Introduction
The coronavirus pandemic has laid bare the strategic importance of global supply chains that we have all taken for granted. It highlights the importance of global trade and our interdependence in a very real way. The efficiencies and margins created by these worldwide production and distribution networks are crucial to the health of businesses and the prices paid by their consumers. As countries begin doing business again, governments and industries need to consider how to rebuild their supply chains with better resilience, given the high likelihood of COVID-19 rearing its head again.
What supply chains need to be made resilient?
Undoubtedly, China dominates the global supply chain for a vast array of raw materials, components, and finished goods for numerous industries. For example, the halt in automotive parts production in China had a ripple effect in the automotive assembly across Europe in March. Every major vehicle brand was affected. The one supply chain that every country needed the most was personal protective equipment, diagnostic and therapeutic equipment was woefully unprepared for a pandemic.
Melt-blown materials are a critical component in surgical and N95 masks. As of April of 2020, the US’s largest supplier, 3M, could only supply 55 million masks per month. The domestic manufacturing of medical supplies and devices has shifted abroad, namely to China. Furthermore, the demand for ventilators, no contact thermometers, masks, gowns, and gloves outstripped domestic manufacturing capacity globally. The United States is the most striking example: it quickly became the global epicenter of COVID-19 cases but imports 95% of all medical masks. COVID19 magnified the problems. The Governor of New York put it succinctly;
“You have 50 states competing to buy the same item,” he said.
“We all wind up bidding up each other and competing against each other, where you now literally will have a company call you up and say, ‘Well, California just outbid you.’ It’s like being on eBay with 50 other states, bidding on a ventilator.”
Apparently Federal agencies were also competiting for the same resoruces further driving prices up. Not something any taxpayer would be happy about.
Striking a balance
Globalization provides both economic, political, and economic ties that the world has clearly benefited from. However, governments and businesses around the world need to consider more than just stockpiling equipment. As the US found out, thousands of ventilators in the Strategic National Stockpile did not work.
In contrast to the United States, Taiwan maintains itself as global automation, tooling, and machining hub. Taiwan quickly ramped from a few million masks per day to nearly 20 million masks per day by the end of May 2020. At least for medical devices and equipment, maintaining a domestic capacity to ramp-up/ramp-down came from hard lessons during SARS nearly 13 years ago. Taiwan currently produces more than its population of 24 million. In fact, the Taiwan government donates tens of millions of N95 and surgical masks to countries around the world.
The lesson for policymakers is clear: A balance must be struck between domestic production capacity for strategic goods. Stockpiling is not enough.
Policymaking
This pandemic can be viewed as an opportunity for countries to assess their risk exposure to supply shortages in critical industries and the systemic effects of throttling or breaking these supply chains on their national security. It is critical that policymakers and industry work together on this. When strategic resources are domestically sourced, and supply chains are domestically integrated, the volatility of logistics and operations are minimized. The upside in all this is that businesses and governments may exert more influence on the availability, quality, and consistency - all things consumers and voters will appreciate.