A COVID-19 Question
The COVID-19 Pandemic will leave the world and the United States with lingering questions and challenges around our supply chains.
While most of our supply chains have remained stable, operating with unwavering resolve, a simple visit to the local grocery store or check-in on the nightly news proves that there are real inefficiencies at work in some of our nation’s most vital systems.
COVID-19 hit China in late 2019 and spread to the world in early 2020, and there was an almost instant lack of vital medical supplies like facemasks, ventilators, gloves, gowns, and shields. But even before the virus arrived in the United States, the pandemic wreaked havoc on supply chains, sending the global stock market into a free fall.
It’s no secret that the U.S. imports a lot of goods from China, but just how much?
According to the U.S. Trade Office, China is our biggest goods trading partner. Over 21% of all U.S Imports in 2018 came from China, and the U.S. owns a $345 billion deficit in the relationship.
So, the question is now being asked – Does America need to diversify its supply chains, and are we too reliant on Chinese made products?
Retail Corporations say…maybe
The coronavirus pandemic and the recent China/U.S. trade war have sent a signal to many sectors that perhaps they’re too reliant on China.
For example, with 20% of retail goods being made in China, many retail companies are beginning to examine how much of their products are imported from the manufacturing giant.
Terry Lundgren, the former CEO of Macy’s, was recently asked by CNBC if retail relied too much on China. “The answer is yes. It is too much.”
“Something like 90% of all footwear under $100 at retail are coming out of China. And we all need to diversify that strategy. “ Lundgren pointed out that categories vary, and depending on the product, there are varying levels of risk exposure.
It’s not just fashion and textiles. According to a recent LA Times article, Proctor & Gamble has 387 suppliers in China that ship over 9,000 materials globally, affecting 17,600 products. When that sourcing of materials goes dark, there are substantial ripple effects.
In 2020, Supply chains have been disrupted by the stringent measures taken by China and other countries to contain the outbreak. This disruption has translated to the cash register, with Microsoft, Apple, and P&G forecasting weaker than expected profits.
The Health Sector Needs Help
The United States is highly dependant on China for medical supplies.
The United States relies on China for a majority of our syringes, antibiotic penicillin, and breathing masks. China is also our most significant supplier of medical devices. These include things like MRI equipment, surgical gowns, and equipment that measures oxygen levels in the blood.
Plus, with China playing the role of the largest and sometimes only global supplier of active ingredients in medications, our reliance on China manufacturing has only grown. 80% of pharmaceuticals sold in the U.S. are produced in China.
China’s dominance in the category has raised warning signs. The U.S. China-Commission sent out a warning in their 2019 Report to Congress, “United States’ growing reliance on Chinese pharmaceutical products puts U.S. consumers — including active service members and veterans — at risk if China cuts off drug supplies or hikes the cost of a given medicine during heightened geopolitical tensions.”
As we are now seeing, this overreliance is particularly dangerous in a time of crisis. But, changing course would be a massive shift in the paradigm.
The United States has mostly stopped producing generic pharmaceuticals, and most production has moved offshore. The U.S. has virtually no capacity to make the generic antibiotics to treat uncomplicated ear infections, strep throat, or pneumonia.
Change is obviously coming. But what the difference in supply chains will look like is unclear.
How will private companies address supply chain risk? Tim Ryan, US Chairman and senior partner at PwC, said on a media call this week, “I see the focus right now on diversification.”
This may be true. In a recent survey of CFO’s published on March 25, 42% of CFO’s expect to change the breadth of their supply chains. This is up from 30% earlier in the month.
10 out of 12 global industries, including semiconductors, autos, and medical equipment, have shifted or plan to change supply chains. Nike and Ashley Furniture have reduced their exposure to China by turning to other southeastern Asian countries like Vietnam.
Commerce Secretary, Wilbur Ross says this makes sense, “Globalization has gotten out of control. It takes 200 suppliers in 43 countries on six continents to make an iPhone.”
For the medical sector- any change in supply chain diversification is a wait and see proposition. It’s fair to say there has never been this much global attention paid to the United States’ medical or pharmaceutical supply chains.
The Coronavirus pandemic has exposed our vulnerabilities, and many feel these problems have ratcheted themselves up to a national security risk.
Members of our military and defense department need critical medications, as much of the general public. The Department of Defense has no inside track to medicine or supplies sourced from China, exposing thousands of people to the vital medications that they need to live.
Michael Osterholm, an internationally recognized expert in infectious disease epidemiology, says that moving forward, we need to take a step back and plan for the next health crisis. “Think about the issue with Defense; we prepare all the time well in advance. We don’t build an aircraft carrier at the moment when we go into battle. We don’t do that in public health. So stockpiling 500 million of these N95’s would have been the difference between night and day.”
For More Information
If this crisis has you uncertain of the efficiencies in your supply chain, or if you just want better insights, contact Steve Palmer, Director of East Coast Operations, by email (firstname.lastname@example.org) or by phone (302.242.7778).