From the devasting global effects of COVID-19 over the past year, to the more recent week-long cargo ship blockage of the Suez Canal, the interdependencies of worldwide supply chains in every sector and industry have come under sharp scrutiny.
Keeping the issue front and center is the current semiconductor shortage brought on by a convergence of many factors ranging from the lingering effects of the pandemic to trade wars and more.
What this means for manufacturers here in Michigan and abroad is that logistics and supply chains are being re-evaluated through the lens of real-time data and analytics, strategic partnerships, cost-of-ownership models and more attention to risk-planning and end-to-end supply chain visibility.
Ron Beebe, Chairman and CEO of Bay City based Euclid Industries, had a front row seat to the unprecedented effects that COVID-19 had on manufacturing supply chains.
“Initially, it was devastating because companies just shut down,” says Beebe. “Even though we had inventory to ship and produce products, no one was taking any delivery. So, there was an immediate and significant negative impact across all of our platforms.”
Indeed, the pandemic crisis revealed a number of supply chain-related issues that U.S. manufacturers are now addressing. Everything from increasing supply chain resilience and boosting flexibility to gaining end-to-end visibility and onshoring and/or nearshoring materials closer to North America is high on many agendas.
For some, like Beebe and Euclid Industries, the onshoring of more raw materials and products has been a positive.
“We’ve been involved in bringing a number of products back to the U.S. that had been outsourced, so we're very busy,” says Beebe. “We're benefiting from our customers wanting a more secure source of products than what they've been able to get elsewhere.”
It’s actually a trend that Beebe saw before the pandemic hit.
“People have been recognizing that there are issues with sourcing and have been bringing products back to the U.S. for a few years now. But COVID-19 certainly accelerated that move,” Beebe says.
That being said, price continues to be the primary consideration according to Beebe. Will manufacturing customers and end consumers be willing to pay more in order to create more resilience in the international supply chain? Beebe doesn’t think so, but he sees it as an important discussion.
“Price is still king. You get a lot of lip service about on-time delivery, and quality, and consistency, and quick response time, and so on. But those issues only come up when they don't happen,” says Beebe. “In today’s world, they’re just expected. During a pandemic you might hear someone say ‘price is third place right now. We just want to make sure that we actually have the product.’ But that’s only true in crisis situations. It’s not standard.”
International Supply Chain Implications
The other major trend accelerating onshoring and nearshoring of supply chain materials has been the escalating tensions with China. As a huge player in everything from raw and rare Earth materials to countless pieces, parts, products and OEM manufacturing, China affects both supply and demand on a global scale.
According to Jean Schtokal, International Business & Trade Attorney at Foster Swift Collins & Smith, “The U.S. now regards much of its supply chain relationship with China as a national security issue because they’re such a huge trade partner.”
Schtokal went on, “Regarding supply chain issues, manufacturers have had to deal with the double whammy of COVID-19, plus all the tariffs associated with U.S./China tensions. When supply stops or becomes untenable, manufacturers have had to show flexibility in finding new suppliers and customers.”
“Manufacturers in the U.S. have gone from ‘just-in-time-delivery’ to ‘just-in-case delivery’ to help ensure their supply chains remain intact,” adds Schtokal. “This is especially important for companies that don’t have the ability to stockpile materials.”
Manufacturers that can’t carry extra inventory to guard against supply chain volatility are finding other ways to adapt. Some are bringing component manufacturing in house. Others are modifying or narrowing their product offerings. Still others are actually changing their product designs to conform to their new supply chain realities.
For manufacturers that operate on a global scale, these and other supply chain adjustments are fraught with issues.
“COVID-19, sanctions, embargoes…these are all huge issues that have forced companies to rejigger logistics quickly,” notes Schtokal. “When this happens, steps can be missed regarding due diligence on new supply chain partners, including the countries and/or regions that they and their partners operate in.”
“Import/export controls and implications regarding unfamiliar countries and trade partners can be confusing. Understanding restricted parties with respect to U.S. trade is critical … there are certain people, groups and entities that U.S. parties cannot deal with,” warns Schtokal. “So, knowing everything about your supply chain is critically important for a variety of reasons.”
Schtokal and Foster Swift are well qualified to comment and advise on the future of global supply chain issues having been recognized in 2020 by the U.S. Department of Commerce for its efforts in the expansion of national exporting. The firm was one of just 39 businesses in the country to receive the prestigious President’s “E” Award in the Export Service category for assisting and facilitating export activities over a four-year period.
Moving Forward, Post-COVID-19
With or without a global pandemic, supply chain management is a tremendously complex issue that makes operations difficult, even for companies that are charging into 2021 with lots of business and healthy balance sheets.
For instance, while onshoring has been a good thing for Euclid Industries and many other U.S.-based manufacturers, there are still plenty of pain points remaining as the economy tries to recover and gain speed.
“Manufacturing flows like a pipeline. You can shut the pipeline down. But restarting is hard because everyone isn’t always ready go when you are — and you need everyone (and everything) to make your products. Consequently, starting back up has been very herky-jerky,” Beebe explains.
Beebe went on to reveal his toughest supply chain challenge to date – something that might surprise you.
“It’s been people,” he says, going on to explain that finding enough of the right people to work during the pandemic has been the company’s greatest challenge — and that certainly impacts the supply chain as it does production, customer deadlines and everything in between.
“You don't normally think of the human asset as being a supply chain item, but it is,” says Beebe. “The supply chain to me is all the ingredients necessary to manufacture your parts. And there have been times over the past year when we’ve had a tough time finding people who want to work because of the unusually high COVID-19-related unemployment benefits.”
So, now that we’re emerging from the generational “crisis situation” known as COVID-19, it’s necessary to not only address any and all supply chain vulnerabilities but to also continue to drive cost out at every opportunity. Because, while it’s important to protect against the next potential virus or trade war or cargo ship that impedes a vital waterway for six days, it’s also critical to remain as competitive as possible on price — because markets will eventually normalize.
Looking back, it’s clear that the effects of the global pandemic helped create a new era of supply chain awareness. Manufacturers everywhere are re-evaluating their logistics. They’re increasing flexibility, identifying more contingencies and improving their disruption and change management capabilities. Doing so will do more than help them emerge more resilient from the COVID-19 crisis — it will better prepare them for whatever challenges lie ahead.
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