As the COVID-19 pandemic continues to disrupt the flow of products from Asia, many businesses here are working to secure stronger supply chains.
“The coronavirus has been a big wake-up call for a lot of companies,” said Rosemary Coates, an adviser to the University of San Diego School of Business’ Supply Chain Management Institute and founder of The Reshoring Institute. “I think we are just at the beginning of how supply chains are going to be affected. About 40 percent of the production of the world’s goods comes from China. Most (U.S.) companies have 30 to 60 days of inventory.”
Dependence on products manufactured in China has made businesses extremely vulnerable to supply disruptions, said Kate Winfield, supply chain manager for Viasat in Carlsbad.
A supply interruption “impacts your reputation,” Winfield said. “It affects revenue, competition, time to market. Supply chains are global now. There is reliance that extends beyond the U.S. At the end of the day, if you can’t deliver your product you have nothing.”
Buying products from Asia, where labor costs and goods are cheaper, has made many U.S. businesses more profitable, said Joel Sutherland, managing director of the Supply Chain Management Institute. It also has made companies here dependent on the wellbeing of foreign manufacturers. There is a greater need to find multiple sources of supplies and to continually monitor the ability of foreign companies to maintain their shipments.
Diverse Supply Networks
Sutherland doesn’t foresee an increase in U.S. manufacturing to reduce the dependence on foreign suppliers. That’s why it’s important for businesses here to establish diverse supply networks. Depending on a single source, no matter where it is located, is much too risky. “They shut down, you shut down.”
San Diego-based Bumble Bee Foods has seen a rise in demand for its products during the COVID-19 outbreak. To keep up with demand, the company is working closely with its suppliers.
“We are in constant communication with both our suppliers and customers and have been successful at keeping up with the accelerated sale of our products,” the company told the San Diego Business Journal. “We’ve been in business more than a century and have deep experience and expertise in supply chain management and are confident in our ability to navigate consumer needs in the weeks and months ahead.”
Even if supply chains are diversified, it’s not practical to think U.S. businesses can find all of the goods they need in America and remain profitable, said Sutherland. Dependence on overseas companies is not likely to go away.
“Everything is driven by cost,” he said. “If we say we are going to do it all here, our labor costs will be higher. Our material costs probably will be higher. You have to have the global view. The world is our supply chain. It’s not just our city or state or our country.”
Successful supply chain management in the future will be complex. It will require monitoring events and conditions that could affect companies overseas.
Understanding Your Suppliers
“You have to look at the supplier and understand what is happening, not just your own business,” he said. “You have to predict the downstream demand. That is going to drive what you make and how you make it.”
The wellbeing of supply chains should be considered when governments consider imposing tariffs on foreign exporters, Sutherland said. It’s no longer possible to separate the health of U.S. companies from its partners overseas.
The failure of manufacturers abroad can have a powerful ripple effect within the U.S. economy, said Rick Fultz, chief business officer at Biocom, a San Diego-based life science trade group. He noted that about 85 percent of U.S. pharmaceuticals now have components made in China. American pharmaceutical companies today must make sure they have backup suppliers in other parts of the world.
“Having backup plans, having diversity is important,” he said. “There are ways to get chemicals from Russia, Africa, India.”
The COVID-19 pandemic has placed a spotlight on supply chain managers. Lisa Shambro, a supply chain consultant and the founder of Audit One, views them as the unsung heroes of American business.
“They are the people behind the scenes who make sure the product gets where it’s going,” she said. “Very seldom are they front and center.”
A New Respect
Until recent years, securing a supply chain often was treated as an afterthought by American businesses, said Coates.
“Over the past 15 years or so companies have come to recognize the integration of supply chains across operations,” she said. “It used to be you had a shipping supervisor who ran things with a high school education. The strategic component the work involves has changed. You can’t expect a shipping supervisor to be thinking about global sourcing. It’s a different skill set.”
Sutherland noted that the Supply Chain Management Institute has more than 200 students who are pursuing undergraduate and graduate degrees.
“The demand for supply chain talent is much greater than the supply,” he said.
Jim Best, chief growth officer at EKA Solutions and an adviser to the Supply Chain Management Institute, said the growing awareness of the need to secure supply lines is drawing more people into the profession.
“Some of the best minds in business are in the supply chain track, because it is so vital,” he said.