Strong Economies Are Built on Manufacturing - conversation with Professor Lynn A. Fish

You have been teaching and researching operation and global supply chain management for quite a long time at Canisius College, a Jesuit college located in Buffalo, Upstate New York. Can you shed some light on the rise and importance of global supply chains in the world economy today? What in your view are the consequences of this phenomenon for businesses as well as for national economies?

Since COVID19 and its associated ‘stay at home’ orders, many customers have experienced slowdowns in receiving their goods – or even worse, the inability to obtain an item. In the past decade, Americans have become accustomed to receiving their items on demand, especially through services such as Amazon Prime. Now, goods that are purchased online from other parts of the world may take an exorbitant amount of time to reach the customer. Americans have little ‘patience’ for the time delay. The business that can get the end customer the good faster will end up with the sale.

What this means for global supply chains given the ‘longer, slower’ supply chains with COVID19 is the ‘loss of the sale’.

We are seeing a ‘protectionist’ strategy throughout the world – not just in the United States as other countries also look to manufacture at home to meet the competitive need to be ‘first’ to the customer. I am not an economist; however, what this means to me is a shift away from global economics toward a domestic model.

Thus, global supply chains play a leading role in solidifying economic globalization that knows no national borders and has been forging increasing interdependence among national economies. However, from national lockdowns to closed airspace and borders, COVID-19 has resulted in unprecedented disruption to these supply chains. What were or are the most vulnerable supply chains in your view and what are the immediate lessons of the current pandemic that businesses can learn?

The most vulnerable supply chains are the supply chains that provide ‘basic needs’ to people. People cannot wait for food, clean water, personal protection equipment, medical supplies or pharmaceutical supplies. Therefore, near-by suppliers will reap the rewards of being able to supply to the local market. Essentially, these are ‘shorter’ supply chains that can respond quickly to the needs of the end customer. With that said, the food supply chain is particular susceptible to issues throughout the entire supply chain. For example, the lack of migrant workers in a region can significantly impact upon the ability to pick the crop at the proper time, and may result in tons of spoiled food. As the pandemic hit the pork producers in the Midwest, the producers were unable to slaughter the pigs at the appropriate time, and therefore did not purchase the pigs from the farmers, who were left to dispose of the pigs on their own. Add to this scenario, a decrease in the number of trucks moving the finished product throughout the country, and again we see a disruption in the food supply chain. And somehow, the food still keeps ‘moving’. Supply chains that adopted lean production practices without redundancy in their supply chains are also vulnerable at this time. So, what immediate lessons can be learned at this time? The key here is ‘moderation’, that is, supply chains need to be developed that build redundancy into the supply chain. Risk management in supply chains needs to be addressed, and then, where it makes sense, redundancy needs to be built in.

The ongoing pandemic did not only shed lights on the vulnerabilities of global business models, but it also exposed the weaknesses that are rolling out of outsourced productions. For example, China nationalized the control of the production and distribution of medical supplies, directing all production for domestic use. How do you see the likelihood of more long-lasting structural shifts in supply chains that will better serve the interests of national economies after the pandemic?

Unfortunately, we are entering a period of protectionism. There is a continuous movement between globalization and protectionism that exists down through history. On top of the economic movements that the President and his staff have been making over this presidency, the pandemic only acerbated the need to shift more manufacturing back to the United States. This applies to other countries as well. Countries will want to control the necessary ‘safety’ items that people need in pandemics – ventilators, masks, and hand sanitizers, for example. The shift back toward ‘Made in America’ – or ‘Made in France’ – or whatever country will continue as the pandemic continues. I’m talking a decade or more before the pendulum will start to swing back toward globalization.

With that said, strong economies are built on manufacturing and not service economies.

The key is to find the ‘balance’ or moderating point between a manufacturing and service economy. Note that when I’m talking about manufacturing economies, I am not talking about moving the way that items are produced in China back to the United States. Companies that do not change the processes and do this will end up bankrupt as they simply won’t be able to compete with the lower costs. Manufacturing will come back to the United States as advanced manufacturing and require less labor. The jobs will require a different skill level than the ‘assembly’ jobs in China.

Looking at this dilemma from a broader perspective; we can also witness renewed efforts to realign supply chains closer to home countries. For example, the US-China trade war already pushed companies to explore options elsewhere than China, but the French president also announced his commitment to relocate strategic production sites in France. How do you see this this trend and its effect on supply chains?

As I’ve noted above, I believe the trend will be back toward a ‘manufacture at home’ effect for critical items. Items that the consumer is willing to pay less for but wait longer to receive as they cross oceans will still be acquired from abroad. The end consumer will define what he or she is willing to wait for – and what they are not. Without a vaccine to fend off COVID19, people are not willing to wait – or can’t – for critical pharmaceuticals or ventilators – and they don’t want to wait for personal safety items such as masks or hand sanitizer either. Supply chains need to careful analyze the fit of the items with the type of supply chain that it designs. Fisher’s framework for efficient versus responsive supply chains still holds, but its critical that the supply chain understand what type of product the end customer considers the item to be.

In light of the recent years’ trend, how would you assess the benefits and downsides of the rise of global supply chains since the 1970s? What state or international regulations would you outline to reduce or even eliminate the negative effects or risks of globalized business operations?

Since the 1970’s with the quality and lean production movements occurring in the 1980’s and 1990’s along with improvements in transportation and the advent of computer technology, governments have taken steps toward globalization on behalf of their citizens. First world countries citizens experienced an increase in disposable income and enjoyed the luxury of ‘buying what they wanted, when they wanted’. Essentially this led to products being available throughout the world at an affordable price.

Today, a citizen’s basic need to be healthy and safe essentially trumps the push for globalization.

In the past few years, China has taken internal steps to ‘command and control’ the medical and personal protection equipment markets. There isn’t a single country in the world that chooses to rely on China for its own health and safety. Countries are just not willing to take that chance. I really don’t have a specific outline of regulations that would reduce or eliminate the negative effects or risks of globalized business operations. At this point in time, I think there is a need to find a ‘moderating’ point that balances the two. By its very nature, the Chinese government takes action to promote ‘command and control’ of various industries as it sees fit – and other countries cannot compete. It is not a ‘fair market’. Until all of the countries operate as a ‘fair market’, regulations and tariffs will hinder the growth of globalization.