In the early days of the U.S. response to COVID-19, the vulnerability of the U.S. supply chain emerged as something that needed our immediate attention. The supply chain is a number of companies from which we get our stuff or get the parts to make our stuff. Some of these companies are domestic, a lot of them overseas, which makes them hard to track. And as we all know, what can’t be seen can’t be managed.
The vulnerability of the supply chain first came up in March of this year when we discovered a lack of PPE–respirators, gloves and gowns–and medical equipment, such as ventilators. (We might have predicted this fragility – President Trump’s trade tariffs exposed it back in 2018.) Then in April of this year, the press highlighted a concern about the food supply, specifically meat, as COVID outbreaks began appearing in a few processing plants in the Midwestern United States.
Now there’s a concern about the production and distribution of tests, therapeutics, and vaccines. While inventions occur in the lab, manufacturing and distribution occurs through supply chains. Discussing this particular problem, New York State Governor Andrew Cuomo said about manufacturing tests, “Specifically, we need reagents and swabs. And guess where they are made? China.” Then he shook his head. When we hear experts talk about manufacturing vaccines, we hear concerns about not having enough glass vials. Not having enough vials would be a point-of-failure in the supply chain: one missing piece that keeps the vaccines from going out the door.
We’re lucky when it’s that easy to identify what pieces are missing. As you probably heard, while the states were scrambling for ventilators, a ventilator is made from over 700 parts. These parts are sourced from about one hundred suppliers. It’s no wonder we’ve outsourced that kind of complexity and, when asked to ramp it up domestically, we couldn’t do it at the speed and scale that was required.
In late March, President Trump brought in experts to help manage the supply chain. The first expert Trump brought in was FEMA Supply Chain Task Force lead Navy Rear Adm. John Polowczyk. A few days after being introduced, Polowcyck gave an update from the podium. He spoke softly and said, in effect, there is not an effective way to look at the U.S. Supply Chain as a whole. I understood what he meant. I am familiar with the concept of Industry 4.0, in which factories are smart and networked and could be looked at, in theory, as a whole, but that even though there’s a lot of 4.0 experimentation happening in academic labs, Industry 4.0 is not implemented at scale. Not yet. There is, in fact, no way to look at the U.S. supply chain as a whole. And in times like these that’s a problem.
Around the same time, the president’s son-in-law tapped Silicon Valley author and CEO Eric Ries to create a website that would provide a holistic view of the U.S. supply chain. Ries accepted the challenge. But in order to build a website, he needed content. And as Ries started digging around to figure out who had this content, it became clear to him that no one did. Yes, there’s ThomasNet.com, which is great for what it is–a searchable list of U.S. manufacturers sourced from each state’s MEPs–but that’s not the kind of thing that can be transformed into a smart, 21st century supply chain platform for the country.
We don’t have that platform. So when the president was called on, multiple times, to enact the Defense Production Act (DPA), with which he could require private sector companies to retool their factories to make and distribute the things we need, he dragged his feet. The U.S. supply chain isn’t set up to be managed in a centralized way. The task is daunting.
It’s worth noting that over on the sidelines hobbyist-makers and crafters stepped up to serve in their creative, decentralized way: sewists have sewed fabric face-masks and put them in collection bins; makers have used additive manufacturing (3D printing) to make face shields and some have used this in combination with off-the-shelf electronic components to prototype DIY ventilators–thousands of beautiful acts of creativity and kindness across the country.
Also worth noting is that some small domestic manufacturers were able to pivot to making products for the cause. In some cases, it’s easier for smaller houses to retool than for large companies to do so because smaller companies are more agile: textile companies have pivoted to make masks; small flour mills have pivoted to make 2 lb bags of flour for households rather than the 50 lb bags they normally sell to restaurants; artisan distilleries have pivoted to make hand sanitizer with their distilling equipment.
While all these efforts have been a tremendous help, they aren’t the coordinated system we need to move forward.
Making the supply chain more visible
Searching for informed answers about the supply chain, I found a report from 2010 entitled Planning for the Inevitable: The Role of the Federal Supply Chain in Preparing for National Emergencies, by Robert Handfield, Bank of America University Distinguished Professor of Supply Chain Management at North Carolina State. In the twenty-eight page report, Handfield lays out a four-part plan for managing the U.S. supply chain: Governance; IT Risk Planning; Stockpiling; and Training.
Wanting to know more, I found some recent interviews with Handfield. In most of them, he jokes that it’s apparent no one has read that report he wrote ten years ago. Even so, he shares his views on where we are now and where we will need to be to make the supply chain more visible, which in turn will make it more manageable. From his list of recommendations, I’ll summarize three here that I think are most important:
- Localization. Companies will need to move the production of some products closer to the location of consumption. Some products are better candidates for this move than others. For example, paper products, such as masks, gowns and swabs, are a good fit for localized production, which can be done using lumber from the U.S. or Canada. However, it might be impossible for the production of some products to be moved, such as electronics or automobile components. Companies will have to evaluate not only the costs of making the products, but also the supply chain vulnerability, to determine if this move makes sense.
- Financial Networks. Large companies with a lot of cash can survive tough times, but their smaller suppliers, with typically only two months cash on hand, cannot, which makes supply chains vulnerable because the large companies may not be able to get the parts that they need. What would benefit this system is transparent financials between large companies and smaller suppliers. Tracking the key metrics–such as days payable, days receivable, and days inventory–would position small but essential suppliers to receive credit from the large companies they have contracts with.
- Digitized Factories. We need to create and implement smart connected factories. Often referred to as Industry 4.0, smart factories are those that have installed sensors on their machines that allow real-time tracking of production and inventory in the factory. It goes without saying that this information will be protected by cyber-security; it would be made visible only to those who need access to it and protected against malicious actors. These digitized factories would provide a holistic view of the supply chain and its production capacity, thus enabling authorities in times of crisis to implement the DPA.
I’d add that there must be a way to organize the thousands of hobbyist-makers to help, in a coordinated way, in times of crisis. Perhaps they could be leaders in workforce training.
Crises expose opportunities for innovation. The supply chain isn’t broken; it just needs a major upgrade. The private sector should partner with government agencies and NGOs to strengthen the supply chain and mitigate its vulnerability. And by making the supply chain more visible and connected, we’ll likely create many more jobs and we’ll put less pressure on the environment.