had. Additionally, because the Chinese market is now either the dominant, if not sole source, for thousands of different items, reducing the dependence on those goods will take a significant amount of both time and money.
Reshoring wouldn’t necessarily mean resiliency either. The meat shortage in the United States is a perfect example of this. The industry’s supply chain is entirely domestic. In an attempt to reduce costs, many companies focused on consolidating manufacturing activities, which means a smaller number of slaughter and processing plants are now producing much of the beef and pork products consumed in the United States. This created a vulnerability as shutting down one plant, even for a few weeks, creates a major impact throughout the country. Farmers, who get paid to raise the feedstock, are now stuck with taking a potentially devastating loss on their products while the rest of the country faces months of meat shortages.
Remap instead of Retreat
Instead of retreating outright from the forign market, the best approach to building resilience into the supply chain is by conducting an internal audit. More specifically it’s the process of mapping out the layers of suppliers, manufacturing plants, distributors, and the other various elements of the logistics network and then implementing a stress test to evaluate the ability to recover from the disruption of any of the various links. Understanding where various bottlenecks will occur means being able to create mitigation strategies which can include increasing manufacturing capabilities, adding more suppliers to the roster, or building up buffer stock.
The added advantage to mapping and stress testing the supply chain is that companies using this method can find unexpected weaknesses or high risks throughout the organization. The more complex the produced good is, the higher the risk of utter disruption.
“Work that one of us (David) did with the Ford Motor Company found unexpected high risk associated with small suppliers, including many local suppliers. One part it identified that fell into this category was a low-cost sensor widely used in its vehicles: If the supply of it were disrupted, the carmaker would need to shut down its manufacturing operations. Because the total amount spent on this item was low, Ford’s procurement group had not paid much attention to it,” reads a recent article from HBR.
Stress Testing on a Policy Level
Essential industries, such as pharmaceuticals and health care, need to have a level of government involvement to ensure that supply chains are resilient enough to continue operating, even during the worst-case scenario. Consider the mask and hospital supply shortage when the pandemic first started to hit the United States. While panic buying created part of the problem, the supply chain itself faltered and eventually failed under the crushing demand.
If such a test can be conducted for banks, it can similarly be conducted for all life-critical supply chains.
There is a precedent for such involvement, however. Back in 2008, during the recession, the U.S. government and the European Union conducted a stress test for banks to guarantee that the major financial institutions that prop up the entire financial system, could survive a major crisis. If such a test can be conducted for banks, it can similarly be conducted for all life-critical supply chains.
The Long Road to Resiliency
Creating supply chain resilience for essential products and services here in the United States could very well require domestic manufacturing. But that’s neither an easy nor cheap fix. Take the pharmaceutical industry, for example. Of the drugs sold in Europe, more than 80% of the required chemical components are manufactured in China and India. Because chemical production is a significant environmental hazard, it would require the development of clean technology and manufacturing processes to create a domestic supply chain. This process could take upwards of 10 years and would require a hefty financial investment. Could it be done? Absolutely. But not easy, and not cheap.
However, until companies have a full comprehension of the vulnerabilities throughout their supply chain, these kinds of decisions can’t be made. The pandemic has created an excellent opportunity and, perhaps more importantly, a motive to put in the necessary time, energy, and resources. Only then can they protect their supply chain from a potential devastating disruption that may be lurking on the horizon.
Do you have supply chain questions that you need answered? Do you need help bolstering your current supply chain to handle these new and disruptive global situations? Feel free to contact one of our logistics experts today and lets talk more about it today.