Rethinking Global Supply Chains
If there is one thing the world learned about this month, it’s supply chains. There is no shortage of toilet paper in the wake of the coronavirus pandemic, and it’s not as if people are using more toilet paper while under quarantine.
The shortages of toilet paper on supermarket shelves are simply a result of a very small uptick in demand. Stores simply don’t keep a lot of toilet paper on hand; it’s bulky, it takes up space, demand is fairly constant, and in a world of just-in-time supply chains, everything should work out alright.
Of course, this isn’t the reality for shoppers. Panic buying and hoarding of toilet paper abound, but the reality is stores simply aren’t designed for even a slight uptick in sales of a good with very steady demand. No, there’s no toilet paper in the back, because that would simply take up space. Instead, toilet paper is delivered with just-in-time supply chains.
Over the last thirty to forty years, manufacturers and retailers have shifted from huge stockpiles and warehouses to a world where international shipping is cheap and efficient. Supply chains today are longer, and even global in scale. While this allows for consumers to get nearly any good in a matter of days from across the world, any disruptive event will do just that — throw the entire supply chain into chaos.
MIT’s Sloan School of Management came out with a think piece recently on the possibility of redesigning global supply chains, which is especially noteworthy considering the rise of toilet paper shortages and the possibility of a worldwide economic collapse.
In reassessing the risk to supply chains, there are a number of suggestions. Regionalization is a top concern, where suppliers and manufacturers are co-located nearby. Today, you can find many examples of this, from manufacturers and suppliers existing on the same block in the streets of Shenzhen, or the fact that Toyota’s plant in Georgetown, Kentucky also features 100 suppliers in the bluegrass state.
Secondary sources and stockpiles also meet the challenge of weaker supply chains. Here, there are fewer examples, but Novo Nordisk, manufacturer of half the world’s insulin, maintains a five-year reserve. Other companies have also diversified their manufacturing capabilities, with TSMC spreading out manufacturing across three science parks in Taiwan.
The coronavirus pandemic has the potential to radically change all manufacturing forever. Even now, Amazon, the biggest online retailer ever, is limiting inbound shipments to their distribution centers to health and safety essentials.
Distribution through Amazon to consumers isn’t going to work, and with rumors of US domestic air travel potentially closing, there will be no overnight shipments. The world isn’t in chaos yet, but we can imagine what chaos would be much more clearly.
A year or a year and a half from now, quarantines will certainly be lifted, and normal people will return to their normal lives. What remains of manufacturing and logistics will be radically altered. As we see now, what we’ve been doing is unsustainable, and new ways of doing things must be found.
