Avoiding the Supply Chain Nightmare
Avoiding the Supply Chain Nightmare
You’ve probably heard the term “supply chain” being used a lot these days, especially in regard to recent events.
Due to the globalized nature of our economy, many entrepreneurs and businesses rely on this critical system.
The advantages are clear… Products and services from anywhere in the world can be delivered to consumers wherever they are.
If not for such a system, the variety and quality of competitively priced goods that we currently enjoy simply wouldn’t be possible.
And indeed, there was a time when it wasn’t. Things we take for granted, like electronic banking, the internet and instant communications, made the supply chain we know today possible. They’re the glue that holds the whole system together.
But as with any system, a threat to one part threatens the whole. If one link is weak, the entire chain is in jeopardy.
And the novel coronavirus has certainly highlighted those weak links.
With the subsequent slowdowns in China and other countries, it’s time to take a closer look at the stability of the supply chain.
Supply Chain 101
But first, we need to understand all the moving parts.
According to Oxford University, a supply chain is “the sequence of processes involved in the production and distribution of a commodity.” That includes manpower, data and the resources necessary to move products and services from producers to customers.
The primary goal of many organizations is to build a network of cost-effective and quality suppliers — the links in the chain. These suppliers obtain raw materials, manufacture products and get those products into the hands of consumers.
The creation of a supply chain could be broken down into three stages:
- It begins with careful planning, sourcing materials and identifying manufacturers, leading to the manufacturing process itself.
- A logistics system is then established to deliver goods and services, as well as a return process to handle defective and excess products.
- Essential links are finally added to support these steps along the way, such as financing, personnel, technology, sales, quality assurance and so on.
The origin of the supply chain can be traced back to the assembly line, from the early days of the auto industry.
The assembly line began to spin off subcontractors and specialty manufacturers that supplied components.
In an effort to make the finished product even more affordable, companies began sourcing raw materials from further afield, taking advantage of economies of scale.
The supply chain continued to evolve with the creation and exchange of electronic data, which existed in a rudimentary form in the 1960s.
And in the 1980s, it went global, resembling what we have today.
With its low prices and cheap labor force, companies increasingly relied on China to remain competitive.
And some began to ask if it was wise to put so many proverbial eggs in one basket…
Learning Our Supply Chain Lesson
The current slowdown highlights the downside of relying so heavily on one country and has everyone wondering: What happens when there’s a hiccup in the supply chain, or, worse, a major disruption?
So much sourcing and manufacturing is done in China that any interruption is immediately noted, regardless of the industry.
Case in point: Surgical masks in the medical industry, more specifically the coveted N95 respirator masks.
Most of the world’s supply comes from China, and in light of recent events, China is unable to deliver.
So the solution, on paper at least, is simple: Look closer to home.
The United States’ top manufacturer of N95 masks is Prestige Ameritech of Texas, and they’re currently facing unprecedented demand.
“It’s a madhouse,” said Mike Bowen, executive vice president and partner at the company. “We’re going as fast as we can.”
Prestige Ameritech has a limited manufacturing capability, and otherwise can’t compete with Chinese sources pricewise. But the slowdown has their phones ringing off the hook.
In the short term, Bowen is increasing production, hours and staffing in an effort to keep up with demand.
But what happens when China is back up and running? Will we stick to our vow to broaden our supply chain, even if it means paying more for goods and services?
Prestige Ameritech’s situation indicates that we might not have learned our lesson quite yet.
If the outbreak subsides and buyers turn back to China, Bowen says the company may be forced to downsize.
“We’re caught between a rock and a hard place,” he said. “We don’t like to lay people off.”
It remains to be seen whether China’s current slowdown will result in lasting changes to how the global supply chain is configured.
Only time will tell…