Though the pandemic has disrupted the global supply chain for more than a year, one event — the dayslong blockage of the Suez Canal in Egypt in March — provided a visceral visual reminder of the fragility of supply chains.
The 1,312-foot, 20,000-container-capacity cargo ship named Ever Given ran aground March 23 and remained lodged for six days, blocking maritime traffic at one of the world’s busiest waterways.
Mike Schlagenhaufer, manufacturing consultant for Acuity Insurance, says the incident affected the United States to a lesser extent because the vessel contained imports headed for Europe. It did, however, create ripples of impact through blocking cargo capacity at a time when the price of cargo space was already high.
Reflecting on a tumultuous 18-plus months, Schlagenhaufer says the pandemic and other disruptions have brought to the forefront an issue that has gone unaddressed for too long: the need for supply chain diversification.
“What it taught me is I need to diversify my supply chain even more. I need to source in my backyard, all the way around the globe. I can’t rely on one spot anymore. I have to multisource,” he says.
Harry Moser, founder of the Reshoring Initiative, says the issue of supply chain became especially concerning during the pandemic when China threatened to stop shipping the United States penicillin and other needed medicines and goods, including personal protective equipment, because it was unhappy about tariffs.
“Many people concluded that being so dependent for so much is dangerous,” he says.
Up until two years ago, product was flowing in steadily from China and Southeast Asia. Companies would develop single sourcing or partnerships, often at the lowest cost and with the promise of reliable eight-week lead times, says William Byrkit, a consultant with Byrkit Point Supply Chain Advisors.
Over the past several months, new challenges have emerged, including capacity disruptions with sourcing partners, labor challenges overseas and suppliers’ own supply chains becoming strained. Add to that the difficulties of navigating time differences and communication hurdles, and Byrkit, who also works with manufacturers through WMEP Manufacturing Solutions, says companies are beginning to reevaluate their supply chain strategies.
It’s a wise move, given that not only has the pandemic not gone away, ever more threats and disruptions loom, including climate change, natural disasters, cybersecurity risks and issues with sourcing certain materials such as those required to make lithium-ion batteries and microchips. In addition, China has raised the specter of refusing to ship goods to the United States, Moser says.
The market is recovering quickly, and companies are seeing the demand is real. To take advantage of that, they’ll need not only more workers but also a more reliable supply chain plan.
While no one likes to accept hard truths, doing so is often necessary. “I viewed it like taking medicine. When this pandemic came, many supply chains needed to get healthy again,” Byrkit says.
Supply chain solutions
Moser founded the nonprofit Reshoring Initiative after watching Singer Corp., maker of sewing machines, in his hometown of Elizabeth, N.J., go from being the largest factory of any kind in the world about 100 years ago to producing nothing in the United States. For years, his father had helped run the plant and Moser himself worked there before earning an engineering degree and then an MBA. “So, you’ve gone from having the biggest factory in the world to having nothing,” he says.
Before founding the initiative, Moser sold machine tools and foundry equipment. Increasingly, companies and industries he wanted to sell to, as well as his competitors, disappeared because foreign companies could produce as good a product or better for a lower price.
The Reshoring Initiative started in 2010 with the objective of bringing 5 million jobs back to the United States — the number of jobs it would take to balance the trade deficit. It does so through documenting trends, promoting awareness, and providing tools and services to help companies reshore.
On the trends front, 185,000 jobs came back to the United States in 2017 due to tax and regulatory cuts. 2018 and 2019 saw declines because of trade wars. In 2020, reshoring picked up as a result of the pandemic and a desire to make needed goods, including PPE and medicines, closer to home. Last year saw about 109,000 jobs return to the United States, the highest amount of reshoring ever, Moser says.
As for tools, the Reshoring Initiative offers the free Total Cost of Ownership estimator. It allows companies to input costs such as duty, freight, inventory, intellectual property risk, travel expense and risks of stocking out to see if it’s cheaper to source overseas. All factors considered, companies often see it’s not as cost-effective as they’d originally thought to source overseas, says Schlagenhaufer, a proponent of the tool.
Companies also can take other steps to shore up their supply chains, and Schlagenhaufer says that can start with establishing more effective communications and relationships with suppliers.
“It has to be a partnership. It isn’t, ‘I’m driving your price down because I’m threatening you with pulling business away from you or I’m going to China’,” he says.
Byrkit says relationships with suppliers need to go beyond being transactional, and manufacturers and suppliers need to problem-solve together along with discussing candidly the ability to scale up or down to meet demand. Companies should understand suppliers’ capability for recovery and whether a supplier has a single source or multiple.
“I don’t need to know your secret sauce, but I need to know, what is your plan?” he says.
It’s natural for companies to seek low-cost suppliers, Byrkit says, but they should also make sure they’re diversifying. That could include looking at a China or Asia Plus One strategy or considering other low-cost countries such as Mexico, and then also seeking to source in markets where a company distributes.
The United States also should look for foreign direct investment opportunities, which would encourage foreign countries to build plants here with tax breaks, Schlagenhaufer says. We should be looking at ways to make this option more attractive, he says, and part of that is having skilled talent available.
Moser says talent is closely tied to supply chain issues, and to boost our ranks of skilled workers, we need to invest more in education efforts. Companies should create their own apprenticeship programs, and society needs to elevate and celebrate skilled workers.
It’s vital for companies to act now to make their supply chains more resilient, Byrkit says. He speaks from experience —a startup he worked for folded during the pandemic because it couldn’t survive the disruption.
Schlagenhaufer agrees. “If you don’t effectively manage your supply chain, I think you’re going to end up losing in the game. If you have to close the doors because you don’t have a component, you’re not going to open back up.”
To learn more about the Reshoring Initiative or access its Total Cost of Ownership tool, visit reshorenow.org. The initiative’s founder, Harry Moser, also will speak at the virtual OnRamp Manufacturing Conference Oct. 14. To learn more or register, visit onrampmanufacturingconference.com.