The Amazon truck came down my street this morning. And the sun rose in the east. Two examples of the predictable delivery of valuable commodities.
The wonder of the global supply chain is how it functions like background music for consumers, who rarely consider the complexities or costs of distribution for manufacturers and retailers—until something goes wrong.
Nothing in recent memory has roiled the economy and frustrated shoppers like COVID-19. The pandemic exposed weaknesses in the otherwise nearly invisible international pipeline of goods, turning a predictable system on its ear. Suddenly globalization has a significant flaw.
“The COVID-19 crisis exposed the vulnerabilities of supply chains engineered primarily for cost and speed,” EY summarized in a 2021 report. “These supply chain models were not flexible enough to detect and quickly respond to volatile changes in supply and demand, thus leaving decision-makers flatfooted and unable to adapt as conditions changed daily.”
It’s safe to say most consumers didn’t understand the role of semiconductors in the building of pickup trucks until demand overwhelmed the global chip industry. They didn’t know much about the intricacies of cargo shipping either, until U.S. ports became bottled up and goods failed to show up on shelves. “Why does everyone suddenly care about supply chains?” a recent New York Times headline asked. The answer: for the same reason we’d notice if sunshine suddenly disappeared.
COVID-19 sent supply-and-demand out of whack all over the landscape due to surprise consumer demand, absent workers, component shortages and transportation glitches. With the economy reopening, a lack of new hires exacerbated delivery delays up the chain to final destinations. Scarcities were everywhere — patio furniture, wedding dresses, bicycles, household products.
For the supply chain, these failures are devastating. Now is the time to fix them.
There are clear lessons from COVID-19, as EY and other analysts have noted: Global manufacturing and distribution are cut too close to the bone, too dependent on China, too wedded to just-in-time delivery methods.
Not every crisis can be anticipated, but manufacturing executives and business owners need to reassess the length and depth of their supply chains and expand their networks. The fact that nearly 80 percent of microchips are manufactured in Asia at a time of rising political tension with China is risky.
“The challenge for companies will be to make their supply chains more resilient without weakening their competitiveness,” Willy C. Shih wrote in the Harvard Business Review. All companies operating in the global economy need to diversify the geography of suppliers, identifying ways to pull some manufacturing closer to home.
Shih, a management professor at Harvard, says another solution is to double down on new technologies that lower costs and allow manufacturers to switch more flexibly among products being assembled. Automation and additive manufacturing will be key to producing more goods quickly. “It’s time to adopt a new vision suitable to the realities of the new era — one that still leverages the capabilities that reside around the world but also improves resilience and reduces the risks from future disruptions that are certain to occur,” Shih wrote.
The good news is the public’s frustration with delays and shortages creates the urgency for change. The supply chain isn’t enjoying its moment in the sun. So it should learn from it.
Read the complete Issue 1 of ChainMail here.
Enjoying this story? Subscribe to ChainMail, MxD’s newsletter on breaking supply chain news, trends, and updates.