Despite Recovery, Supply Chain Setbacks Still Persist
Manufacturers spend years developing strong supply chains. It’s disheartening to know that, in an instant, those supply chains can be completely neutralized — as was the case with COVID-19. But even more disheartening for many manufacturers is the fact that now, one year later, supply chains are still bogged down. The problem continues to be widespread and complex to work around and untangle.
As supply chain issues persist, many manufacturers are looking to start from scratch. As a result, 2021 could be the year reshoring efforts finally come to fruition.
Delays, setbacks, and costs
The problems facing supply chains are many. Closed or congested borders. An overburdened or short-staffed workforce. Stopgaps and pivots away from the norm. These are all deviations from the well-oiled, smooth-running supply chains that manufacturers are used to. The result is delays, setbacks, and higher costs on everything from raw materials to essential goods.
There’s pressure from the consumer end as well. In an interview with Boston’s NPR news station (WBUR), Harvard Business School professor Willy Shih discussed the consumer side of supply chain disruption. “Manufacturing capacity tends to be pretty flat,” he said. “So when people go out and hoard [toilet paper], then it drives these up-and-down spikes of supply and demand.”
For many manufacturers, the squeeze is still very real. Consumer demand is high, while setbacks from suppliers persists. The result is grim: shelves remain empty, profits dwindle, and the problem continues.
In one large example of how costly these problems can become, Ford Motor Company recently announced a major scale-back on the production of its best-selling F-150 trucks, citing lack of availability of semiconductors and microchips. For context, the Ford F-150 is the top-selling vehicle in the United States. It’s not without dramatic exception that companies willingly drop production of their cash-cow products.
Supply chain is still a house of cards
Manufacturers’ frustrations with supply chain are coming to a head. The result could be more supply chains coming home, back to American shores. The mindset is simple: pay more for reliability to avoid paying even more for the continued grief caused by embroiled supply chains. Companies like Ford are beginning to feel not only the sting of lost profits, but the hot knife of higher material costs. For many, the cost of reshoring is becoming equivalent, if not cheaper.
COVID-19 is not only a true black swan event, it also is a wakeup call for manufacturers as to the inflexibility of global supply chains. Although they may operate with swiftness and transparency, they do so at the cost of flexibility. When parts, products, and components come from half a world away, it’s difficult to mitigate disruptions. At home, every problem is within the purview of a manufacturer. The lesson learned is that more control is worth paying for.
With the prospect of reshoring incentives from the Biden Administration, the decision to bring more of the manufacturing supply chain home is one many producers will make in 2021.
