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Ukraine Invasion is the Latest Testament to Why Supply Chain Leaders Must Go Back to the Future

iStock 1339561354 - Global Banking | Finance

By Mark Dohnalek

Companies of all sizes have taken unprecedented measures to ease supply chain pressures. Enterprises are paying exorbitant fees for private charter, mid-size companies are building private fleets, and businesses everywhere are searching for solutions that, even six months ago, would have been off the table. But now, with Russia’s invasion of Ukraine, new supply chain pressures are rapidly emerging. (Industry leaders are predicting a 2-3x increase in ocean container costs to the tune of $30,000 per unit, with air freight spot rates due to climb 3-4x.)

With U.S. supply chain vulnerability to China unmasked early in the pandemic, this latest turn of events should once and for all stand, as a testament, to the need to strategically reconcile the tensions between localized and globalized production. But to successfully do so, supply chain leaders and policymakers must go back to the future: they must relearn seemingly forgotten lessons from the past while also looking forward to the technologies of tomorrow. Only in this way can we effectively mitigate the risks of unchecked globalization while also capitalizing on the benefits of globally diversified sourcing.

Looking to the Lessons of the Past

The idea of recovering American manufacturing might is hardly a new notion. Still, until this last year, there has been a lack of industry consensus and political will to drive adequate reinvestment in domestic production capability.

The loss of American manufacturing might have created economic gaps between sectors and geographies, polarized the labor market, created unnecessary antagonism between political parties, and weakened the U.S.’ position as a global competitor. While there is no strict return to our pre-globalization past, we must understand and learn from the consequences of decades of offshoring on supply chains and labor markets.

With the latest turn of events in Ukraine, there should no longer be any question that the push to rebuild domestic manufacturing capability is ideological, partisan, or regressive in nature. Instead, it is an impassioned plea to rebalance the books. Regardless of political persuasion, Americans have voiced their desire to reduce U.S. dependency on foreign trade and our vulnerability to the situation in which we currently find ourselves. This, however, requires understanding how U.S. supply chains can be rebuilt to act in concert rather than in competition with globalization. Only by reconciling these twin tensions can we fuel sustainable growth, neutralize supply chain issues, and increase U.S. global competitiveness.

Looking to the Technologies of Tomorrow

If necessity is the mother of invention, it makes sense that the leading trend in supply chain and logistics is that of digital evolution: industry-wide adoption of state-of-the-art technologies such as AI, IoT, blockchain, and cloud computing. Once a critical mass of adoption is reached, these technologies will prove to play a powerful role in addressing the chief vulnerabilities currently plaguing U.S. supply chains:

  • The obsolescence of legacy technology
  • Dependence on Asia-based manufacturing
  • Shortages of localized production, goods, and materials

By pinpointing opportunities for streamlining supply chain operations, eliminating inefficiencies, breaking through bottlenecks, and reducing the number of touchpoints and indirect costs, digital evolution will resolve and prevent the kind of crises we’ve been navigating for the last two years. Perhaps most importantly, it will significantly help to strengthen the U.S. position on the global stage.

It bears emphasizing that digital evolution is about much more than simply playing defense against supply chain disruption and shoring up the U.S. economy. Digital evolution is also a winning offensive strategy. A recent study from McKinsey & Co. found that companies in the industrial and manufacturing sectors that are leaders in digital evolution excel across multiple KPIs. These include efficiency, cost, revenue, responsiveness, customer experience, and environmental impact. Companies who drive digital evolution are 3-4x more likely to lead the market than those late to the game.

A New Synthesis

As of this writing, analysts are warning that because 90% of U.S. conductor-grade neon is sourced from Ukraine, it’s probable that chip shortages will worsen. This is a timely, if an unwelcome, reminder that digital evolution is not enough. To rebuild supply chains that are secure, efficient, and resilient, we must establish a new kind of conversation. This conversation must take place between the technologies of tomorrow and the lessons of the past to result in a new synthesis. One without the other is ultimately unsustainable.

Domestic manufacturing and globally diversified sourcing can work profitably hand in hand, but the terms of the conversation must be boldly re-envisioned. The next several years will reveal the degree to which we are prepared to successfully confront this critical challenge.

Author Bio:

Mark Dohnalek is President & CEO of Pivot International, a US-based global manufacturing, product development, engineering, and technology company with 17 offices across 3 continents. Under his strategic and purposeful leadership, Pivot International has expanded their innovative capabilities and global offerings in manufacturing, engineering, biometrics, security, industrial consumer, and medical product solutions to serve clients worldwide. He can be reached at [email protected]

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