The global complexity of forging supply chain links
The lessons of last year’s U.S. attempts to quickly build a manufacturing capability for N-95 masks and hospital gowns at the height of the pandemic are akin to a fable. It might not quite have the appeal of, say, the tale of the hare and the turtle, but in microcosm, this story offers everything we need to know about the intricacies of chain building. procurement in the 21st century. A Harvard Business Review article this summer explained how it took a Massachusetts company, Shawmuts, several months to build up production capacity for N-95 masks because everything from the polypropylene fabric used to the industrial machinery needed to make the fabric and assemble a mask with nose clips, etc., had to be imported from Germany and China. In the case of hospital gowns, however, much of the expertise was in the United States. The “coalition” eventually included companies seemingly as different as a high fashion company in New York, a climbing suit manufacturer in Oregon, and even a mattress company, as a race ensued for speed up sewing ability. “Shawmut’s gown operation went from a standstill to a production rate of 350,000 gowns per month in just over 90 days. Shawmut and its coalition partners supported the production of 11 million urgently needed isolation gowns, ”the article noted. Shawmut had to lay off part of its workforce.
Supply chains, once reserved for business school case studies, are making headlines today. In Los Angeles earlier this month, nearly half a million shipping containers were waiting to unload their cargo at the port, which suffers from a labor shortage, causing ports to operate at about two-thirds of their capacity. US President Joe Biden had to step in and announce a plan to allow California ports to operate 24/7.
In China, Beijing’s decrees on provinces requiring them to switch to clean fuel sources have led to a sudden drop in coal supplies and left factories in southern China, the epicenter of global supply chains, at risk. prolonged power cuts.
There may be a stronger competitor for Time magazine’s Person / Phenomenon of the Year in 2021 than supply chains, but it’s hard to find one.
In this age of stress testing, two things have become clear. The first is that companies are hugely dependent on China for supply chain management and therefore choose not to solve global geopolitical issues. The second is that from Washington to New Delhi, large projects to build “resilient” supply chains and foster domestic production are mostly developed in ignorance of the density and complexity of supply chains. Likewise, Apple chief Tim Cook may view inventory as an “evil,” but ultra-lean inventory may be a thing of the past. Apple’s reliance on l he assembly of its products in China, where its suppliers employ 3 million people, was called into question in 2015. Some of its executives lobbied to move some production to Vietnam, but were rejected by senior management , according to the Wall Street Journal.
Earlier this month, U.S. Trade Representative Katherine Tai delivered a strong speech to a think tank in Washington. She appeared to regret China’s accession to the World Trade Organization, as many do today, believing Beijing had played with the system. Tai observed that even before the Clinton administration paved the way for him in 2001, “from the late 1970s to the mid-1980s, US exports to China grew roughly fourfold, while imports have increased 14 times in less than 10 years “. industries in the United States were wiped out. Tai pledged to work with allies “to facilitate a race to the top for market economies and democracies.”
So far so moving. But there is little evidence that companies are willing to significantly shift production elsewhere, or that consumers would pay the higher prices that would result. Despite all the bludgeoning brutality of the Chinese ambush of Indian soldiers at the border last year, which claimed the lives of more than a dozen Indian soldiers, few Indian companies or consumers have changed their way. buying behavior. India remains dependent on China for about two-thirds of its imports of active pharmaceutical ingredients. Last week, Foreign Minister Harsh Vardhan Shringla said that in the first nine months of this year, bilateral trade between the two countries increased by 49%. India’s bilateral trade deficit during this period was $ 47 billion.
Likewise, in the United States, the Biden administration recently allowed companies to seek exemptions to import from China, while American companies are pushing for tariffs on Chinese products to be lifted. Chinese supply chains have a hold on our collective buying behavior. The Taiwanese Foreign Minister was greeted with open arms during a tour of the Czech Republic. The island republic has played a leading role in building China’s industrial capacity for the past four decades. Taipei politicians I spoke to for an article (bit.ly/2Zo5o8G) in Mint in March said they believe India should move forward with a free trade agreement (FTA) with Taiwan and enable it to make India a major link in the global supply chain. Chains. Such an FTA would risk angering China. Beijing is intemperate but has shown both hare speed and patience for the tortoise’s long game.
Rahul Jacob is a Mint columnist and former Financial Times foreign correspondent.
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