Coronavirus and the tunnel vision of macroeconomics
No matter how you define relevant, in the supply chain all relevant things never remain unchanged. We live in a dynamic world, and there are always surprises in the supply chain.
Steve Geary is adjunct faculty at the University of Tennessee's Haaslam College of Business and is a lecturer at The Gordon Institute at Tufts University. He is the president of the Supply Chain Visions family of companies, consultancies that work across the government sector. Steve is a contributing editor at DC Velocity, and editor-at-large for CSCMP's Supply Chain Quarterly.
According to the U.S. Census Bureau’s Economic Indicator Division, U.S. International Trade grew from $563 billion in 1980 to $5,619 billion in 2019. Many economists—dare I say most economists—view this explosion in international trade favorably. People in once proud manufacturing towns may not see it the same way.
While there is merit in the economists’ perspective, a supply chain professional could argue that economists have tunnel vision—their perspective does not acknowledge the full costs and risks that come with expanding global trade. Those of us in the supply chain are more likely to understand these risks. But for years, any supply chain professional who attempted to have a conversation about risks got a one-way ticket to visit the IT department, as many believed that better visibility or increased cybersecurity would provide a cure.
And then the coronavirus hit, and, suddenly, everyone is talking about supply chain risk.
Not without cost
It’s true that international trade creates jobs and boosts economic growth. Exports also expose domestic companies to a broader set of requirements and learning experiences. Research shows that exporters are more efficient and resilient than companies that focus on domestic markets.
So, according to an economist, global trade is good.
The past century taught us that the best way to boost exports is to remove friction from international trade. Governments have done this by reducing tariffs and other blocks to imports. Consider China. In 1989, according to the Census Bureau, the total trade in goods between the United States and China was over $17.5 billion. Thirty years later, the total trade in goods has grown to $558 billion, a development that economists were happy to see.
But this expansion in global trade also paved the path for the rapid dispersion of the coronavirus.
Additionally, those measures to remove friction from international trade reduced jobs in domestic industries that couldn’t compete outside of their domestic market. This led to job outsourcing, which is when companies relocate call centers, technology offices, and manufacturing to countries with a lower cost basis.
Consider Apple. Apple saw the shift predicted by the economists and moved decisively. Once a world-class operator with manufacturing based in California’s Silicon Valley, Apple began manufacturing iPhones in China in 2007. Today, substantially all manufacturing for all Apple products is done by Foxconn in China. Foxconn is the largest private company in China—not the United States—with over 1 million employees.
Apple may have some of the smartest technologists in the world, but it seems that they did not understand the concept of supply chain risk and risk management. According to the Financial Times on February 6, amid the uncertainty caused by the outbreak of the coronavirus, Foxconn was “recalling its factory workers in phases to its assembly lines as China struggle[d] to revive the world’s second-largest economy from the paralysis wrought by the spread of the coronavirus. But for Foxconn, China’s largest private sector employer with more than 1 million employees, a return to full production ‘will take weeks,’ said one person at the company with knowledge of the matter.”
Another benefit of global trade, according to economists, is that it creates more efficient capital allocation, an overall benefit to an economy. But it’s important to note that when digging deeply into statistics and analysis in academic economic literature, the qualifier “ceteris paribus” often appears. According to the Merriam-Webster Dictionary, ceteris paribus means “if all other relevant things, factors, or elements remain unaltered.”
No matter how you define relevant, in the supply chain all relevant things never remain unchanged. We live in a dynamic world, and there are always surprises in the supply chain. Long supply chains—global supply chains—inherently introduce risk.
These risks come in many different strains. Some are physical. Some are business-related. Some relate to technology. And some, like the coronavirus, are invisible. Invisible, but devastating. And removing barriers in the supply chain—opening up international trade—is one of the catalysts that has helped to spread the virus around the world.
Today, U.S. firms face a growing list of uncertainties in the supply chain. While the tariff war between the U.S. and China seemed to have cooled down for a while, it could flare up again. Then there are the increasing concerns around cybersecurity and intellectual property theft. In February, the U.S. Department of Justice charged China’s People’s Liberation Army with computer fraud, wire fraud, and espionage for hacking into Equifax. Also, in February, the Department of Justice indicted Huawei for stealing trade secrets and racketeering. Then there is the unresolved issue of Brexit. Now layer the coronavirus on top of all that.
Spread your bets
The complexities of global supply chains cannot be captured in a single set of statistics like the total international trade import and export volumes that economists look at. There are always other factors. To address the oversimplification and collateral damage implicit in the economist’s view, we need to step outside the macroeconomic framework.
The macroeconomic view of international trade leaves out risk management, a key factor in a supply chain decision process. Supply chain decisions never benefit from perfect information; they are inherently made in an environment of uncertainty and risk.
How do you respond? By spreading your bets. According to The Business Dictionary, investment risks can be reduced or eliminated “by combining several diverse investments in a portfolio. Nonmarket (nonsystemic) risks are diversifiable risks.” In supply chain terms, you need to spread your sources and your target markets around rather than going all in with one supplier, like Foxconn, or one country, like China.
This is not an economist’s view. This is not a theorist’s view. This is a practitioner’s view. This is a supply chain view. This is how a true supply chain professional manages risk.
Patrick Thompson explores supply chain risks in his Q3 2019 article, “Trade wars and tariffs: understanding the risks in your supply chain.” His advice, summarized in the following simple checklist, applies to the current circumstances as well. To manage risk, ask yourself the following questions:
Do you have a contingency plan to shift to sources away from troubled suppliers or regions? Contingency plans matter, especially for internationally sourced items or international markets.
Do you have a risk-adjusted process to manage threats across your supply chain portfolio that addresses events like the coronavirus? Oversight matters.
Do you have any way of assessing the impact of risk propagating through the lower levels of your supplier network? Tier 2 matters.
Do you have any way of assessing the impact of risk propagating through your markets? Think about the customer’s customer, too.
Have you identified and developed alternative sources of supply, especially for your internationally sourced components? Ordering from a location in the United States doesn’t necessarily mean your product is coming from the United States.
Those are the sorts of inputs supply chain professionals should have at their disposal when assessing risk across their portfolio. There are more. Build your own list.
The coronavirus is a wakeup call to every supply chain professional. Take off the blinders. Avoid tunnel vision. Peel back the layers. Take control. Get to work.
While the Council of Supply Chain Management Professionals' 2024 EDGE Conference & Exhibition is coming to a close on Wednesday, October 2, in Nashville, Tennessee, mark your calendars for next year's premier supply chain event.
The 2025 conference will take place in National Harbor, Maryland. To register for next year's event—and take advantage of an early-bird discount of $600**—visit https://www.cscmpedge.org/website/62261/edge-2025/.
**EDGE EARLY BIRD Terms & Conditions: Promotion is for the EDGE 2025 conference in National Harbor, Maryland. Offer valid for Premier and Basic Members only. Offer excludes Student, Young Professional, Educator, and Corporate registration types. Offer limited to one per customer. Offer is not retroactive and may not be combined with other offers. Offer is nontransferable and may not be resold. Valid through October 31, 2024.
Honoring supply chain professionals and companies for their contributions to the industry is a tradition at the Council of Supply Chain Management Professionals annual EDGE Conference. The following are some of the recognitions given out this year.
The 2024 Distinguished Service Award was presented to Heather Sheehan, owner of Crispy Concepts LLC, instructor with Penn State University, and board member and adjunct faculty member with the University of Denver’s Transportation & Supply Chain Institute.
Sheehan, along with Roger Penske, chairman of Penske Corp., were inducted into CSCMP’s Supply Chain Hall of Fame.
Travis Kupla, Ph.D, of the University of Arkansas, won the Doctoral Dissertation Award for his paper “How Supply Chains Respond to Disruptions: Three Essays on Responses to Operational, Geopolitical, and Natural Disaster Disruptions.”
The Bernard J. La Londe Best Paper Award was given to Matias G. Enz from the University of Missouri-Saint Louis, and Douglas M. Lambert from The Ohio State University for their paper “A Supply Chain Management Framework for Services.”
Wenting Li and Dr. Yimin Wang of Arizona State received the E. Grosvenor Plowman Award for their research paper, “A Procurement Advantage In Disruptive Times: New Perspectives On ESG Strategy And Firm Performance.”
The Teaching Innovation Award was given to Dr. Shane Schvaneveldt of Weber State University for his paper, “A Lean 5S Experiential Learning Game for Logistics and Supply Chain Management.”
To see a full list of honorees, please visit cscmp.org and click on the tab "Academia & Awards."
Supply chains today are facing an onslaught of disruption and change from geopolitical events to technological advances to economic shifts. Supply chain partners that successfully navigate those changes together will seize a competitive advantage that will win them market share and increase profits.
The “2025 Third-Party Logistics Study,” spearheaded by Dr. C. John Langley of Penn State University and developed in collaboration withNTT DATAand Penske Logistics highlights the crucial role that change management plays in the relationship between third-party logistics providers (3PLs) and their customers. Unveiled today at the Council of Supply Chain Management Professionals (CSCMP) EDGE conference, the study delves into the dynamic nature of relationships between shippers (companies that manufacture goods or provide services) and third-party logistics providers.
“While users and providers of 3PL services continue to report successful relationships, they find themselves having to deal with an increasingly wide range of challenges,” said Dr. C. John Langley, Professor, Supply Chain & Information Systems, Penn State University. “While examples include economic concerns, geopolitical unrest, and changing markets for supply chain services, they also are taking advantage of change management processes to benefit from new and improved capabilities such as artificial intelligence (AI) and direct-to-customer proficiencies.”
The survey found that both shippers (61%) and 3PLs (73%) agree that supply chain change management is vital. Respondents from both groups indicated that the top factors that are driving the need to change their operations were shifting customer demands, economic factors, and technological advancements. In particular, both shippers and 3PLs believe that improvement and change is needed in supply chain visibility, with 69% of shippers and 68% of 3PLs citing it as an area of concern.
AI as change agent
One technological advance that is enabling change in supply chain operations, according to survey respondents, is AI. Both shippers and 3PLs agree that AI can be pivotal in automating data analysis, identifying patterns, solving problems, and automating repetitive tasks. Top implementation areas for AI cited by respondents include supply planning and demand forecasting (33% of shippers and 19% of 3PLs) and transportation and route optimization (27% of shippers and 22% of 3PLs).
The e-commerce effect continues
Omnichannel retailing and e-commerce continue to exert pressure on supply chain operations for shippers and their third-party logistics partners. Both shippers and 3PLs view delivery speed and visibility as strong areas of differentiation. According to the study, 48% of shippers and 53% of 3PLs reported that customers routinely expect deliveries in less than two days, and 27% of shippers and 26% of 3PLs noted that there are three-day or less delivery expectations. Shippers (44%) and 3PLs (38%) are willing to absorb a small percentage of the costs related to shipping speeds.
The Annual 3PL Study surveys 3PL providers and users of 3PL services to understand the current state of 3PLs and how 3PL relationships are evolving with their customers. The 2025 study and past versions are available for download at www.3PLStudy.com.
Container flows at dozens of U.S. East Coast and Gulf Coast ports shuddered to a simultaneous stop this morning when dockworkers launched a promised strike over pay levels and job automation.
The action is affecting work at major locations such as New York/New Jersey, Savannah, Houston, Charleston, Norfolk, Miami, Baltimore, Philadelphia, New Orleans, Jacksonville, Boston, Mobile, Tampa, and Wilmington. That broad span of geographic locations will affect imports and exports for industries spanning retail, automotive, agriculture, food and beverage, and manufacturing, according to an analysis by Overhaul.
Those impacts are forecast to grow rapidly with each additional day the strike continues, since more than 100 vessels are estimated to arrive at the 36 affected ports this week alone, according to analysis by supply chain visibility provider Project44. The recovery from that backup could take some time, as some shippers estimate that for every one week of strike, it will take 4-6 weeks to fully recover, the firm said.
Because of the sudden stop, logistics providers today are quickly reaching out to shippers and other clients to plan for future cargo movements. Specifically, the strike immediately froze a range of work such as the movement of import and export containers and the loading and unloading of containers, according to German maritime transportation provider Hapag-Lloyd AG. “As a result of this situation, which is beyond our control, we will need to adjust our services or temporarily suspend operations as conditions evolve. Our priority remains the protection of your cargo during this period,” Hapag-Lloyd AG said in a note to shippers.
Despite those large impacts, the timeline is unclear for finding a resolution of negotiations between the union—the International Longshoremen’s Association (ILA)—and the port management group, United States Maritime Alliance (USMX).
Under those conditions, retail and manufacturing groups have renewed their calls for their White House to step in and force workers back on the job while negotiations resume.
One of those voices came the National Retail Federation (NRF). “NRF urges President Biden to use any and all available authority and tools — including use of the Taft-Hartley Act — to immediately restore operations at all impacted container ports, get the parties back to the negotiating table and ensure there are no further disruptions,” NRF President and CEO Matthew Shay said in a release. “A disruption of this scale during this pivotal moment in our nation’s economic recovery will have devastating consequences for American workers, their families and local communities. After more than two years of runaway inflationary pressures and in the midst of recovery from Hurricane Helene, this strike will result in further hardship for American families.”
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Flying Ship CEO Bill Peterson poses with a model of his unmanned ground-effect maritime cargo craft.
Perfect Planner, a cloud-based platform designed to streamline the material planning and replenishment process, and Flying Ship, an unmanned ground-effect maritime cargo craft, took home the second annual “3 V’s of Supply Chain Innovation Awards” tonight at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tennessee.
This awards contest is hosted by Supply Chain Xchange and 3 V’s framework creator and supply chain visionary Art Mesher. It serves to recognize those companies that have created technology or automation solutions that exemplify Mesher’s 3 V’s framework of “embracing variability, harnessing visibility, and competing with velocity.”
Business Innovation Award
Art Mesher, creator of the 3 V's Framework (left) and Rick Blasgen (right), former CSCMP President and CEO, present Tom Biel (center), CEO of Perfect Planner, with the 3 V's Business Innovation Award.
Susan Lacefield
Perfect Planner won the 3 V’s Business Innovation Award for its software solution that uses artificial intelligence to automatically generates daily "to-do lists" for material planners/buyers. All the “to-do’s” are ranked in order of criticality. The solution also uses advanced analytics to understand and address inventory shortages and surpluses.
The two other finalists for the Business Innovation Award were AutoScheduler AI, a predictive warehouse optimization platform, and Davinci Micro Fulfillment, which provides a micro fulfillment service out of a network for small distribution centers across the United States.
Best Overall Startup Award
Flying Ship was awarded the Best Overall Startup Award. The company has designed an unmanned flying ground-effect maritime vessel. Although the Flying Ship looks like a small aircraft or large drone, it is classified as a maritime vessel because it does not leave the air cushion over the waves, similar to a hovercraft.
According to Flying Ship CEO Bill Peterson, the craft is 75% less expensive than a traditional aircraft and “faster than anything on water.” The prototype has a wingspan of 6.5 feet and can be scaled up to deliver 10,000 pounds of freight to “anywhere with a coastline” using autonomous systems.
The other startup finalist included Arkestro, a predictive procurement orchestration solution, and Provision AI, an optimized replenishment and transportation scheduling solution.