Let’s bring production onshore, but it might not ensure supplies
The pandemic has changed the way we think about supply chains, in particular the chains that feed our need for food, medical supplies, and defence equipment. It has led Prime Minister Scott Morrison to frame access to supplies in terms of economic sovereignty. Andrew Liveris, now an advisor to Morrison, and a former Dow Chemical Chief and advisor to both the Obama and Trump administrations, is pushing for re-shoring of critical supply chains. “Australia drank the free-trade juice and decided that off-shoring was okay,” he is quoted as saying. “Well, that era is gone.” But ensuring supplies can withstand shocks needn’t mean bringing production onshore. It might make it harder. Stockpiling isn’t that useful Firms usually talk about managing supply risk in terms of resilience or robustness. Robustness is the ability to continue supplying during a disruption (for a while we didn’t have this with toilet paper). Resilience is the ability to get supplies back to normal in an acceptable time frame (which we had with toilet paper). For critical supplies, robustness is the most important, but it hard to achieve for entire categories such as “medical equipment”. There, stockpiling is of limited use. The United States has a stockpile of oil, enough to fill half of its car tanks. Canada has a vault of maple syrup, called a “strategic reserve” – about 80,000 barrels worth. But when it comes to stockpiling “medical equipment” we might put a lot of effort into stockpiling ventilators, for example, only to find that the next emergency requires something different, or a different type of ventilator. And it’s hard to stockpile fresh food. We are exposed at choke points Face masks and food illustrate the risks. Half of global facemask production is concentrated in China. China’s factories closed during its lockdown at the time global demand simultaneously soared, resulting in a major shortages. Australia is one […]