Contrary to popular belief, the current supply chain crisis has not been caused by the global pandemic. As early as April 2020, Nassim Taleb — widely regarded as the world’s preeminent risk analyst — argued correctly that the coming crisis would not be a pandemic-driven black swan event but rather an entirely predictable case of the proverbial chickens coming home to roost. (Chickens representing 30 years of unchecked globalism.)
Nassim’s predictive power is based on insights drawn from the sciences of complexity — sciences that have long understood that complex systems such as the global supply chain are inherently fragile. The non-linearity of such systems means there is no single cause of, nor cure for, the current crisis, lying as it does at the heart of US supply chain models and infrastructure. This means that without a systemic focus on rebuilding these models and infrastructure, solutions will be short-lived and unsustainable.
Made-In-America vs. Globalization: Dismantling the Dichotomy
The US can no longer develop and manufacture many of the products essential to its interests. This challenge is two-sided because it must address both the supply side (the question of US-based production capability) and the demand side (how products are procured, distributed, and sold).
The two sides of this challenge can too often lead to a Made-In-America vs. Globalization dichotomy. But there is no going back to the strict American self-sufficiency of a pre-industrial era, nor is there no going blindly forward with unchecked globalization.
At Pivot International, we propose a dismantling of this dichotomy by strategically balancing the benefits of domestic capability with global sourcing. As a US-based one-source leader with nine subsidiaries across three continents and 320,000 square feet of manufacturing capability, we help our clients fight successful sourcing battles while also focusing on what it will take to win the broader supply chain war.
In this piece, we’ll examine the complex interdependencies of the global supply chain crisis. Where relevant, we’ll propose shorter-term tactical solutions and outline potential longer-term state-led strategies for creating antifragile supply networks and infrastructure.
Identifying and Exploiting Areas of Overlap
Manufacturing a product requires not just raw materials, components, and equipment but also staffing. The supply chain crisis has highlighted the complex interdependencies between all these variables, revealing how a breakdown in one is a breakdown in all. If a country has robust domestic and global sourcing options across these variables, it stands an exponentially better chance of defending itself against global crises.
Identifying and exploiting areas of overlap in order to repurpose production is critical to shaping supply chain solutions during a crisis — a tactic used by many US companies to good effect at the peak of the pandemic to source PPE. This illustrates why it’s critical to enlist a supply chain partner to identify and exploit areas of overlap between product sectors and skillsets. At Pivot, this has been one of our most successful approaches to combating disruption, both before and during the current crisis.
Domestic sourcing is resilient, but it can also be expensive. And because members of group purchasing organizations (GPOs) join forces for the express purpose of driving down costs, it’s practically unheard of for them to pay a premium for domestically sourced goods without the express mandate of customers.
On the buyers’ side, companies typically prefer to preserve relationships with existing (offshore) vendors, especially when they’ve brokered long-term contracts that put them at the first of the line in the event of supply shortages or delays. Though these choices make sense, they also make it nearly impossible to rebuild US supply chain infrastructure at a scale that reconciles resilience with cost savings.
Government Investment and Incentivization
To rebuild the US supply chain infrastructure with the goal of reconciling resilience with cost-savings, domestic sourcing can’t be an emergency go-to but rather a sustainable longer-term option. One way to accomplish this is with government investment and incentivization via fixed-volume extended-term contracts, tax credits, and the like. This approach would serve a double purpose. First, state-led domestic purchasing could help to dramatically reduce or nullify price premiums to ensure stable and predictable demand for US production. This would create the conditions for manufacturers to plan, amortize their investments, and recruit key talent. Second, it could ensure consistent replenishment of parts, components, and products for ongoing use, as well as potential stockpiling needs.
At the policy level, rebuilding US supply chain models and infrastructure will require regulatory changes that favor domestic producers. The October 13th convening of key industry stakeholders by the Biden Administration suggests that the current administration is aware of the need for executive action to mitigate the current crisis while overcoming the broader problem of American import dependence.
For nearly 50 years, our teams at Pivot have successfully seen our clients through geopolitical, climatic, and economic disruption. As a proven leader in alternative sourcing solutions with company-owned facilities and a diverse domestic and global sourcing network, we help you safely weather the storm and prepare for a more secure future. Contact us today to learn more about how we can ease your sourcing challenges and start or unstick any aspect of your product development.