Rather than focusing on re-shoring, perhaps the country should shift the focus to becoming less vulnerable to supply chain shocks.
Written By Dan Bigman – April 23rd, 2020
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Long before COVID, the hope that more U.S. manufacturers would shift operations stateside was gaining steam among business leaders and politicians. The coronavirus has made the impulse far stronger.
Just yesterday, the Pentagon urged Mexico to reopen COVID-closed factories that supply U.S. weapon makers or risk stalling critical manufacturing operations. “I think one of the key things we have found out are some international dependencies,” said a surprised-sounding Pentagon official. Meanwhile, Rep. Robert Aderholt (R-Alabama) called on the Trump administration to implement additional “Buy America” requirements for federal procurement of medical supplies and active pharmaceutical ingredients. “We are relying on China for all the essential products we need to fight this virus. This is…ludicrous,” he wrote.
In reality, “bringing it all back home” will prove easier said than done. In an article for HBRthis week, Harvard Business School’s Willy C. Shih, one of the savviest manufacturing guys I know, explores the reasons.
The central problem is that, as most of you know, much of manufacturing has been transformed into assembly, pulling together components from thousands of specialist firms. As one manufacturer that had offshored a lot of its production told Shih, “Operations management leadership has turned into procurement leadership.”
Normally, this is a good thing. There are plenty of reasons, and they can’t—and shouldn’t—be undone: the Lean “inventory is evil” principle; the need for maximization of plant and equipment; capital efficiency. The sheer technical complexity in some of the components and subsystems in everyday products requires deep specialization, often with a regional expertise.
Given this reality, Shih says a better goal than focusing on re-shoring is to focus on resilience. Diversifying sources, building stock of critical components, examining bottlenecks and other strategies are all projects worth taking on now, he says. “The pandemic and trade wars together highlight the brittleness of our global supply chains and trading system,” he writes. “Managers should heed the lessons and build more resiliency into their operations.” He has a plan for getting started.
Keith Belton, director of the Manufacturing Policy Initiative at Indiana University, goes even further and says manufacturing resiliency should be a national priority. In a piece for IndustryWeek, he outlines six ways policymakers could improve resiliency for critical industries like defense and pharma—but for all other manufacturers, too.
“Greater resilience, however, comes at a price,” he writes. “And in the current pandemic-fueled recession, manufacturers are not likely to invest for long-term resilience when facing short-term existential threats.”
That’s where government can come in, he says, with new investment tax credits and the Manufacturing Extension Partnership, as well as expanded federal investment in R&D programs and skills training. It makes sense. If we can spend $2 trillion to keep the economy rolling now, we should be able to scare up a bit more to make sure it won’t be so easy to stop next time things go wrong.
About the Author: Dan Bigman is Editor and Chief Content Officer of Chief Executive Group, publishers of Chief Executive, Corporate Board Member, ChiefExecutive.net and Boardmember.com. Previously he was Managing Editor at Forbes and the founding business editor of NYTimes.com.