Rethinking The Global Supply Chain

The COVID-19 pandemic is breaking the back of supply chains around the world.

During the COVID-19 pandemic, the United States has experienced shortages of medicine and critical medical equipment due to the disruption of raw materials and production facilities in India and China.

Supply ChainsSupply chains closer to home also are breaking down: hog farmers in North Carolina have had no place to ship their animals because the U.S. food processing supply chain is sputtering, due to the closure of meatpacking plants that have become hot zones in the heartland of America.

As the pigs piled up in their pens and bacon began to disappear from supermarket shelves this week, President Trump invoked the rarely used Defense Production Act to order the nation’s meatpacking plants to stay open. At least 17 major U.S. meatpacking facilities for food giants like Tyson, Smithfield and Cargill have been closed in the face of an onslaught of COVID-19 cases.

According to the United Food and Commercial Workers union, COVID-19 has sidelined more than 5,000 meatpacking workers, who have either tested positive or gone into isolation due to contact with infected people; at least 20 of these workers have died. The food giants are scrambling to come up with floor plans that will mitigate the congestion on the meatpacking lines, and safety equipment for a dwindling workforce.

The disruption of the global supply chain has crippled industrial manufacturing around the world. The pandemic has forced industry leaders to rethink their supply chain and logistics strategies; it may accelerate a trend toward localization, referred to in logistics industry-speak as “local for local.”

This week, Business Facilities launched its COVID 19: Response and Recovery webinar series. Our first guest was Rosemary Coates, Executive Director of the Reshoring Institute and the author of five best-selling books on supply chain strategies. Rosemary’s session, Rethinking the Global Supply Chain, drew a large audience eager to hear this expert’s take on what the post-COVID-19 supply chain might look like.

Before she offered her analysis, Coates reminded our audience of the scope of the unprecedented economic disaster that is unfolding all over the world. Coates said she’s been organizing workshops to discuss forward strategy with clients, but most companies are still coping day-to-day like the rest of us.

“Right now, an awful lot of companies are just trying to survive, they’re trying to figure out how they get through this period and reduce costs enough so they can in fact survive through this period and come out the other end with some kind of operation,” she said.

“Some of them have spoken a little bit about forward strategy, but I think it’s going to take a few weeks before they’re really there yet, because this is really painful for all of us to get through,” Coates added.

The shortages of critical medical equipment, including personal protection gear and ventilators, has generated momentum for reshoring of manufacturing of this equipment. Coates cautioned that the repatriation of the raw materials and manufacturing supply chain for pharmaceuticals could take several years to play out.

“The repatriation of drug manufacturing and the development of [a local supply chain for] the basic raw materials for drugs is a longer-term development,” she said. “The [shortages of medicine] have been quite worrisome to most Americans, so that’s going to change. But it’s a long, hard road to get to that place.”

A webinar attendee asked Coates whether the manufacturing of rare earths for high-tech electronic components that have military applications may be repatriated from China due to national security concerns. Coates, who is based in Silicon Valley, called rare earth mining and manufacturing “an Achilles heel” for the U.S., but warned that significant obstacles stand in the way of reshoring the production of these vital materials.

“About 90 percent of rare earth mining and manufacturing is done in China, which uses [lower cost] dirty mining techniques. It’s hard to develop the economics and the environmental profile to manufacture rare earths in places other than China,” Coates said.

Coates predicted that the U.S. government would use a carrot rather than a stick to try to move manufacturing deemed critical to national security back to America. “There probably will be incentives like long-term tax breaks,” she said, with drug manufacturing a likely target of the first batch of incentives.

“But if China decides to shut off the spigot for rare earths, we’ll be in big trouble,” she noted.

As the head of the Reshoring Institute, Coates said she is hoping for more reshoring of manufacturing, which she called a key to growth of the middle class in the U.S. However, she emphasized that reshoring is not always the right strategy, particularly for companies that have been tapping into the huge markets in Asia that (pre-pandemic) have produced growth rates as high as 14 percent.

“The bottom line is that reshoring is an economic decision. In order to make that decision work, you have to make the economics work. You have to evaluate how you take the cost out of your supply chain manufacturing sites to be able to make the economics work,” Coates explained.

Pulling manufacturing out of China “is not like flipping a switch,” she warned.

“The dependency on supply chains in China is deep and wide. It’s the wrong idea to think of it as a choice between source from there or bring everything back,” Coates said. “We’re part of the global economy now, and while I agree we shouldn’t be overly dependent on China or any other country, we also don’t want to shut off some of those relationships either.”

To hear the entire Rethinking the Global Supply Chain webinar, click here.

Our next Business Facilities COVID-19: Response and Recovery webinar, The Road to Recovery, will take place on Monday, May 11. Incentives expert Allea Newbold, principal of Ryan LLC, will help us navigate the federal, state and local programs available to assist businesses during the pandemic. To register, click here.

Rosemary Coates will be the Keynote speaker at BF’s 2020 LiveXchange event, which has been rescheduled for Sept. 27-29 at the Ballantyne Hotel in Charlotte, NC.

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