April 16, 2020

April 2020 eNewsletter -COVID-19 Supply Chain Wake-Up Call

April 2020 E-News: COVID-19 Supply Chain Wake-Up Call
The COVID-19 pandemic has underscored the need to shorten U.S. supply chains. We are far too dependent on imports, especially from China, and cannot afford to ignore yet another signal to accelerate reshoring.

To demonstrate, according to Fox News, NYT, and Rosemary Gibson, we import, largely from China, 90+% of antibiotics used in the U.S., 80% of all pharmaceuticals and about 95% of personal protective masks. It is impossible to increase U.S. mask production quickly from 5% of normal usage to 100% of crisis needs, which amounts to a combined increase of 100X or more. Neither is it feasible to maintain an inventory of 5-years’ normal usage. The only solution is for the U.S. to be essentially self-sufficient with regard to such medical items so we have a strong base from which to surge. Now, make the leap from medical to defense. The Defense Department has a growing list of essential products that are no longer available in the U.S. If the next war is military instead of medical, how long can the "Arsenal of Democracy" survive?

­­­ Impacts on U.S. Supply Chain

Thomasnet has been conducting surveys to assess the impact of COVID-19 on the manufacturing industry. Here are some takeaways:

  • 60% of U.S. manufacturers say business has been impacted by the pandemic
  • OEMs and tier one suppliers are seeking alternatives to China
  • 28% of suppliers report they are seeking domestic sources
  • Disrupted shipping and logistics were reported as a top concern in March
  • Manufacturers say this may prompt them to more aggressively diversify supply chains and consider reshoring some production back to North America

Coronavirus and Global Shipping
With 80% of goods shipped by ocean freight, "The shutdowns mean that some ships can't get into Chinese ports, as the loading and discharging of goods slows. Others are stuck in dock, waiting for workers to return to ports so that construction and repairs can be completed. Still more vessels are idling in ‘floating quarantined zones,’ as countries such as Australia and Singapore refuse to allow ships that have called at Chinese ports to enter their own until the crew has been declared virus-free."

Tectonic shifts in global supply chains were apparent even before COVID-19. Analysis by Bank of America points to tariffs, automation, carbon footprint issues and national security as driving factors of the shift. The Reshoring Initiative’s 2019 Data Report supports this theory. Look for the Report’s release in late April.

Impact on China’s Dominance in Manufacturing

"The COVID-19 outbreak will potentially accelerate existing trends of decoupling and reshoring driven by the desire...to make supply chains more resilient," Unctad said.

China's Post-Virus Plan to Destroy America's Economy
There will be major geopolitical repercussions if we do not become self-sufficient. This article has numerous insightful quotes from Chinese leaders. For example: "The [Chinese] State Administration of Science, Technology, and Industry for National Defense lays out the strategy: ‘Accurately support industries affected by the global spread of the new epidemic, proliferate information technology and other industries overseas to help fight the epidemic, and pave the way for international market expansion after the epidemic is over.’" This article is hardline but worth reading.

COVID-19 Could Be the End Of China As A Global Manufacturing Hub
Mexico is the most likely beneficiary. Of the companies that recently moved their supply chain, or are planning to do so, some 64% of them said they are moving it to Mexico, which "is the best positioned to take advantage of the long-term geopolitical rift between the U.S. and China. It is the only low-cost border country with a free trade deal with the United States…"

U.S Actions to Respond
U.S. Manufacturing Associations Tout Domestic Resources in Open Letter to CEOs
The American Mold Builders Association, National Tooling & Machining Association, Precision Machined Products Association, Precision Metalforming Association, and Technology & Manufacturing Association stated in the open letter that companies facing global supply-chain challenges can find local solutions with U.S. suppliers. Many other industry leaders are also helping companies find local suppliers. See CompanyWeek’s COVID-19 Forum: Master Supplier List.

COVID-19 brings an end to unconditional globalization. Here’s how to compete for manufacturing jobs moving out of Asia. Bart Taylor advises companies to make the decision to invest in more capable local supply chains, when and where it makes the most sense. He proposes using our TCO Estimator to make that evaluation.

Retool U.S. supply chains to address weaknesses exposed by new coronavirus This article defines numerous ways that policymakers can encourage innovative reshoring.

Combating the COVID-19: Fashion designers, automakers and other companies make masks and medical supplies See how small and large companies are transforming their production lines to make COVID-19 protective equipment. In light of the rapid response of auto and textile manufacturers it seems that we can change and grow domestic supply chains when we have to. Let’s recognize the long-term need for resilience and apply our current enthusiasm to a broad range of products. After the crisis, it would be great to see the auto industry put as high a priority on finding domestic solutions for their own supply chains.

Upcoming Events

April 14 – The Job Shop Show April 10 show

April 18 – Fully Threaded Radio Podcast

April 21– Lean Frontiers Webinar

April 29 – Gardner Media/Reshoring Initiative Webinar - Supply Chain Lessons from COVID-19 – Overview

May 6 – Gardner Media/Reshoring Initiative Webinar - OEM’s

May 13 – Gardner Media/Reshoring Initiative Webinar - Job Shops

May 20 – Gardner Media/Reshoring Initiative Webinar - Government

September 14-18 – IMTS 2020, Chicago, IL

October 1-5 – Made in America 2020, Detroit, MI

October 7-10 – SEAMS, Myrtle Beach, SC

October 22-23 American Manufacturing Summit, Chicago, IL

October 26-27 AME Annual Conference, Toronto, ON

Ongoing - Reshoring Awards, click for application details:

Thanks to all our readers, sponsors and companies who use the Total Cost of Ownership Estimator® or call on us as consultants. Your participation makes more reshoring possible.

Harry Moser, Founder, Reshoring Initiative
Millar Kelley, Newsletter Editor and Research Analyst

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