Editor's Note: In this excerpt adapted from his book, Reinventing the Supply Chain: A 21st-Century Covenant with America, University of Denver supply chain professor Jack Buffington reimagines how U.S. supply chains could be structured. He argues that U.S. supply chains are currently optimized to meet private market objectives and rarely “consider the resiliency needed to ensure the public good in a time of crisis.”
He proposes that public sector investment could be used to develop community-based supply chains that would “advocate for their citizens through innovation and enterprise.” These community-based supply chains, or enterprise zones, would use advanced digital technology to manufacture and sell products first locally and then globally. Buffington argues that these enterprise zones are not meant to displace large companies such as Amazon and Walmart, rather they are to act as their future competitors.
Since the beginning of the 21st century, one of China’s goals has been to create a supply chain strategy that balances itself through “dual circulation,” which means keeping its economy open to the world when it is in China’s best interest to do so, but then pulling back from globalization when its necessary to stabilize its domestic markets. The concept is an intentionally vague term and does not seem to be clearly articulated in any detail in official Chinese government economic plans, but it has been a foundational strategy of the nation since it entered the World Trade Organization (WTO) at the beginning of the 21st century. It is sometimes described as “capitalism with Chinese characteristics.” …
To compete with this 21st-century model of globalization, the United States needs to develop its own version of dual circulation with American characteristics by creating a community-based supply chain system. … This would involve the creation of an enterprise innovation model that takes advantage of the strengths of the American culture **ital{and} of a reindustrialization strategy to develop an American Silk Road of sorts. This model would consist of a networked collection of micro-manufacturing hubs at the community level using broadband infrastructure, advanced manufacturing techniques, and a modernized approach to American education. This model would leverage both America’s innovation engine and emerging 21st-century technologies.
This community-based supply chain systems would focus internally first and then project outward to the world, from localization to globalization, to create a “glocal” model. Compared to China’s approach of dual circulation, which controls the balancing of supply and demand through a centralized governmental system in which all roads lead back to Beijing, this American system would work through individualized producer and consumer channels. … The goal would be to reform markets through people, process, and technology, not bureaucracy and policy tactics.
America’s model should be for the public sector to incentivize nodal self-reliance, allowing the individual to express himself or herself through the market. This is a paradigm shift from large-scale global multinational corporations achieving economies of scale, often enabled by large institutions.
Through public investment in community-based infrastructures such as 3D printing and logistics centers, the United States could put communities that have been excluded from economic development for over half a century back on the map. … An entire glocalized supply chain could be constructed both by and for the community and networked across the planet. This networked supply chain could connect to the next town over, to an Asian corporation, to a seaport, or to any municipality worldwide. Such a model offers unlimited possibilities, all within the community’s own control rather than dependent on big government or business.
Think of this community-based system as one that mirrors the internet, a decentralized array of clusters, constantly changing, always connected. Its logistics are virtual algorithms rather than physical routes and destinations. … This model starts virtual and then is physical. Fulfillment in this new model is done virtually as much as possible before transitioning to traditional logistical forms such as warehousing, distribution, transportation, and retail stores.
Take, for example, West Baltimore, a crumbling community plagued by drug dealing and limited to remedial employment opportunities, such as retail food service at minimum wage. If West Baltimore had access to an upgraded broadband infrastructure, an open-source blockchain system to enable transactions, and an advanced manufacturing center to promote production, its schools could teach its students to act as nodes within a community-based supply chain system. A virtual logistics system would allow them to create a network across other communities through the internet. The planning, sourcing, and distribution of materials and services could be transacted through the blockchain. These materials and services could then be manufactured into products and distributed and retailed within a peer-to-peer model. Physical supply chains have flown over and around communities like West Baltimore; digital systems can reintroduce a communal and global approach or glocal virtual logistics.
A proposed glocal model is antithetical to what logistics professionals have been taught for decades: that optimization is a physical point A to B process primarily focused on cheap labor markets and technology. In this new model, let’s call it Logistics 2.0, supply chains will become more virtual than physical. Rather than optimizing from point A to point B to enable cheaper prices for consumers and producers, a digital supply chain system can eliminate these spatial challenges by eliminating these physical limitations and redefining who is a customer and who is a producer. Consumers and producers can be anyone, living anywhere, so as long as they are networked to do so. …
A national platform to kick off a community-based supply chain network would commence through incentives and subsidies for a public broadband infrastructure and public education reform. With this platform in place, a digital infrastructure would network each community in the nation and around the world, similar to how a national railroad system helped to create the physical network of the U.S. supply chain over a century ago. Then each state and local municipality could determine its separate economic development plan, perhaps through the seeding of business case funding for local communities to begin justifying their models. For example, the U.S. government could fund the infrastructure and educational strategy, and Maryland could fund the feasibility study and proof of concept of a community-based supply chain based in the city of Baltimore. If the feasibility study is justified, the federal and state governments could then offer further incentives or subsidies for local communities to purchase additional equipment for the community system, such as 3D printers, information technology equipment, and so on.
Through this model, local entrepreneurs—or nodes—are funded in an innovation-based approach, but one with lower barriers to entry than exist today (such as limits on significant capital funding requirements that make entrepreneurship a high-risk, entry-restricted endeavor). Building this 21st-century model of innovation, entrepreneurship, and supply chain through a community-based network model will take time and will require commitment. It will require iteration as the public and private sectors, as well as the nodes and existing businesses, learn how to compete against existing large multinational corporations. This is the real competitive advantage of this system compared to China’s state-owned enterprises.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
A new survey finds a disconnect in organizations’ approach to maintenance, repair, and operations (MRO), as specialists call for greater focus than executives are providing, according to a report from Verusen, a provider of inventory optimization software.
Nearly three-quarters (71%) of the 250 procurement and operations leaders surveyed think MRO procurement/operations should be treated as a strategic initiative for continuous improvement and a potential innovation source. However, just over half (58%) of respondents note that MRO procurement/operations are treated as strategic organizational initiatives.
That result comes from “Future Strategies for MRO Inventory Optimization,” a survey produced by Atlanta-based Verusen along with WBR Insights and ProcureCon MRO.
Balancing MRO working capital and risk has become increasingly important as large asset-intensive industries such as oil and gas, mining, energy and utilities, resources, and heavy manufacturing seek solutions to optimize their MRO inventories, spend, and risk with deeper intelligence. Roughly half of organizations need to take a risk-based approach, as the survey found that 46% of organizations do not include asset criticality (spare parts deemed the most critical to continuous operations) in their materials planning process.
“Rather than merely seeing the MRO function as a necessary project or cost, businesses now see it as a mission-critical deliverable, and companies are more apt to explore new methods and technologies, including AI, to enhance this capability and drive innovation,” Scott Matthews, CEO of Verusen, said in a release. “This is because improving MRO, while addressing asset criticality, delivers tangible results by removing risk and expense from procurement initiatives.”
Survey respondents expressed specific challenges with product data inconsistencies and inaccuracies from different systems and sources. A lack of standardized data formats and incomplete information hampers efficient inventory management. The problem is further compounded by the complexity of integrating legacy systems with modern data management, leading to fragmented/siloed data. Centralizing inventory management and optimizing procurement without standardized product data is especially challenging.
In fact, only 39% of survey respondents report full data uniformity across all materials, and many respondents do not regularly review asset criticality, which adds to the challenges.