Global Supply Chains: They are the worldwide systems that a business uses, from start to finish, to produce products or services. It is like the central nervous system of globalization. For the last few decades, global commerce has connected the world. You can find products from Apple, Disney and The Coca-Cola Company pretty much anywhere on Earth. These treasured American items are not just made in America.
Companies are always seeking new customers and low costs of capital. China has represented both. Early on, cheap Chinese labor would produce clothes and toys and many other consumer goods. This was all done more cheaply than in the United States. However, China is no longer the low-cost leader. They have also been known to not always play by the rules.
Multi-national corporations had already started moving some of their supply chains in response to the Trade War. They have expedited the sense of urgency to be less dependent on China in the wake of the coronavirus crisis. Congress is particularly concerned about these dependencies. The shortage of medical supplies was alarming in the wake of the coronavirus. There wasn’t enough personal protective equipment (PPE) or medicine.
China plays a major role as a global supplier of PPE, medical devices, antibiotics, and pharmaceuticals. As the coronavirus spread in China, Beijing nationalized control of the production and distribution of medical supplies. It is believed that China will selectively release medical supplies based on political considerations. The reduced exports from China led to shortages of critical medical supplies when America needed them most.
The issue of supply chains has become critical. It goes beyond essential medical and health care products. Intellectual property is an issue too. Trade patents and secrets are essential. Companies and governments rely on them for survival. It’s an issue of national security. There is a Cold War going on in cyberspace. The trade war never dealt with it.
Bringing supply chains back home is desirable for so many reasons. But it will increase costs. It is likely that Mexico and Canada, our largest trading partners, receive a substantial amount of business in what is likely to be a North American supply chain build. Brazil will likely benefit from an expansion in the Americas too. Geography and diversification still matter. Having a presence in Asia is still critical. Countries like India, Vietnam, Bangladesh and Taiwan are likely to see an increase in development.
A mass movement of supply chains is not going to happen immediately. It is an expensive undertaking. Many companies are hurting and lack the funds to invest in new operations. It would also lead to higher costs for American consumers. At the same time, Chinese assembly lines have bounced back quickly. China still has the most robust and sophisticated supply chain in the world. It will not be abandoned completely. In some cases in Tech, they might not move at all. China is an important market with 1.4 Billion consumers.
What might future supply chains look like? It’s going to get a lot more digital. We are in the midst of the Digital Revolution, much like the Industrial Revolution a century and a half ago. Technology is disrupting everything. Disruption targets inefficiency. The rise of artificial intelligence (AI), big data and increased automation have changed the way things are produced. More and more is being automated. It’s evolutionary. Tasks are being replaced by machines. Thomas Edison recognized it. Henry Ford recognized it. Silicon Valley embraces it.
Robots are showing up in more and more factories. AI is also disrupting the supply chain with better predictive analysis, which can be beneficial when it comes to tracking and ordering inventory. Contracts and payment will get smarter. Blockchain will play a big role here.
Artificial intelligence monitors activity and can identify slowdowns so parts can be replaced before machinery shuts down. Sensors can also report efficiency and performance data to make supply chain management more efficient and predictable.
Made in America might return in 3D. We could very well see a modern, digital supply chain of smaller, regional manufacturing hubs scattered throughout America with 3D printers. It would be on-demand. Transitioning to on-demand manufacturing would significantly reduce cost. It would significantly reduce, if not eliminate, excess inventories. Digital files would provide the ability to quickly produce new iterations at little to no additional cost. It’s easy to see how this could work.
Innovation has always created new markets and new opportunities. It’s how companies, economies and societies sustainably grow. There is a big concern that robots are replacing people. That doesn’t have to be the case. Automation and Artificial Intelligence are making systems and repeatable functions easier and more efficient. Higher skills are required to succeed in the Digital Age, so education and adequate training are essential to keep up with the pace. Digital proficiency is essential for the next generation of jobs. The good news is, kids are always better with technology than their parents. But competition is heating up.
Where there’s a will, there’s a way. It’s very clear that the world is changing. But isn’t that always the case? It always has. It always will. And it’s all very investable.
Have a nice weekend. We’ll be back, dark and early on Monday.