The World is Flat & the Demise of the Global Supply Chain
In 1492 nearly everyone thought that the world was flat. Ships who ventured too close to the edge of the earth would fall in an abyss to their death or be eaten by large dragon like creatures. Columbus overcame all of that and the earth became round. That truth became foundation for a long time. But fifteen years ago Thomas Freidman published his book The World is Flat. It was the Financial Times Business Book of the Year in 2005 and sold millions of copies. It is because the gospel of global trade. In the book Friedman laid out the basis of offshoring, outsourcing and supply-chaining. Business owners read the book and accepted that the future was a global economy with both essential parts and essential products manufactured in all parts of the world, most dominantly in China. Six months ago, predictions for manufacturing trends during 2020 included more globalism with acceleration of Industry 4.0 technologies to make things faster, smarter and of higher quality. Predictions anticipated the growth of analytics, robotics and additive manufacturing. We couldn’t see, even then, that globalism would soon be dead. The flat world of Friedman would be disrupted even more quickly than the flat world of 1492 was disproved by Columbus.
In Q1 2020 the bubble burst. The Corona Virus, COVID-19 swept the world. There were immediate disruptions in manufacturing, transportation and supply chains. More than 220 US publicly traded companies reported an impact on their supply or production. Stock markets around the world suffered their worst falls in history. The fundamental premises of Freidman’s treatise proved flawed. What had become the new normal for manufacturing was no longer effective. Low cost goods were no longer low cost because they weren’t available. The cost of pharmaceuticals, medical supplies and medical devices was no longer the critical factor – availability was. Disrupted supply chains that kept critical parts of automobiles unavailable and held up production of entire plants wasn’t an acceptable alternative. Closed borders that prevented engineers and business executives access to their foreign plants reduced effective manufacturing. Global manufacturing declined as businesses with international supply chains could operate only intermittently.Tourism and related businesses declined sharply or stopped completely.
While we are still in the first phase of the pandemic and it is difficult to predict the future, it is very doubtful that when the virus subsides, and life returns to “normal”, the new normal will resemble the normal of years past. Each manufacturer will need to revisit their processes, their supply chain, their source and their markets as well as their costs. As part of the multi-trillion incentive packages put together by congress both Democrats and Republicans are suggesting government incentives to bring manufacturing back to the United States. There will be demands for “Made in America” products and the total price of critical items will not be an issue. We may buy toys and games and gadgets from overseas. But manufacturing of pharmaceuticals, steel, food, energy and anything else considered essential will be sourced from the US or from very close trading partners.
At Optimation our passion is US manufacturing. We believe in Yankee ingenuity and the creative spirit of the American inventor and engineer. With high levels of automation, the additional cost of American labor can often be offset by shipping costs. The risk of disruptions like the one from COVID-19 are too high. Made in America can be the new mantra. US Companies can own and operate manufacturing plants in all parts of the world, but these plants should make products primarily for use in the nations of origin. We shall become more closely aligned to self sufficiency once again.