During the past year and a half, we have seen supply chains stressed more than at any time in recent memory. Pandemic disruptions, the explosion of e-commerce, and shortages of key products and components have all kept supply chain managers up at night.
Many of the woes we’re experiencing stem from decisions made decades ago.
At one time, the United States was a manufacturing juggernaut. Our factories produced some of the world’s most sought-after products and provided good-paying jobs for millions. But in a push to find cheaper labor, companies shuttered domestic plants in favor of using contract manufacturers in China and other Asian nations.
The plan seemed to work. Products were cheaper to manufacture in Asia, and the labor savings far outweighed the added shipping costs. Supply chains were so finely tuned that inventories could be managed with just-in-time principles, with products arriving just when they were needed. Companies’ inventory carrying costs dropped, and all seemed right with the world.
Then a perfect storm hit: a worldwide pandemic, rising wages in China, and product shortages caused by hoarding, to name just a few of the challenges. And while the pandemic has since begun to ease, the pain hasn’t gone away. Pandemic-induced shutdowns and a stalled economy forced carriers to reduce capacity last year, leaving them ill-equipped for this year’s rebound. The resulting shortage of equipment—containers, chassis, ships, trucks, and more—has caused freight costs to skyrocket, with container rates several times higher than the norm. And there is no real end in sight, at least not this year.
What once seemed like a good idea—chasing cheap labor—has resulted in broken and costly supply chains.
Maybe it’s time to bring manufacturing home.
It’s true that we don’t have the manufacturing knowledge we once had. We lack a skilled workforce to operate the facilities. But that is where automation comes in. With automation, we can build the products we need at comparable costs to overseas labor. We shorten supply chains by eliminating the need for long-distance transportation. We become nimbler and more responsive. And we reduce our dependence on foreign governments that have forced us into tariff wars and political posturing.As politicians like to frame it: We can build back better following the pandemic. Part of that is to build a supply chain infrastructure that is not as vulnerable to changing market forces entwined with foreign pressures and controls. It’s time to come home.